Sibos 2022 | How did our expert Philip Costa Hibberd experience the event?

19-10-2022 | Philip Costa Hibberd | treasuryXL | LinkedIn |

 

We sent our expert Philip Costa Hibberd to the SIBOS conference to discover and explore the World’s Premier Financial Services event.

Last week, the SIBOS conference took place in Amsterdam. Sibos 2022 brought together more than 10,000 participants in Amsterdam and online, as this event returned in-person for the first time in three years.

Philip is delighted to share his experience with you. Happy reading!

 

What is Sibos?

The Sibos conference is an annual event organized by Swift that brings together leaders in the payments, banking, and financial technology industries. The conference provides a forum for attendees to discuss the latest trends and developments in the industry, but – as it turns out – it is mostly used as a venue where bankers meet other bankers with the occasional FinTech thrown in the mix.

During the 4 days of the 2022 edition, I learnt that little focus is given to the needs of the corporate treasurer. Throughout the conference, a few interesting recurring themes emerged nonetheless, which I’ll describe in the paragraphs that follow.

Purpose of the financial industry

Queen Maxima – acting as the “United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development” – kicked off the opening plenary by speaking about the importance of financial inclusion and access to banking services for all.

 

The first priority is to make sure we do no harm […] but we have a chance today of moving beyond doing no harm to actually doing good. So, beyond transaction volume and customer acquisition can we create the rails for transformative change to help users become more financially healthy?

 

Sadly the answer I heard from the bankers speaking on stage during the sessions that followed was not promising. “Maximising shareholder value” was still the dominating mantra… which – as experience teaches us – has seldom led the banking industry to “doing no harm”, let alone “doing good” in the past.

 

Banks vs FinTechs

A bit more hope for the industry “doing good” came from the voice of FinTechs on stage. As it turns out, a mantra based on “innovation and disruption” makes it easier to attract scarce resources (such as talent) and ironically deliver shareholder value as a consequence.

It was interesting to observe the evolution of the Bank-FinTech relationship. The change in how banks perceive FinTechs today compared to a few years ago was remarkable. Once seen as a threat, FinTechs are today considered an ally by banks.

 

When asked “Are FinTechs Friend or Foe?”, bankers gave answers as:

 

“Partnership with FinTechs is our main strategy”. 

“Partnership with FinTechs is crucial. They bring agility and they are a matter of survival for us”.

 

It was hardly a surprise then to learn on day 2 of the conference about BNP Paribas’ acquisition of Kantox, a leading fintech for automation of currency risk management. The relationship between banks and FinTechs will probably only get warmer and tighter from here… but only time will tell if that is good news for us.

 

Regulation-driven innovation

Besides FinTechs, another often cited source of innovation for banks was “the regulator”.

Singapore was the most cited example of successful regulator-driven innovation. Its central bank has been encouraging innovation in the financial sector with generous grants to adopt and develop digital solutions, AI technology, cybersecurity capabilities, etc. On top of that, it has developed an exceptionally accommodating regulatory framework. It has for example introduced a “regulatory sandbox” for FinTechs and banks to test their products and services in a live environment without them having to be concerned with compliance hurdles (at least for the delicate initial phases of innovation).

There are hopes that Singapore’s success will be taken as an example by other regulators across the globe, but the most basic expectation from the industry is for regulators to at least set guidelines to improve standardization across the market. As nicely put by Victor Penna, there is still a lot of work to be done:

 

“Can you imagine if I sent an email from Singapore to Belgium and they couldn’t process it? That is exactly what is happening today with payments. This has to change.”

 

One last often cited trend where regulators are expected to play a dominant role in innovations, are Central bank digital currencies – CBDC in short.

CBDC (Central bank digital currency)

CBDCs are digital currencies issued by central banks. Typically central banks have two kinds of liabilities:

  • Cash: takes a physical form and is available to the general public
  • Central bank deposits: which take a digital form but with limited access

CBDCs are a third form of liability that complements cash and central bank deposits: they take a digital form and are directly available to the general public.

More than 100 central banks are estimated to be working on their own projects. They are important in the context of innovating the financial sector because they have the potential to provide greater efficiency and transparency in financial transactions. Additionally, CBDCs could help to reduce the cost of financial services and increase access to financial services for underserved populations.

There is still little consensus today on what exactly the impact will be, not least because of the fragmentation of all the initiatives. For example, when it comes to the digital Euro project, the impact on corporate treasury payments is expected to be limited. The project is still in the validation phase, but the assumption is that even if/when the project were to move into the realization phase (decision expected in September 2023) usage will be limited by design with the introduction of low limits to the maximum balances which could be held (exact limits need to be defined, but think of a few thousand euros max).

 

Realtime banking and 24/7/365

Banks have invested a lot in the technological backbone needed to support open banking and instant payment requirements across the world and seem to be puzzled by the modest adoption. The ambition is to move away from batches, cut-off times, and end-of-day statements in favour of instant payments 24/7 and provide information-on-demand via APIs.

From a treasury perspective, this brings some challenges. Moving to APIs can be hard, especially if you have a fragmented ERP/TMS/Banking landscape. But the biggest challenge is probably the way that we organize our work and our processes. As jokingly put by Eddy Jacqmotte group treasurer at Borealis:

 

 “Instant Treasury is nice: but I don’t like the idea of instant treasury on Saturday and Sunday”.

AI and (big) data

The ever-decreasing cost of storage and processing information, combined with the ever-increasing flow and value of user data has transformed the “AI” and “(big) data” brothers from geeky kids in the corner to rockstars in the centre stage.

Besides the obvious use cases such as fraud detection, sanction screening, reconciliation, payment repair, etc. the new trend is to use AI to generate new tailored content and to feed it to users to measure their interest in a specific topic and nudge their behaviour. Instead of asking you directly if you are interested in a mortgage, the algorithm might casually inform you about the price per square meter of properties in the neighbourhood where you go for coffee every weekend. If you interact with the prompt, the algorithm will take notice and will keep on feeding you with “property-related” information, until you find yourself asking for a mortgage…or showing interest in something else that the bank can do for you.

Sounds sketchy? It might be, that’s why another trend in this area has been making its way to the foreground: Explainable AI.

Explainable AI is a form of AI that can provide understandable explanations for its predictions and decisions. This is important especially in the financial industry because it can help to build trust with customers and regulators and avoid (or at least make explicit and controllable) unwelcome biases.

For example, the Apple Card / Goldman Sachs scandal in 2019 could have been prevented if the algorithm used by Apple had been more transparent and accountable. According to researchers, the algorithm used by Apple was biased against women, resulting in lower credit limits for women than men. If the algorithm had been more explainable, the bias could have been discovered and corrected before the card was launched.

 

 

 

 

In essence: AI is powerful, but transparency is key. On that note, I have a confession to make: the previous paragraph was written by an AI and not by me…

 

 

 

 

 

 

 

Thanks for reading!

 

 

 

Philip Costa Hibberd

 

 

 

 

 

 

BNP Paribas signs an agreement for the acquisition of Kantox

17-10-2022 | treasuryXL | Kantox | LinkedIn |

treasuryXL congratulates highly valued partner Kantox with the announcement that BNP Paribas has signed an agreement to acquire the leading fintech for automation of currency risk management!

Source

Kantox, a leading fintech for automation of currency risk management, will accelerate its growth with the support of BNP Paribas and the strengths of its integrated business model. This acquisition builds on the initial strategic partnership between BNP Paribas and Kantox initiated in September 2019.

BNP Paribas is pleased to announce the signature of an agreement for the acquisition of Kantox, a leading fintech for the automation of currency risk management. Kantox’s software solution has managed to successfully re-bundle the Corporate FX workflow, offering a one-stop-shop, API-driven, plug-and-play solution which has emerged as a unique technology within the B2B cross-border payments sector. Kantox’s technology provides an unrivalled level of automation and sophistication to Corporates in setting up hedging strategies.

By leveraging its integrated business model, BNP Paribas is well-positioned to accelerate and extend Kantox’s offering to a wide range of Corporate clients across the globe.

The acquisition of Kantox is supported by the Global Markets business of BNP Paribas’ CIB division and the business centres of the Commercial, Personal and Banking Services (CPBS) division. The two divisions aim to deploy Kantox technology to large corporates as well as SMEs and Mid-Cap clients, capitalising on market knowledge and the local presence of the group.

 

This acquisition illustrates BNP Paribas’ Growth Technology Sustainability 2025 plan that sets out to accelerate the development of technological innovations, enhance customer experience and provide best-in-class capabilities to its clients.

Philippe Gelis, CEO and co-founder at Kantox: “We have been serving clients together since 2019 when our technology partnership started. During those 3 years, we spent a lot of time together in the field, getting the opportunity to understand that together we were stronger and able to bring more value to clients. It is the best of both worlds, the leading software company in the currency management automation category and the leading bank in Europe.”

Olivier Osty, Head of Global Markets, BNP Paribas CIB: “We are delighted to strengthen our partnership with Kantox, which brings to our clients a unique and innovative platform to automate their currency risk management. Corporate treasurers are currently navigating turbulent markets, and advanced technology can help mitigate some of the challenges, easing the burden of manual tasks and allowing them to focus on their core business.” 

Yann Gérardin, Chief Operating Officer, Head of BNP Paribas CIB: “The acquisition of Kantox presents a further illustration of our ability to establish long-term partnerships with fintechs in an ever-increasing range of areas. Supporting our clients in their international development and providing them with the most advanced technological solutions have always been our priority and are, as such key pillars of our GTS 2025 strategic plan.”

Thierry Laborde, Chief Operating Officer, Head of BNP Paribas CPBS: “This acquisition demonstrates how our distinctive model and integrated platform strategy are able to create value and develop business opportunities. Our leading positions with European companies of all sizes will enable Kantox to further accelerate its development while improving our customers’ experience.”

The acquisition is subject to regulatory approvals and is expected to complete in the coming months.

Eurofinance remains THE event for corporate treasurers | By Pieter de Kiewit

12-10-2022  treasuryXL | Pieter de Kiewit | Treasurer Search  LinkedIn

 

Throughout covid times the organizers of Eurofinance remained active and were able to create interesting web-based events. Still, general opinion in last weeks’ event in Vienna was that there is nothing like the live thing. The programme was packed with interesting content, the event floor with interesting companies and visitors.

By Pieter de Kiewit

Communication leading up to the event and the venue, the Wien Messe, radiated experience in events of this size. The numbers of representatives and visitors were impressive. Luckily, the venue is big enough to not nerve the visitors who have to get used to large crowds again.

The programme was spread out over the very large room for plenary meetings, five large rooms for parallel session with presentations & panel discussions and “open rooms” on the trade floor. Key note speakers like Guy Verhofstadt and Goran Carstedt were able to enthuse with stories beyond the scope of treasury, others covered topics about treasury technology, both practical & visionary and treasury organization, for example about my personal favourite, the treasury labour market.

For many, the trade floor was easily as interesting as the content. Visitors gained market information, for example preparing for a TMS selection and implementation. Also reuniting with old treasury friends and getting to know new ones, was relatively easy during well catered breaks. Some of the visitors created new legends during the Thursday night afterparty that is not covered by this looking-back-blog.

As treasuryXL ambassador I visited the various partners of the platform present and received positive feedback on the event. So Cobase, Kyriba, TIS, CashForce, Nomentia, Refinitiv and CashAnalytics, we hope to see you again in Barcelona again and welcome a number of new ones.

 

Hasta luego,

 

 

 

 

 

 

Thanks for reading!

Pieter de Kiewit

 

 

5 Steps to Automate (and Optimize) Your FX Risk Management Program

03-10-2022 | treasuryXL | Kyriba | LinkedIn |

Companies of all sizes and industries with FX exposures are being impacted by global trade complexities. New dynamics are putting CFOs and treasurers’ FX strategies and their ability to explain results to the test. Automating an FX management program provides numerous advantages. Diminishing the need for manual involvement frees corporate risk, treasury, finance, and accounting teams from sourcing information manually from multiple systems, compiling and uploading it into spreadsheets and finally attempting to put all of this into a management report that is timely.

By Brian Blihovde
 Senior Director, Product Marketing

Source

Companies of all sizes and industries with foreign currency exposures are being impacted by a number of global trade complexities. For many, supply chain disruptions, interest rate, and price index increases are taking a toll on profitability. For many others, the impact from increased foreign currency headwinds is becoming the glaring reality unveiling weaknesses in FX risk management programs. CFOs are having a more challenging time predicting income statement impacts in both directions: favorable and adverse; neither direction is good, particularly for publicly traded enterprises. New dynamics are putting CFOs and treasurers’ FX strategies and the ability to explain results, to the test. Using leading practices supported by leading solutions helps CFOs and finance leaders overcome these challenges of reliance upon manual, spreadsheet-based workflows.

Whether your organization is starting, advancing, or reassessing your individual FX risk programs, there are levels of benefits, value and success metrics tied to how exposed and how uncertain your levels of fx risk management are. For instance, are you able to identify exposures, aggregate and categorize them? Are those balances generated from automated journal entries or is there a manual component? Across your systems, how well are market exchange rates used and applied across the ERP, GL, procurement, billing, or FP&A modules? How often? Finally, and probably one of the most overlooked attributes, how long does it take and the number of staff who participate in attempting to gain access to even a partial picture of your FX risk? How efficient is the draw of FX data? Ultimately much effort is put into converting that data into information and what do the lags in the timeliness of the information you, as CFO are using to make decisions? The answer lies in a company’s ability to invest in technology and process transformation that can stem from that investment.

Automating the FX Management Process

Diminishing the need for manual involvement or onerous workarounds, frees corporate risk, treasury, finance and accounting teams from sourcing information manually from multiple systems, compiling and uploading into spreadsheets and finally attempting to put all of this into a management report that is timely. The giving them more time to analyze information, track exposure trends and proactively seek out other opportunities to eliminate risk. Ultimately, automation transforms how treasury professionals are perceived within an organization, allowing them to be seen as a key resource in strategic planning. The implementation of an FX management program provides numerous advantages, but the three high-level areas for the entire finance organization and business divisions exist:

  1. A complete picture – Gain a clear understanding of how currency is impacting the entire organization and create reports to analyze exposures in real time
  2. Maximum control of the business – Gain confidence in data quality and exposure accuracy to be able to detect underlying details that are not obvious in manual spreadsheet environments
  3. Informed business decisions – Incorporate historical business cycles, trends and the business insights gained from having detailed data to make better hedging decisions and drive better FX management results
  4. Growth and Scalability / Integrating M&A – business expansion, in the form of acquiring new business units and attempting to run consolidations on them is hard enough. Automation through leading technology can help take advantage of acquisitions and eliminate delays in synchronization from outlier processes or legacy mismatches in risk policy

FX Risk Management Automation: Implications for your Organization

The use of technology does not merely indicate that the application of technology will result in system integration and process automation. Yes, this is one of the starting blocks of taking good processes and creating time-saving opportunities to generate better decision-making with cost-savings optimization. One focus of FX Hedge Management optimization will involve operational cost savings, but another focus should be on taking more of a role in assessing overall strategic success of your hedging through currency pair correlated VaR analyses and scenario analyses. Having more analytical power from technology automation can speed access to better information on your overall cost of hedging foreign currency risk.

Evaluating your FX Risk Program Operations

When evaluating your FX management programs, organizations should consider which of the following aspects of their FX workflow requires better efficiency and effectiveness:

  • Data collection automation can eliminate manual time spent on the collection of exposure data and enable teams make better decisions based on the most accurate information
  • Calculation and analysis of exposures automatically determines the impacts of rate changes, identify impacts that surpass materiality thresholds, and pinpoint accounting or posting issues
  • Hedging and trade preparation processes are pre-proposed from exposure information to ensure corporate decision strategy or policy application and trades are automatically prepared for submission following hedge approval
  • Compliance automation enables the standardization of compliance practices and ensures that documentation contains historical audit trails for reporting purposes
  • End-to-end workflow automation eliminates manual processes and human error for an improvement in both efficiency and security

Expanding Analytical Capabilities

Technology solutions should undergo assessment for various capabilities that are part of leading analytical aspects of the FX Risk program. For instance, portfolio VaR analyses can help companies create portfolio views or dive into targeted gross/net exposures while considering the cost of a hedge across specific currency pairs, portfolios. Automation for running simulations helps determine top hedging scenarios that your risk managers can analyze to determine what currency pairs to hedge and what the resulting net exposure and portfolio value at risk will be. Access to automated dashboards and FX business intelligence gives your treasury and finance leaders the ability to Identify strategies to reduce costs and improve the efficiency of your exposure management and hedging programs across specific parameters and filters. If you cannot choose various exposures, legal entity slices, or currency selections, you are not optimally running an automated or efficient FX program. Finally, FX trade desk workflow automation and confirmation capabilities for the back-office is often under-estimated as entering and executing FX trades is part of operational or physical workflows attributed to the program. However, the implications to generating entries, integration to trading or confirmation platforms makes this an integral part of FX Risk processes.

5 Steps to Create an FX Automation Roadmap

The goal is the create a plan and roadmap to optimize and transform the way your finance organization collects, analyzes, aggregates, and mitigates risk from foreign currency exposures. One suggested approach is to work with FX Advisors to help you understand where you are and how to get there. As always, having a plan, success measures tied back to value drivers helps programs succeed.

FX Improvement Steps Objectives, Guidance
1.
Identify Systems, Sources of Exposures
Often, there are a wide array and extensive network of foreign currency denominated transactions; and extremely unlikely to be creating offsets that could qualify as natural hedges. The inventory of systems in an extensive matrix is a very good starting point.
2.
Assess Integrity of your FX data, GL accounts, & source postings
Once the system landscape is understood, how well are the controls on your ERPs, ancillary systems and manual transactions coming from sub-ledgers? Are your financial statements subject to shifts from erroneous transactional impacts?
3.
Select and deploy technology targeting automation
Consolidating technology platforms into one risk management platform, allows finance organizations to save significant, material cost amounts and increase profitability from merely being accurate in their hedging activities. Fully automating your FX management program with technology, which entails modernizing data collection, exposure consolidation, calculation and analysis, and hedging recommendations, ensures an organization is operating in step with current FX best practices.
4.
Target a full, end to end solution
Your technology solution should provide for:
  • direct ERP data extraction and aggregation
  • exposure and risk analysis generation
  • automated risk transfer
  • VaR correlation analytics and scenario analyses
  • trade execution connectivity to banking portals and trading platforms using state-of-the-art, highly secure SaaS solutions
5.
Customizable, Flexible Business Intelligence
Reporting and dashboards create relevant and valued analytics at your fingertips with real-time speed and automation.

Kyriba’s FX Advisory Services professionals give you leading practice advice and guidance in identifying, assessing, measuring, and implementing positive FX Risk Management results across your people, processes and systems. Learn how to improve and transform your FX Risk Management profile into more predictable and effective hedging results

Learn more about Kyriba’s leading FX Risk Management solution and our FX Advisory Team today. Reach out to our team of FX Risk Management professionals at: [email protected]

Click here to view all blogs by Kyriba

LIVE SESSION | My Treasury Career Development & How the Register Treasurer education contributed

29-09-2022  treasuryXL | Treasurer Search | LinkedIn

 

Are you thinking about how you can shape your treasury career and in need for inspiration? There are plenty of education opportunities, but in what education will you invest?

 

 

You are invited to join our next Live Session. Registration is Now Open for:

𝐌𝐲 𝐭𝐫𝐞𝐚𝐬𝐮𝐫𝐲 𝐜𝐚𝐫𝐞𝐞𝐫 𝐝𝐞𝐯𝐞𝐥𝐨𝐩𝐦𝐞𝐧𝐭 & 𝐇𝐨𝐰 𝐭𝐡𝐞 𝐑𝐞𝐠𝐢𝐬𝐭𝐞𝐫 𝐓𝐫𝐞𝐚𝐬𝐮𝐫𝐞𝐫 𝐄𝐝𝐮𝐜𝐚𝐭𝐢𝐨𝐧 𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐞𝐝

There is no standard career path for treasurers but one can learn from the choices and developments of the successful ones.

In this webinar two graduated Register Treasurers will share their stories:

  • 🌟 Jurgen Wessel RT is interim Head of Treasury of SHV and has experience in a variety of international companies at HQ and treasury hub level.
  • 🌟 Frank van der Hoeven RT van der Hoeven used to be a banker, moved to the corporate side and currently is Treasury Manager at IMCD, well-known for many successful acquisition and integration processes.

They will tell you about how they moved between various stations and will pay special attention to the added value of their post academic degree: The Treasury Management and Corporate Finance programme (RT Programme) at the Vrije Universiteit Amsterdam (VU Amsterdam).

 

REGISTER HERE

 

Everyone is welcome to this webinar. This webinar is extra relevant for those who consider joining the RT programme.

🌟Moderator: Pieter de Kiewit of Treasurer Search

🌟Duration: 45 minutes

 

We can’t wait to welcome you next week!

Best regards,

 

 

Kendra Keydeniers

Director, Community & Partners

 

 

 

 

Download Kantox’s Budget Hedging Report

28-09-2022 | treasuryXL | Kantox | LinkedIn |

Are you a CFO or Treasurer drafting your upcoming budget? Find out how to set, defend and outperform your budget rate in Kantox’s exclusive new report.

Based on real industry insights, you can learn:

🔹 The best way to set a budget rate

🔹 How to delay hedge execution while reducing forecast risk

🔹 How to improve your budgeted profit margins

🔹 Top solutions to automate time-consuming processes

👉 Get your report here

CurrencyCast Season 3 is live!

27-09-2022 | treasuryXL | Kantox | LinkedIn |

Season 3 of Kantox’s #CurrencyCast is live! In the first episode, they examine companies that manage their FX risk via spreadsheets and how they may be exposing their business to a whole other type of danger, spreadsheet risk.

Agustin Mackinlay breaks down the dangers and pitfalls of spreadsheet risk and how it can slowly erode your FX risk management processes.

He walks us through:

🔹 What is spreadsheet risk?

🔹 How to recognise this type of risk

🔹 Where it can arise in the currency management process

🔹 How to manage and eliminate spreadsheet risk

It’s an FX masterclass, all in under 10 minutes.

👉 Watch the episode and read Kantox’s key takeaways here

What’s the best hedging program for your business? Take Kantox’s 1-minute assessment

26-09-2022 | treasuryXL | Kantox | LinkedIn |

Have you seen Kantox’s Currency Management Toolkit?

With rising interest rates, increasing inflation and today’s highly volatile environment, it’s more important than ever for your company to be protected against currency risk.

Take Kantox’s 1-minute assessment and discover the best FX hedging program for your business. You’ll find out which program can most effectively handle your FX needs, help you achieve your goals, and keep you ahead of the curve.

👉 Get started here

Where did the treasury applicants go? | By Pieter de Kiewit

19-09-2022  treasuryXL | Pieter de Kiewit | Treasurer Search  LinkedIn

As treasury recruiters, we should know enough about corporate treasury to do intakes and screen candidates. Also, we should know the latest about what’s happening in the field of recruitment and so we read the publications of Geert-Jan Waasdorp of The Intelligence Group. I would like to share his latest, very interesting article and build the treasury connection.

By Pieter de Kiewit

Labour market pressures are not equally distributed among all employers.

I left a link if you want to read the full article but this is roughly what he says. There is a huge growth in people working since before covid. In parallel, there is a huge decline in active applicants. This pressure in the labour market is not evenly distributed among all employers. The ones that can find new employees can do so because of a strong employer brand and increased investments in own or external recruitment. Also, they are willing to decide quick and offer a better package.

So what does this mean if we project these findings on the corporate treasury labour market? My personal observation is that treasury staff is, on average, less driven by the company brand and more by the job content than candidates from other job types. We learned this working for clients like Tesla and Nike. Employer branding specifically towards treasurers would also be hard, I cannot envision a corporate recruiter promoting his manufacturing company at Eurofinance.

How to adapt?

The obvious low-hanging fruit is that the hiring manager, already at the start of the process, has to organise and choose a mindset in the following: being able to decide quickly, from fewer candidates than before, and offering more than the old standard. Even highly skilled recruiters sometimes underestimate these aspects over time.

The judgement if the internal recruitment team is equipped to tackle the search or whether an external one should do the job – we, Treasurer Search – I will not elaborate on here. What I do want to mention is another obvious source that can be opened. For some of us that are considered a paradigm shift: bringing treasury talent in from abroad, from within the EU or even sponsoring a work permit. I am aware that some of us consider this topic highly political. What I can tell, both from our own organisation, as well as from successful placements with our clients, that this can be a very successful solution. In the Dutch labour market already the majority of candidates placed by us is non-Dutch. This is not a plea to open the borders and not be critical. Regretfully we have examples where this solution did not lead to success as coming to The Netherlands can be hard for the new employee. But also locally found candidates can fail in their new job.

My conclusion is that indeed, the world is different, as is the labour market. And given current demographic developments I do not expect a shift back. Luckily there are solutions but we will have to accept the consequences and cannot lean back. Those that do will shrink and go extinct.

Good luck in your search,

Pieter

 

 

 

 

 

 

 

Thanks for reading!

Pieter de Kiewit

Could Stablecoins Drive Payment Innovation?

12-09-2022 | treasuryXL | Kyriba | LinkedIn |

Despite the current market volatility, cryptocurrencies(1) are slowly seeping into everyday transactions,(2) driven largely by small businesses. There are an estimated tens of thousands of businesses that are accepting cryptocurrencies as payments roughly representing about 0.01% of businesses worldwide.

By Rishi Munjal, Vice President Product Strategy, Payments, Kyriba

Source

Could Stablecoins Drive Payment Innovation?

Large corporations have stayed away from cryptocurrencies with a few exceptions(3) where the use is limited to holding cryptocurrencies in treasury. The treatment of cryptocurrencies as an “indefinite-lived intangible asset”(4) poses an accounting risk, forcing companies to write down(5) the value of these assets when their value plummets.

Global Cryptocurrency Acceptance Chart

The level of adoption is by no means impressive. Meanwhile, challenges with high-fees, scalability and volatility will continue to limit broad adoption of cryptocurrencies as a form of payment. Such limitations pose an important question for CFOs and treasurers: Are cryptocurrencies worth paying attention to?

Stablecoins and the Future of Payments

The answer is yes, given the potential for innovations that can shape the future of payments for corporates and merchants alike. This is especially true for Stablecoins(6), as they present an opportunity to lower fees, reduce barriers and drive better services like instant cross-border payments. The promise hinges on a stablecoin’s ability to maintain its peg to a specified asset (typically U.S. dollars), or a pool or basket of assets, and provide perceived stability when compared to the high volatility of unbacked crypto-assets.

Since the launch of BitUSD in 2014 on the BitShare(7) blockchain, stablecoins have evolved into public and private stablecoins. Public stablecoins exist in two forms. Reserve-backed or custodial stablecoins are backed by cash-equivalent reserves such as deposits, Treasury bills and commercial paper. These are issued by intermediaries who serve as the custodians of the cash equivalent assets and offer a 1-for-1 redemption of their stablecoin liabilities for the asset it is pegged against.

Algorithmic stablecoins (e.g.,UST) rely on mechanisms other than cash-equivalent reserves to stabilize their price. The peg to a specified asset is achieved by overcollateralized crypto and/or smart contracts that defend the peg by automatically buying or selling the stablecoin. These public stablecoins provide liquidity across the thousands of cryptocurrencies currently in the market. The private institutional stablecoins use tokenized deposits held by the bank for efficiently providing internal liquidity or liquidity for the bank’s wholesale clients between accounts held at the same bank. These coins (e.g., JP Coin) form a closed loop payment network similar to the ones offered by wallet providers like PayPal.

Stablecoin Guidance

Stablecoins have had their share of troubles(8) and collapses(9) in their short history. These risks were well understood by regulatory agencies. However, the explosive growth in cryptocurrencies has made it difficult if not impossible for regulators(10) to keep up. Outside of the ad-hoc enforcement actions against crypto firms by the SEC(11), the industry continues to operate largely outside of regulations. Given the complexity of the crypto ecosystem, it is pragmatic for regulators to start with Stablecoins as they are relatively simpler and have real applications. It is therefore not a surprise, that despite the market turmoil, New York became the first U.S. state to issue guidance for Stablecoin issuers.

The Virtual Currency Guidance(12) provided by the New York Department of Financial Services (DFS) outlines redeemability, reserve and attestation requirements for entities issuing U.S. dollar-backed stablecoins. The industry has been waiting for long-overdue commonsense regulations for reducing systemic risk and providing a fertile ground for stablecoin issuers and other fintechs to drive broad innovation in financial services and payments.

Table 1: Key points from The Virtual Currency Guidance provided by the New York DFS

Backing and Redeemability
  • Fully backed by safe reserve assets like T-Bills, Notes and Bonds
  • Market value of the reserve is at least equal to the nominal value of all outstanding units of the stablecoin as of the end of each business day
Reserve
  • Segregation of reserves from the proprietary assets of the issuing entity
  • Must be held in custody with U.S. state or federally chartered depository institutions and/or asset custodians.
Attestation
  • American Institute of Certified Public Accountants (“AICPA”) standard
  • Examination of management’s assertions at least once per month by an independent Certified Public Accountant (“CPA”) licensed in the US

Kyriba has taken a forward looking posture in this space, for example via partnership with Copper to offer corporate treasury direct access to Copper’s award winning digital asset investment platform, and the ability to manage liquidity across fiat, crypto and money market funds.

While the specific time-horizon on when a trend would become meaningful is not easy to predict, CFOs and treasurers can preserve optionality by partnering with providers that stay at the forefront of payment market trends.

More to Read:

  1. API: Copper Integration
  2. Blog: The Top 5 Trends for CFOs in 2022
  3. Blog: Digital Currencies: Not Ready for Corporate Treasury

References

(1) FSB defines all private sector digital assets that depend primarily on cryptography and distributed ledger or similar technology as crypto-assets and not currencies; for this article the two terms are being used interchangeably.
(2) Map of Cryptocurrency ATMs and Merchants, Coinmap.org
(3) Public companies holding bitcoin, Coingecko.com
(4) Accounting for and auditing of digital assets
(5) MicroStrategy Posts a Loss After Taking Bitcoin Impairment, Bloomberg 2/22
(6) Financial Stability Board, Crypto-assets and Global “Stablecoins”
(7) Whitepaper: BitShares – A peer-to-peer polymorphic Digital Asset Exchange
(8) Terra Luna timeline; TerraLuna UST collapse – What Happened?
(9) CFTC fines Tether and Bitfinex for misleading claims; Panics and Death Spirals: A history of- failed stablecoins
(10) Stablecoin risks and potential regulations, BIS Working Paper 11/2020
(11) Crypto Assets and Cyber Enforcement Actions, notes seven enforcement action for the period Jan – April 2022
(12) Guidance on issuance of US Dollar backed stablecoins, New York Department of Financial Services, Jun 2022

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