Introduction of two Community Ambassadors: Francois and Marco

| 11-07-2019 | by Kendra Keydeniers |

treasuryXL is happy to announce a close cooperation with François De Witte and Marco Lassche. As community ambassadors they will contribute to further raise the level of the treasury function, both for the inner circle: corporate treasurers, bankers & consultants, as well for the non-treasurers.

François De Witte has worked over 30 years in banking and is founder of FDW Consult, specialized in finance and treasury consulting. With his broad treasury career, his key areas of expertise are International Payments & Cash management, treasury, working capital management, financing & advisory, open banking, digital banking and IT strategy.

“I am eager to share my large experience in treasury, banking and innovation with the TreasuryXL community” said François.

François will bring added value to the community with its innovative and broad corporate finance and treasury experience. He operates from Belgium.

 

 

Marco Lassche started his ‘World of Treasury’ career in 2002 and has become a professional in  banking, corporate treasury both in large, international corporates as well as mid-sized

companies. In 2018 Marco founded ‘Bedrijfskostenexpert’, a Dutch company specialized in Cost Reduction, working on a No Cure, No Pay

base. Marco his core expertise’s are Cash management, Funding, Risk Management, Setup in-house bank and cost savings.

“I am looking forward being part of this growing treasury community. Let’s take treasuryXL together to the next level as a leading portal for treasurers and non-treasurers.” said Marco

 

Marco will give the community an energy boost and he can’t wait to share his knowledge to enhance the treasuryXL platform. He operates from The Netherlands.

The club of treasuryXL ambassadors now exists out of three: François De Witte, Marco Lassche and Pieter de Kiewit – owner of Treasurer Search.

 

 

“Large corporates invest substantially in continuous improvement and innovation of their treasury function. Mid-sized corporates often miss opportunities in, and pay too much for basic treasury. I think there is a lot to be gained in increasing the acceptance of corporate treasury and its’ development. I would like to contribute.” Said Pieter de Kiewit, owner at Treasurer Search.

 

 

Keep an eye out for these treasuryXL ambassadors, they will deliver useful and inspiring topics throughout the year.

About treasuryXL
treasuryXL is built by treasurers to serve treasurers and non-treasurers. treasuryXL offers:

  • professionals the chance to publish their expertise, opinions, success stories, distribute these and stimulate dialogue.
  • a labour market platform by creating an overview of vacancies, events and treasury education.
  • a variety of services in collaboration with flex treasurers.
  • a broad network of highly valued partners and experts.

 

 

Kendra Keydeniers
Community & Partner Manager at treasuryXL

 

Recap conference Toekomst Betalingsverkeer

| 13-5-2019 | François de Witte | treasuryXL |

Each year in April, the Conference “Toekomst Betalingsverkeer” is organized by Euroforum in Amsterdam. This is a major event in the Payment Business, which gathers over 300 professionals. Several themes relating to Innovations on Payments came up. To start with Patrick Coppens presented an inspirational keynote speech about the Payments Innovations in China, who on this moment clearly is the trendsetter in this area.

The program consisted of several keynote speeches and round tables, where different sub-themes were discussed in small groups. I chaired two of these round table sessions on the topic of: “The View of the Treasurer on Payment Transactions”. In this article I will discuss the takeaways from the round tables I chaired and other presentations I followed at the conference.

To start of my round table sessions, I showed a picture that shows my view on factors affecting the payment landscape:

We also had a lively discussion about this topic where, amongst others, the following points came up:

  • If we move to a 365/7/24 payment systems, all the other components of the economy will have to follow. Real time payments will require “Real Time Treasury”: Will treasurers also have to work on a 365/7/24 basis? According to me, this will not be the case in all the industries, but in certain sectors, like Retail and e-Commerce, this might be the case, or at least treasurers will have to be “on call”.
  • Large corporates will move slower to open banking then Retail and SME, but the shift towards Open Banking and Real Time Payments will also affect them.
  • Beside the traditional TMS players and middleware providers, we will also see an increase in FinTech’s coming up with smart solutions for the SME and Midcaps. They will challenge the incumbent players with more flexible and lower priced solutions. The challenge for them will be to get the trust of the large corporates, which might not be willing to entrust their high volume and value payments to smaller FinTech’s.
  • Currently SMEs sometimes complain about the solutions of the banks. Banks must come up with smarter solutions for the SME, because one day they might become midcaps and corporates.
  • Corporates are interested in the solutions, and do not look through to the components. It is like when you go for an operation to the surgeon: you do not expect him to check the origin of the operation table. Trust will remain important.

We also had an interesting presentation of Innopay, who made a mapping of the different banks in the Open Banking ecosystem. Amongst the masters in openness, we see challenger banks, Bunq, Fidor and Starling bank, the large Scandinavian banks SEB and DNB, and some global banks (Citi and BBVA). The large Dutch banks (ING, RABO, ABN AMRO) are leaders in experience but have currently still a more limited API scope.

Furthermore, there were presentations highlighting the increasing trend of “Tokenisation”. Tokenization is a process of replacing sensitive data with non-sensitive data. In the payments industry, it is used to safeguard a card’s PAN (Primary Account Number) by replacing it with a unique string of numbers. These tokens can then be passed through the internet or the various wireless networks needed to process the payment without actual bank details being exposed. These will provide some benefits such as:

  • Cost savings: Tokenization takes away the burden of managing cardholder data storage in a secured way, hence reducing the costs involved with meeting and monitoring Payment Card Industry (PCI) compliance.
  • Increased security: If fraudsters manage to steal tokenized data, they cannot use the stolen tokens to pay online since they are unable to link the token to payment information stored securely by the payment partner.
  • Improved user-experience: Tokenization enables merchants to offer their clients the possibility to save their payment details it in a secure manner, so that the next time they make a purchase they do not need to re-enter their payment data. One-click payments significantly increase conversion at the checkout page through streamlining the payment process for shopper.

I also attended the workshop on SEPA Instant Credit Transfers (SCT Inst), where the Netherlands started in Q1 2019 a controlled roll-out.  According to the EPC (European Payment Council) end-April 2019 already 50% of European PSPs (Payment Service Providers support the SCT Inst scheme. The EPC expects that a critical mass of SCT Inst scheme participants will be reached by the end of 2020, particularly in the euro area. However, currently instant payments remain mostly a local initiative, and it will take time to reach a full adoption.

These are my takeaways from the Conference “Toekomst van Betalingsverkeer”. I’’m curious to hear your thoughts about the developments in the world of payment transactions and invite you to discuss further in the comment section.

François de Witte

Founder & Senior Consultant at FDW Consult

Managing Director

CFO at SafeTrade Holding S.A.

 

Trusted Payments

| 25-2-2019 | François de Witte | treasuryXL |

In any business transaction, there are risks. The Buyer wants to be sure to receive the goods or services before he makes the payment. On the other hand, the Seller wants to be sure to have his money before he releases the goods or deliver the services. The risks increase when the Buyer and the Seller are not within the same country.

In order to bridge this gap, for large overseas cross border transactions, the banks have developed specific services, such as the documentary credit, the documentary collection and the bank guarantees. Whilst these instruments prove to be reliable, they are quite expensive and paper-based, and hence are not suited for transactions of lower amounts or with small margins.

In my current company, SafeTrade Holdings, which deliver services linked to the domestic and cross-border sale of used vehicles, we were confronted with this problem, in particular for the cross-border sales of used vehicles.

At the start, the parties – who do not know each other – do not trust each other. The Seller wants to make sure to get the cash payment at the end of the sale. The Buyer wishes to avoid a risky cash transfer and ensure that the vehicle matches his expectations and that the payment will only be released once the car has been delivered.

Safe Trade has been looking for an innovative service aimed at ensuring payment security. We have discussed with various providers in the market and have found one smart solution, the trusted payment, developed by Digiteal, a FinTech which is also a Payment Institution recognized by the National Bank of Belgium.

How does it work

The trusted payment aims to establish a relationship of trust between two parties carrying out a financial transaction within the framework of a common project (used vehicle purchase-sale, real estate operation, etc.).

The process is initiated by the Seller or an Intermediary who will invite the Buyer to transfer the cash to a trusted account (segregated account), which can be compared to an electronic safe. The money can only be released once both Buyer and Seller confirm the success of the operation to release the money.

The stages of the transaction are the following:

  1. Account creation by the Buyer and the Seller. The Intermediary creates via the Digiteal application a request inviting the Buyer to pay the sale price in the trusted account. The Intermediary will bear the transaction cost.
  2. The Buyer pays the amount of the sales price to the trusted account. The Seller and the Intermediary are notified as soon as the money has arrived on Digiteal’s segregated account.
  3. The Seller, the Intermediary and the Buyer are ready for the exchange. The Buyer verifies the condition and conformity of the vehicle. The Buyer and the Seller validate the transaction through the Digiteal application
  4. Once validated, the sale price is released from Digiteal’s segregated account and transferred to the bank account of the Seller and to the one of the intermediary. The Seller receives the confirmation of the release of the funds in his favour and the money will be on his account within 2 working days at the latest.
  5. The Buyer leaves with the car.

Figure: Trusted Payment with split:

Benefits of the solution and next steps

The main benefits of the trusted payment solution are that it secures a sale transaction. Other benefits include:

  • The fact the all processes are digital and can be processed on an intuitive mobile application
  • There is a full KYC, but this is handled in a user-friendly way
  • The trusted payment supports the split billing
  • The amount to be released to the Seller can be amended.
  • The pricing is competitive

The solution will be extended to other goods and services, where we are currently developing new use cases. We are also examining the possibility to provide alternatives to replace the signing process leading to the release of the funds. One could imagine that at the start of the transaction, the Buyer and the Seller agree on a specific set of documents which would trigger the release of the money through a Smart Contract. This could avoid litigation between the Buyer and the Seller.

François de Witte – Founder & Senior Consultant at FDW Consult; Managing Director and CFO at SafeTrade Holding S.A.

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The purpose of payment transfers

| 13-11-2018 | François de Witte | TreasuryXL |

1. Purpose of payments

The payment is the act of paying money to someone or of being paid. Payment transactions (payables, disbursements) can traditionally be split along the way the way the money is transmitted. The most important transmission means are:

  • The physical cash
  • The bank transfer and its variances
  • The card payments.

We have also observed in the last years new payment forms coming up, such as the telecom payments, the mobile payments, e-wallets and the cryptocurrency payments,

Bank transfers (and its variances) can traditionally be split in:

  • Domestic transfers: payments within a country, with the currency of the country
  • Cross-border transfers: payments outside the country or using a foreign currency

In this first article on payments, we will focus on the domestic bank transfers, including the current types payments, their advantages and the attention points, and some other concepts.

2. Domestic Transfers

2.1. Bank or Credit Transfer:

If A needs to pay money to B, then he will send a payment order to his bank (ordering bank), who will in turn debits the account of company A and sends the payment order to bank of the beneficiary (B’s Bank) through the clearing, asking to B’s bank to credit the beneficiary’s account.

The following drawing illustrates the flows:

2.2 Clearing:

Clearing is the system, by which an organization (the clearing house) acts as an intermediary in a transaction, to process reconcile orders between paying and receiving parties. Clearing houses provides smoother and more efficient payment markets as parties can make transfers to the clearing house rather than to each individual party with to whom they pay or from which they receive payments.

Within payments we have the difference between the gross and the net settlement:

  • Net settlement (also known under the name ACH – Automated Clearing House): This is the traditional Approach, whereby the amounts to be paid and received are netted. After agreed upon clearing cycles, the clearing house will pay a net amount to each of the participants, offsetting incoming and outgoing payments. The advantage of this clearing is that it is processed in batch payments and is less expensive. The drawback is that the finality of the payment is only at end of “clearing period”, and that it creates intra-day exposures.
    Examples: UK cheque clearing, BACS, ACH in USA, EBA Step 2 and STET for SEPA payments
  • Gross settlement (also known under the name RTGS – Real Time Gross Settlement): Each payment settles singly and bilaterally across accounts at the settlement bank, usually the central bank. The advantage of this method is that it is more rapid and eliminates settlement risk. However, it is more expensive than the ACH clearing, and hence will be used more for high value and treasury payments.
    Examples: Fedwire in the USA, CHATS in Hong Kong, TARGET in Europe, CHAPS in the UK, DEBES in Denmark, RIX in Sweden and SIX in Switzerland

 Illustration of the RTGS system:

 

2.3 Standing order (also called “recurrent payment”):

This a preauthorised payment under which an account holder instructs his bank to pay on a regular basis a fixed amount from his account to a defined beneficiary. Standing orders are used typically for recurring, fixed-amount expenses (e.g. rental payments, loan or mortgage instalments). They are cancellable at the accountholder’s request.

2.4 Direct debit: Direct Debit:

This is another type of preauthorised payment under which an account holder authorizes his bank to accept debit instructions on his account towards a defined account of a defined creditor. A direct debit is based upon a mandate which is held either by the bank of the debtor or by the creditor. Circumstances in which the funds are drawn as well as dates and amounts are agreed upon between the payee and payer.

This type of payments is typically used for recurrent payments with fluctuating amounts, such as utilities, phone, insurance, credit cards, etc. The payer can cancel the authorization for a direct debit at any time. In addition, several legislations foresee refund periods, enabling the account holder to ask a refund of the amount debited from his account (in the EU for authorized direct debits 8 weeks and for unauthorized direct debits 13 months).

2.5 Urgent versus non urgent-payments:

Most payments are processed as “non-urgent”, enabling the instructing bank to process the payment in batches through the ACH clearing and to take some float. However, for time critical payments, the instructing party can as to his bank to treat the payment order as “urgent”. Urgent payments are usually cleared through the RTGS clearing. If the ordering party respects the cut-off time of his bank (see down below), for domestic payments, the beneficiary is credited the same day with no float. Banks usually charge a higher payment commission for urgent payments.

2.6 Instant credit transfers:

Are a variance of the urgent bank transfer, whereby the money is made available within seconds on the account of the recipient, 24 hours a day, 365 days a year. In some countries, this is already possible.

Example: SEPA Credit Transfer Instant, Faster Payments Service in the UK, The RTP system which will be launched early 2019 in the US.

3. Some other concepts:

Settlement date is the date on which funds become unavailable for the paying party,  or available to the beneficiary party.

Value dating: applying a certain value date on a transaction:

  • Forward value dating (of Future dating): is the value dating at a moment which occurs after the date that the bank is notified of the transaction
  • Back value dating: is value dating which is retroactive, i.e. prior to the moment of the effective transaction.

Float: the “Bank Float” is the time that elapses between the moment that the funds are unavailable funds for the payer and the moment that the funds available to the beneficiary.

Cut-off time for payments: the point in time before which electronic payments, such as a RTGS or ACH payment, must be submitted to a processing bank for entry into the interbank clearing system. If the payment order is submitted thereafter, it will be executed the next day. The cut-off time is a function of the cut-off time of the clearing system and of the processing time of the ordering bank. In Europe, most banks foresee cut-off times around 15 p.m. for processing ACH or RTGS orders.

4. Some statistics and concluding remarks:

Each year, Cap Gemini and BNP Paribas publish a survey with interesting statistics about payment methods in the world. In their 2018 survey they point out that whilst credit transfers and direct debits remains important in Europe (46 % of the non-cash payment volumes), we see that card payments are becoming more and more important (50 % of the non-cash payment volumes in 2016).

Source: Cap Gemini and BNP World Payments Report 2018

In my next contribution I will go more in detail in the card payments and on cross border payments.

 

François de Witte

Founder & Senior Consultant at FDW Consult

Managing Director and CFO at SafeTrade Holding S.A.

PSD2 Spring Update

| 18-06-2018 | François de Witte | TreasuryXL

During the fall of 2017, I published a Summer Update on PSD2. Since then, a lot of things have moved, and hence I found it the right moment to provide an update you on some developments PSD2 and open banking.

LIST OF ABBREVIATIONS USED IN THIS ARTICLE

AISP:            Account Information Service Provider
API:              Application Programming Interface
ASPSP:         Account Servicing Payment Service Provider
EBA:             European Banking Authority
PISP:            Payment Initiation Service Provider
PSP:             Payment Service Provider
PSU:             Payment Service User
RTS:             Regulatory Technical Standards
SCA:             Strong Customer Authentication
TPP:             Third Party Provider

Main updates on the regulatory framework

Several member states have experienced in the transposition of PSD2 in the national law. The current status (27/5/2018) is as follows:

• Full transposition measures communicated: Austria, Bulgaria, Cyprus, Czech Republik, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Slovakia, Slovenia, Sweden, United Kingdom
• Partial transposition measures communicated: Belgium, Lithuania, Malta, Poland
• No transposition measures communicated: Croatia, Latvia, Luxembourg, Netherlands, Portugal, Romania, Spain

Source : https://ec.europa.eu/info/publications/payment-services-directive-transposition-status_en

The EC has launched an infringement proceeding is against the states who did not or only partially transposed PSD2 in their national law.

The Regulatory Technical Standards on strong customer authentication and secure open standards of communication have been published on 13/3/2018 in the Official Journal of the European Union. They will apply in as from September 13, 2019, leaving 18 months to the payment industry to get ready for this new state of play.

The EBA has decided to maintain the obligation for the ASPSPs to offer at least one interface for AISPs and PISPs to access payment account information. As of 13/9/2019, the existing practice of third party access without identification (at times referred to as ‘screen scraping’) will no longer be allowed. In order to address the concerns raised by a few respondents, the final RTS now also require that ASPSPs that use a dedicated interface will have to provide the same level of availability and performance as the interface offered to, and used by, their own customers, provide the same level of contingency measures in case of unplanned unavailability, and provide an immediate response to PISPs on whether or not the customer has funds available to make a payment.

The banks need already to prepare some steps as from early 2019 onwards. The following timetable illustrates the deadlines:

The finalization of the RTS is an important milestone which will give banks and TPPs much more clarity and certainty on how to push forward their PSD2 compliance and strategic programs.

13/1/2018, the date of implementation of PSD2 appeared to be nonevent. Over one third of the member states failed to implement PSD2. Only very few banks had published their APIs. We observe that banks are much slower in opening up their APIs to TPPs, and this for various reasons, e.g. APIs are not yet ready technically, chicken and egg situation with other banks, etc. As a result, the API aggregators need to use screen scraping or reverse engineering to enable to provide for the TPPs (including banks) access to the accounts held at the ASPSPs.

Furthermore, the standards are not yet harmonized throughout Europe. A number of working groups were constituted to further elaborate on these standards, the most important ones being the UK’s Open Banking Working Group (OBWG), the Berlin Group, and STET. Experts seem to agree that the Berlin Group Standard is the most elaborate ones, as it incorporates the most relevant use cases and has been built with the latest technology standards using REST, OAuth2, JSON and HTTP-signature. It relies on ISO 20022 elements for structuring the data to be exchanged between TPPs and ASPSPs However the UK Open Banking standards also provide interesting insights. The UK has already a much larger experience in open banking. In my view it’s essential to create a set of common, industry standard APIs that can be used by all.

Another challenge is the implementation of the multi-factor authentication. There also some interesting initiatives took place. Gemalto the world leader in digital security, has enabled Belgian mobile ID scheme ITSME to enroll 350,000 users and securely process one million transactions per month for both private and public online services – making it one of the most successful mobile ID applications in Europe within one year of launch.

Real-time payments can be the catalyst for a new wave of innovative corporate banking, payments and cash management services. The SEPA Instant Credit Transfer, will offer in combination with PSD2 interesting new use cases for Open Banking. However, it will take time to take off, as it requires huge investment from the banks, and also a change in the mentality of the consumers.

Conclusion

Although PSD2 should have been enacted by the member states, some states are still lagging behind. The banks are slow in opening their APIs, and open banking is not taking off as quickly as expected. Market players need also to agree on common standards for the interfaces.

However, there the deadline of 13/9/2019 is approaching and there is no way back. The clock is ticking in the PSD race. “If you cannot beat them, then you better join them”.

Open banking is a new way of approaching the delivery of financial services for customers, and as such, it requires a new way of thinking and new ways of working. This will also require a new mindset and a different team set up. Teams are going to be more agile and have a mix of skills and people. This is a big challenge for several institutions.

For your information, I will give a one-day training on the subject at Febelfin Academy on 21/11/2018. For more information, please go to: https://www.febelfin-academy.be/nl/opleidingen/detail/psd2-and-the-open-banking-architecture-addressing-.

François de Witte – Founder & Senior Consultant at FDW Consult; Managing Director and CFO at SafeTrade Holding S.A.

 

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Best read articles of all time – PSD 2: a lot of opportunities but also big challenges (Part II)

| 16-05-2018 | François de Witte |

After having examined the detailed measures of the PSD2 in my first article, in the 2nd part we will examine the impact of PSD 2 on the market. In order to help you read the text we will once more start with a list of abbreviations.

LIST OF ABBREVIATIONS USED IN THIS ARTICLE

2FA    :   Two-factor authentication
AISP  :    Account Information Service Provider
API :       Application Programming Interface
ASPSP : Account Servicing Payment Service Provider
EBA :     European Banking Authority
PISP :    Payment Initiation Service Provider
PSD1:    Payment Services Directive 2007/64/EC
PSD2  :  Revised Payment Services Directive (EU) 2015/2366
PSP :     Payment Service Provider
PSU:      Payment Service User
RTS :     Regulatory Technical Standards (to be issued by the EBA)
SCA :     Strong Customer Authentication
TPP :     Third Party Provider

Impact on the market

A major implementation journey:

The ASPSP (mostly banks) will have to make large investments in order to comply with the PSD2, in the following fields:

  • Implementing  the infrastructure enabling the application of the PSD2 scheme to the currency transaction in the EU/EEA area, and to the one leg transactions.
  • Ensuring that they can respond to requests for payment initiation and account information from authorized and registered TPPs (third party providers), who have received the explicit consent of their customer for to this. They will have to develop interfaces that enable third party developers to build applications and services around a bank. Internal banking IT systems might need to be able to cope with huge volumes of requests for information and transactions, more than they were originally designed for.
  • Ensuring their security meets the requirements of the SCA (strong customer authentication). This will be a big challenge both for the banks and for the other payment service providers).

PSD2 will make significant demands on the IT infrastructures of banks. On the one hand the IT infrastructure has to be able to be interact with applications developed by the TPPs (PISP and AISP). On the other hand, banks have to develop their systems in such a way that they don’t have to do this from scratch every time a TPP approaches them. This will require a very flexible IT architecture. The banks have to have a middleware that can be used by their internal systems, but also by the applications of the PSP’s.

Although PSD2 does not specifically mention the API (Application Programming Interfaces),  most technology and finance professionals assume that APIs will be the technological standard used to allow banks to comply with the regulation.

An API is a set of commands, routines, protocols and tools which can be used to develop interfacing programs. APIs define how different applications communicate with each other, making available certain data from a particular program in a way that enables other applications to use that data. Through an API, a third party application can make a request with standardized input towards another application and get that second application to perform an operation and deliver a standardized output back to the first application. For example, approved third parties can access your payment account information if mandated by the user and initiate payment transfer directly.

In this framework, the real challenge is to create standards for the APIs specifying the  nomenclature, access protocols and authentication, etc.”. Banks will have to think about how their new API layers interact with their core banking systems and the data models that are implemented alongside this. The EBA (European Banking Authority) will develop RTS (Regulatory Technical Standard) with more detailed requirements regarding the interface between ASPSPs and TPPs. While these are expected to be published early 2017, based on the EBA’s recent draft RTS, the question is whether they will define the interface’s technical specifications.

Emergence of new players and business models

By integrating the role of new third party payment service providers (TPPs) such as the PISP and the AISP, the PSD2 creates a level playing field in the market. Several market experts expect that this will foster innovation and creating new services. For this reason PSD2 should increase competition.

This might lead to a unique open race between traditional players, such as the banks and newcomers for new services and a possible disintermediation of banking services, as illustrated in the figure down below:

Source: Catalyst or threat? The strategic implications of PSD2 for Europe’s banks, by Jörg Sandrock, Alexandra Firnges – http://www.strategyand.pwc.com/reports/catalyst-or-threat

PSD2 is likely to give a boost to the ongoing innovation boom and bring customers more user-friendly services through digital integration. One can expect that the automation, efficiency and competition will also keep the service pricing reasonable. PSD2 will foster improved service offerings to all customer types, especially those operating in the e-commerce area for payment collection. It will enable a simpler management of accounts and transactions. New offerings may also provide deeper integration of ERP functions with financial services, including of their multibank account details under a single portal, and smart dashboards.

PSD2 also enables a simplified processing chain in which the card network can be  disintermediated. The payment can be initiated by the PISP directly from the customer’s bank account through an interface with the ASPSP. In  this scheme, all interchange fees and acquirer fees as well as all the fees received by the processor and card network could be avoided. The market expects that new PISPs will be able to replace partly the transactions of the classic card schemes. A large internet retailer could for example ask permission to the consumers permitting direct account access for payment. They could propose incentive to encourage customers do so. Once permission is granted then the third-parties could bypass existing card schemes and push payments directly to their own accounts.

On the reporting side, the AISP can aggregate consumer financial data and provide consumers with direct money management services. They can be used as multi-bank online electronic banking channel. One can easily imagine that these services will be able to disintermediate existing financial services providers to identify consumer requirements and directly offer them additional products, such as loans and mortgages.

The PSD2 is for banks a compliance subject, but also an opportunity to develop their next generation digital strategy. New TPPs can provide their innovative service offerings and agility to adopt new technologies, enabling to create winning payments propositions for the customer. In turn, traditional players like banks can bring their large customer bases, their reach and credibility. Banks have also broad and deep proven data handling and holding capabilities. This can create winning payments propositions for the customer, the bank and the TPP.

Banks will have to decide whether to merely stick to a compliance approach, or to leverage on the PSD2 to develop these new services. The second approach will require to leave behind the rigid legacy structures and to change their mindset to ensure  quicker adaption to the dynamic customer and market conditions. A first mover strategy can prove to be beneficial.  Consumers and businesses will be confronted with the increased complexity linked to the multitude of disparate offerings. There also, the incumbent banks who will develop new services  can bring added value as trusted partners

Essentially, PSD2 drives down the barriers to entry for new competitors in the banking industry and gives new service providers the potential to attack the banks and disintermediate in one of their primary customer contact points. New players backed by strong investors are ready to give incumbents a serious run for their business. This is an important battle that the incumbent banks are not willing to lose.

The biggest potential benefits will be for the customers, who can access new value propositions, services and solutions that result from banks and new entrants combining their individual strengths or from banks becoming more innovative in the face of increased competition. Market experts also foresee an increased use of online shopping and e-procurement.

Several challenges to overcome

The PSD2 will be transposed in the national legal system of all the member countries. The involved market participants will have to examine the local legislation of their country of incorporation, as there might be some country-based deviations.

The authentication procedure is also an important hot topic. PISPs and AISPs can rely on the authentication procedures provided by the ASPSP (e.g. the banks)  to the customer but there are customer protection rules in place. Hence, they must ensure that the personalized security credentials are not shared with other parties. They also may not store sensitive payment data, and they are obliged to identify themselves to the ASPSP each time a payment is initiated or data is exchanged.

ASPSPs are required according to PS2 to treat payment orders and data requests transmitted via a PISP or AISP “without any discrimination other than for objective reasons”. A practical consequence for credit institutions will be that they must carry out risk assessments prior to granting payment institutions access – taking into account settlement risk, operational risk and business risk. One of  the main issue is the handling of the customer’s bank credentials by third party payment service providers. The bank needs to be able to perform strong authentication to ensure that the authorized account user is behind the initiation message

There are concerns about security aspects related to PSD2. An example hereof is the secure authentication. All the PSPs will have to ensure that they can demonstrate compliance with the new security requirements. How it will be achieved and monitored ? How will TPPs  interact with banks, since there is no need for a contract to be signed?

If something does not work correctly, there will also be discussions on the liability side. The PSD2 states that the TPP has to reimburse customers quickly enough that they are not bearing undue risk, but one will have to determine which TPP had the problem and work with them to resolve it. This will require further clarifications from the regulators.

In addition the PISP and the AISP vulnerable for to potential frauds. Web and mobile applications could become easy target for cybercriminals for various reasons, including the inherent vulnerabilities in the APIs that transfer data and communicate with back-end systems. The openness of the web could allow hackers to view source code and data and learn how to attack it. APIs have been compromised in several high-profile attacks that have caused significant losses and embarrassment for well-known players and their customers. The PSD2’s ‘access to account’  increases not only the number of APIs, but adds layers of complexity to the online banking/payments environment, adding to the risk of fraudulent attacks.

The market is waiting for the RTS (Regulatory Technical Standards) to give guidance on how some remaining security issues will be solved. These include:

  • Treatment of PSU’s (payment service user)security credentials
  • Requirements for secure communication between the PSP and banks
  • Full details and definition of strong authentication
  • Safety of the PSU funds and personal data
  • Availability of license registry for real-time identification of the PSP (PISP or AISP)

It is important that the required clarifications are published soon, in order to avoid a time lag between the implementation of PSD 2 in the national legislations and the real move in the market.

Conclusion

The PSD2 creates challenges, such as the huge investments to be made by the banks, compliance issues and protection against fraud and cybercrime. However several topics need to be clarified such as the RTS and the market players need also to agree on common standards for the interfaces. The clock is ticking in the PSD race.

Traditional players such as the banks appear to have a competitive disadvantage vis-à-vis the new emerging third party payment service providers. However, the Directive opens up new forms of a collaborative approach that can overcome this. New players can provide their innovation and resilience, whilst banks can add value thanks to their large customer base, credibility, reach and ability to cope with high volumes.

The biggest potential benefits might be for customers, who will benefit from new value propositions, services and solutions from new entrants, from banks and new entrants combining their individual strengths, or from banks becoming more innovative in the face of increased and agile competition.

François de Witte – Founder & Senior Consultant at FDW Consult and Senior Expert – Product, Business development and sales manager at Isabel Group

 

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Best read articles of all time – PSD 2: a lot of opportunities but also big challenges (Part I)

| 15-05-2018 | François de Witte |

The Directive 2015/2366 on payment services in the internal market (hereinafter PSD2) was adopted by the European Parliament on October 8, 2015, and by the European Union (EU) Council of Ministers on November 16, 2015. The PSD2 updates the first EU Payment Services Directive published in 2007 (PSD1), which laid the legal foundation for the creation of an EU-wide single market for payments. PSD2 came into force on January 13, 2016, and is applicable from January 13, 2018 onwards. By that date the member states must have adopted and published the measures necessary to implement it into their national law.

PSD 2

PSD2 will cause important changes in the market and requires a thorough preparation. In this article, we are summarizing the measures and highlighting the impact on the market participants. In today’s Part I we will focus on abbreviations and main measurers introduced by PSD2.

List of abbreviations used in this article

2FA    : Two-factor authentication

AISP  :  Account Information Service Provider

API : Application Programming Interface

ASPSP : Account Servicing Payment Service Provider

EBA :  European Banking Authority

EBF :  European Banking Federation

EEA :  European Economic Area

PISP :  Payment Initiation Service Provider

PSD1:  Payment Services Directive 2007/64/EC

PSD2  :  Revised Payment Services Directive (EU) 2015/2366

PSP : Payment Service Provider

PSU:   Payment Service User

RTS : Regulatory Technical Standards (to be issued by the EBA)

SCA : Strong Customer Authentication

TPP :  Third Party Provider

Main Measures introduced by PSD2:

The  PSD2 expands the reach of PSD1, to the following payments:

  • Payments in all currencies (beyond EU/EEA), provided that the two PSP (Payment Service Provider) are located in the EU /EEA (two legs)
  • Payments where at least one PSP (and not both anymore)  is located within EU borders for the part of the payment transaction carried out in the EU/EEA (one leg transactions)

A second important measure is the creation of the Third Party Providers (TPP). One of the main aims of the PSD2 is to encourage new players to enter the payment market and to provide their services to the PSU (Payment Service Users). To this end, it creates the obligation for the ASPSP (Account Servicing Payment Service Provider – mainly the banks) to “open up the bank account” to external parties, the so-called, third-party account access. These TPP (Third Party Providers) are divided in two types:

·        AISP (Account Information Service Provider) : In order to be authorized, an AISP is required to hold professional indemnity insurance and be registered by their member state and by the EBA. There is no requirement for any initial capital or own funds. The EBA (European Banking Authority) will publish guidelines on conditions to be included in the indemnity insurance (e.g. the minimum sum to be insured), although it is as yet unknown what further conditions insurers will impose.

·        PISP (Payment Initiation Service Providers): PISPs are players that can initiate payment transactions. This is an important change, as currently there are not many payment options that can take money from one’s account and send them elsewhere. The minimum requirements for authorization as a PISP are significantly higher. In addition to being registered, a PISP must also be licensed by the competent authority, and it must have an initial and on-going minimum capital of EUR 50,000.

Banks will have to implement interfaces, so they can interact with the AISPs and PISPs. However, payment initiation service providers will only be able to receive information from the payer’s bank on the availability of the funds on the account which results in a simple yes or no answer before initiating the payment, with the explicit consent of the payer. Account information service providers will only receive the information explicitly consented by the payer and only to the extent the information is necessary for the service provided to the payer. This compliance with PSD2 is mandatory and all banks will have to make changes to their infrastructure deployments.

A third important change is the obligation for the Payment Service Providers to place the SCA (Strong Customer Authentication) for electronic payment transactions based in at least 2 different sources (2FA: Two-factor authentication) :

  • Something which only the client knows (e.g. password)
  • A device (e.g. card reader, authentication code generating device, token)
  • Inherence (e.g. fingerprint or voice recognition)

 

The EBA (European Banking Authority will provide further guidance on this notion in a later stage. It remains to be seen whether the current bank card with pin code is sufficient to qualify as “strong customer authentication”. This “strong customer authentication” needs to take place with every payment transaction. EBA will also be able to provide exemptions based on the risk/amount/recurrence/payment channel involved in the payment service (e.g. for paying the toll on the motorway or the parking).

PSD2 also introduces some other measures:

  • Retailers will be authorized to ask to the consumers for permission to use their contact details, so as to receive the payment directly from the bank without intermediaries
  • There will be a ban on surcharges on card payments
  • There will be new limitations on the customer liability for unauthorized payment transactions

In a second article soon to be published on treasuryXL, François de Witte will focus on the impact PSD2 has on market participants. 

François de Witte – Founder & Senior Consultant at FDW Consult and Senior Expert – Product, Business development and sales manager at Isabel Group

 

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Cash Pooling – where is the money

| 01-02-2018 | François de Witte |

The main objectives of the cash & liquidity management are to:

  • Have the cash funds available to meet all known and unknown commitments
    • In the right currency
    • In the right place
    • At the right time
  • Optimize the return of the cash and/or minimize the cost of the short term financing
  • Minimize external financing by using internal funding

One of the most important techniques to achieve a better utilization of the available cash is the “cash pooling” or, in other words, the concentration of the cash to make it centrally available. The commonly used techniques in the market are the following:

  • Manual cash concentration: Intercompany payments
  • Automated Cash Concentration: requires physical movement of funds
  • Notional Pooling: without movement of funds

In the present article, we will outline the current types of cash management tools, their advantages and the attention points.

Manual cash concentration: Intercompany payments

For companies, who have only a limited number of accounts to overview, it is recommended to set up a manual cash pooling. In this case, the treasurer overviews daily or weekly the balances of the different accounts, and when there are important debit or credit positions, he will initiate manual payments to balance the positions, and or to concentrate them on the central treasury account. If during the day, important movements take place, the treasurer can make some additional intra-company payments to balance the debit and credit positions. In order to avoid float, it is recommended to use the urgent payments clearing.

The main advantages of the manual cash balancing are the following:

  • The easy set up
  • The possibility take into account the cash forecasting
  • You do not always make daily movements, which facilitates the intercompany loan administration.

However there are some drawbacks / attention points:

  • There is a daily / weekly need to make manual interventions. However some treasury software packages provide a solution to automate this process (bank independent cash pooling)
  • The banks take additional charges for use of the urgent payments clearing, except if the payments are processed within the same bank
  • The overdraft credit lines of the participants are qualified as full lending limits, and hence for the banks there is a higher capital weighting
  • When different legal entities are involved, you create a lending /borrowing relationship between the participants. Hence there are legal and tax issues:
    • You need to foresee a intra-group lending agreement
    • There are possibly withholding tax, transfer pricing and thin capitalization issues
    • Within your group, you need to manager the intercompany loan administration.

Automated cash concentration

The automated cash concentration, also called cash balancing, is a pooling technique requiring a physical transfer of funds to or from the participating accounts to concentrator account. The pooling movements are operated automatically by the bank

The most commonly used cash concentration is the zero balance cash balancing, as illustrated in the drawing down below. In this solution, the balances of the participants are daily or weekly swept to a concentrating account.

Figure 1: Outline of the zero balance cash balancing

Automated cash concentrationThere are also other forms of cash concentration:

  • Target cash balancing, to keep a specific amount in each account
  • Threshold cash balancing, to move funds only when an account moves in excess of a figure
  • Trigger cash balancing, whereby the movements are only initiated if the balance of an account (debit or credit) exceeds a certain amount
  • End-of-day or intraday cash balancing
  • Domestic or cross-border cash balancing.

There are several advantages to this system, such as:

  • There are no manual interventions, as the system is automated
  • Several features are possible (multi-layer, domestic and cross-border, target balancing, …)
  • There exist a possibility to integrate accounts from third banks
  • The system discipline to participants
  • With several banks, the intra-day lines, and the intra-day debit positions do not require a capital weighting.

However there are also drawbacks / attention points:

  • For value-based cash balancing, there can occur reconciliation issues with ERP systems or treasury management systems, as they usually work on accounting balances
  • The cash balancing works only within the same currency. When you manage different currencies, different physical cash balancing structures need to be set up for each currency
  • When different legal entities are involved, you create a lending /borrowing relationship between the participants – see also point 2 hereabove
  • The automated cash balancing can only work within the same currency (mono-currency).

Notional cash pooling

The Notional cash Pooling is a cash pooling where there is no movement of funds. In such a pooling the credit balances of the participants are offset against debit balances of the participants. Hence the net balance of the group is used to calculate the debit or credit interest paid or received.

The system has a flat structure, which means that all the participating Accounts are basically equal to each other. However usually corporates designate one account as the treasury Account, which is then used to manage the system.

Figure 2:  Outline of the notional cash pooling

Notional cash pooling

 

 

 

 

 

 

 

 

The main advantages of the notional pooling are the following:

  • The notional pooling does not require to move funds, and hence:
    • No intercompany loan administration
    • Less legal and tax issues
  • In some jurisdictions (e.g. the UK and NL) the notional pooling can, under certain conditions improve the balance sheet by offsetting surplus balances against group debt
  • The notional pooling can include different currencies.

However there are also attention points:

  • The full legal offset of debit and credit positions of different legal entities is an issue in several countries
  • In some countries notional pooling is not allowed
  • Basel III does not always allow that liquidity ratios are calculated by means of netting the outstanding balances of accounts in the notional pool. This means that banks must calculate their ratios based on the gross balances of the individual accounts. Hence they will also look to translate this cost in the pricing of the notional cash pooling.

Legal and tax aspects of cash pooling

Setting up a pooling requires some preparation, and some legal and tax issues need to be addressed, such as:

  • Is automated cash pooling (cash balancing or notional) authorized ?
  • For cash balancing with different entities
    • Transfer pricing issues – Arm’s length rule
    • Is debit interest an allowable deduction?
    • Withholding tax issues
    • Is thin capitalization an issue?

When setting up such structures, in particular when different countries are involved, you need to foresee a due diligence with legal/tax advisors and banks

For cash balancing with different legal entities, a requirement is also to be able to manage intercompany loan administration. There are banks and providers who come up with solutions in this area.

 

François de Witte

Founder & Senior Consultant at FDW Consult and Senior Expert – Product, Business development and sales manager at Isabel Group

 

PSD2 – Fall update and new developments

| 28-11-2017 | François de Witte |

PSD2In 2018, when PSD2 comes into force, banks will lose their monopoly on payment services and customer’s account details. Bank customers will be able to use third-party providers (TPP) to administer their payments. When a customer agrees on using the services of a TPP, then their bank has to give access to TPPs to their accounts. TPPs are then able to build and offer services that compete with the existing bank services. During the summer 2017, I published a Summer Update on PSD2. Since then, a lot of things have moved, and hence I found it the right moment to provide an update to you on some developments on PSD2, in this area.

LIST OF ABBREVIATIONS USED IN THIS ARTICLE

  • 2FA: Two-factor authentication
  • API: Application Programming Interface.
  • EBA:  European Banking Authority
  • PSP: Payment Service Provider
  • PSU:   Payment Service User
  • RTS: Regulatory Technical Standards (final draft issued by the EBA on 23/2/2017)
  • SCA: Strong Customer Authentication
  • TPP:  Third Party Provider
  • OTP: One time password

Main updates on the regulatory framework

Some member states have already advised that they expect delays in the transposition of PSD2 in the national law, e.g. Belgium (by March 2018), the Netherland (by June  2018), Sweden, Poland, Spain and France.
Following countries already announced that they will be on track, e.g. Italy, Finland, Ireland, Czech Republic, Germany and Bulgaria.
By end November the EBA should publish the revised draft on the SCA (Strong Customer Authentication) and Secure Communication. We expect that a number of points, raised by the market participants, will be incorporated in the text.
With regard to the access to TPPs, article 113.4 of PSD2 explicitly states that the member states shall ensure the application of the security measures within18 months following the entry in force of the law. Hence, we might expect that this part of PSD2 needs only to be implemented by Q3 2019. However, in some countries, the authorities are pushing for an earlier implementation (e.g. in Belgium by end Q1 2018). Given the strategic importance and the IT act, I recommend starting this quite soon.

Main developments

Banks will have to implement interfaces, so they can interact with the AISPs and PISPs. This compliance with PSD2 is mandatory and all banks will have to make changes to their infrastructure deployments.
The challenge is to create standards for the APIs specifying the nomenclature, access protocols, authentication, etc.”. Banks will have to think about how their new API layers interact with their core banking systems and the data models that are implemented alongside this.

A number of working groups were constituted to further elaborate on these standards, the most important ones being the UK’s Open Banking Working Group (OBWG), the Berlin Group, and STET. Experts seem to agree that the Berlin Group Standard is the most elaborate one., as it incorporates the most relevant use cases and has been built with the latest technology standards using REST, OAuth2, JSON and HTTP-signature. It relies on ISO 20022 elements for structuring the data to be exchanged between TPPs and ASPSPs

As Marc Lainez, CEO of Ibanity, part of Isabel Group (developing API and PSD2 solutions for the XS2A and beyond) pointed out: “We can already see a fragmentation on the market. Several groups publishing specifications that are on many points different. With the RTS still being a moving target at the moment, those specifications are also incomplete as some details still need to be clarified. Some banks also choose to implement their own specifications without following closely any of those already published. In engineering, a standard is usually something that emerges through the best practices of an industry, it is not something that can be thought off entirely before it is actually used. At Ibanity, we are convinced that fragmentation will be a reality and several formats and specifications will co-exist on the market for some time. Looking at them from a pure software engineering point of view, we can say that those that seem the closest to what TPPs are actually expecting in terms of API quality are the specifications from the Open Banking Working Group and the Berlin Group. They still need, of course, to be challenged by the market with real use cases.“

The large banks have already started working on being PSD2 compliant and on building for the opening of their banking architecture to the TPPs. However, several small or medium sized banks only started recently on this project.
PSD2 has numerous interdependencies with other regulations (such as GDPR and eIDAS Regulation), promising a complex implementation with multiple stakeholders. For many banks, compliance by 2018 will be a challenge. Moreover there is a strong technology impact, adding to the complexity of the project. The following graphs of a market survey of PWC are a good illustration of the current state of the project with the European banks:

Conclusion

The PSD2 creates challenges. Several topics need to be clarified such as the RTS and the market players need also to agree on common standards for the interfaces. Moreover there are some unclarities in the text.
However, there are solutions in the market to withdraw the hassle for Banks and TPPs. The clock is ticking in the PSD race. Consequently, there is no justifiable reason for any bank to delay starting these projects.

François de Witte – Founder & Senior Consultant at FDW Consult and Senior Expert – Product, Business development and sales manager at Isabel Group

 

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How to connect to your bank electronically

| 26-10-2017 | François de Witte |

One of the main challenges in treasury is ensuring the connectivity with your banking partners. Currently corporates use the e-banking, or “electronic banking” channels. ‘Electronic banking’ can be defined as the way in which a company can transmit transactions and obtain reporting instructions to a bank remotely and electronically.

In the present article about bank connectivity, we will outline the current types of e-banking channels in the market, their advantages and the attention points.

Interactive banking channels

For interactive e-banking channels, typically the communication is initiated by the corporate client from a PC within the finance department and the instructions are transmitted to the bank through the internet.

Banks are developing their portals more and more: ING Business Payment, Connexis, KBC-Online, IT Line, RABO Corporate Connect, etc. They also provide a full range of services through them.

Illustration of the interactive electronic banking channel:

 

 

 

 

 

 

 

Currently the interactive- banking channels are widely used by corporates and other organizations, because they are easy to implement, user-friendly, enable to work on a standalone basis and less expensive. However, the drawbacks are that they are not always that suited for mass payments, and that each bank has its own system. Consequently, if you work with different banks, you will have different electronic banking channels for each bank, which adds to the complexity.

In some countries, the banks have put their efforts together to create a multibank interactive electronic banking channels (e.g. Isabel 6 in Belgium and Multiline in Luxembourg).

In my view, the interactive e-banking channel is best suited for corporates having not too high volumes of transactions and working with only few banks, or in countries were multibank electronic banking channels are available.

Host to host electronic banking channels

Some corporates or public institutions have very high volumes to treat, and will need for this a specific direct connection with their bank, a so-called “host to host” (H2H) connection. This is an automated solution for high volume data transfer between banks and their corporate clients.

Sophisticated H2H connectivity solutions give banks the flexibility to exchange information with their corporate clients in preferred file formats, agreeing on network protocols, and security standards.

The following figure illustrates this type of e-channel:

 

 

 

 

 

 

 

H2H e-banking channels allows for automated payments and collections, attended (where the client needs to take an action) or unattended (directly initiated by the IT system) connection / authorization. They can treat very high volumes, and to integrate the data into ERP systems.

However, they are also more expensive, because they require a specific IT set-up and usually the services of a middleware provider to ensure the connectivity between your ERP or IT system and the bank.

Up to some years ago, corporates had to set up H2H connections with each of their banks, but now several multibank H2H solutions have been developed by the TMS (Treasury Management Systems) providers or by other multibank providers such as TIS, MultiCash and Power2Pay.

In some countries, the banks have set up common interbank protocols enabling an easier and standardized connection. The best know is EBICS, which is currently in use in Germany and France.

In my view, the host to host banking e-channel is best suited for corporates having very large volumes of transactions and requiring a high level of integration with their ERP or IT systems.

SWIFT e-banking

SWIFT has extended from a bank-to-bank platform to a corporate-to-bank platform, and has also launched its own bank connectivity solution, SCORE (Standardized Corporate Environment). SWIFT enables hence to replace the various e-banking systems with a single, bank-neutral multibank e-channel. This means that treasurers and finance managers can connect with their banks worldwide in a consistent way using industry-recognized standards.

Outline of a SWIFTNET Multibank set-up (source SWIFT):

Companies can connect to SWIFT in many ways. One option is to establish a direct connection to SWIFT, but this can be a technically complex exercise. As a result, many of the companies connecting to SWIFT do so via a SWIFT service bureau. In such a set-up, most of the technical challenges are resolved by the service bureau

The third SWIFT connectivity option is Alliance Lite2. This solution enables corporates to connect to SWIFT in a quicker and less expensive way.

The SWIFT channel offers, beside the multibank character, many other advantages, such as the SWIFT standards, services beyond payments, such as FX and deposit confirmation and securities transactions, and an improved security / reliability compared to the classic e-banking systems

However, the Swift e-banking solution is not easy to implement, and can be quite expensive (in particular for the direct connection and the connection through a service bureau. Hence this solution is more suite for very large corporates and institutions, working with many banks.

Conclusion:

When looking at setting up the e-banking connectivity, several factors need to be taken into consideration, such as the number of banks and transactions, the complexity of the organization and the treasury. Smaller organization can perfectly work with the interactive e-banking channels, whilst larger and more complex organizations need to consider the multibank H2H connections or a SWIFT setup.

In the framework of PSD2, with the XS2A (access to accounts), banks in the EU/EEA will have to provide access to authorized third parties. I expect that thanks to PSD2 the cost of multibank e-banking platforms will go down, which is good news for corporates.

 

François de Witte

Founder & Senior Consultant at FDW Consult