Bitcoins or banks, who is taking care of the business?

| 2-8-2017 | Hans de Vries |

Banks have long been target of wild spread ideas that their role as facilitator in the (inter) national money transaction industry will soon be overtaken by new Fintech initiatives like PayPal, Bitcoin and recently Ethereum. The idea behind these new technologies is that the Trusted Third Party (TTP) role of the conventional banks which is crucial for the operational day to day operations of the economic systems can be overtaken by the new block chain technology. Main advantages are clear: transactions are no longer limited by timing (no dependency on the operational boundaries of clearing houses, cut-off times of banks per currency, immediate processing etc), account opening procedures at the banks, the costs involved in maintaining accounts and transactions themselves etc.

The recent Ransomware attacks, that had an enormous impact on numerous companies and governmental institutions at a global level, showed however a less favorable aspect of this new technology. Due to its lack of control on the specifics of account ownership, Bitcoin proved to be the ideal means to collect the ransom money the victims have to pay to free their systems. This piracy trend will in my view also seriously hamper the future development of these sort of bank independent transaction mechanisms. Even more threatening for the Bitcoin development are the recent crypto robbery cases in which millions of dollars’ worth balances were stolen from the accounts. These incidents show the vital role of the banks as TTP since most banks are obliged to deliver their services according to the rules and regulations of their national and super-national banks. As indicated before, this means that for opening accounts lots of formalities have to be endured (the KYC rules are in some countries stretched to the absolute max). At the same time., due to the international regulations the control on international transactions are very extensive and therefore at the same time very costly for the banks. Every violation of the international code book on transactions to banned countries can have severe financial consequences for the banks involved. An last but not least banks have to maintain an international network of correspondent banks to make sure that the international transactions reach their beneficiaries in a reasonable timeframe and at reasonable costs.

This whole system has of course been developed to gain maximum control on transaction flows locally and worldwide. However it also provides the trust needed to be able to deal with (inter) national trade flows crucial to our economic day to day operations. As long as there are no ways to secure your transactions and balances in a bitcoin like environment as most transaction banks are providing today, Bitcoins remain a very interesting technological experience but will in no way replace the role of banks as TTP shortly.

 

 

Hans de Vries

Treasury/Cash Management Consultant

 

 

More articles of this author: 

Will the European banks strike back?

The Euro from a treasury perspective

New norms in banking: More than 30 new areas emerging. Pick your fights!

The Euro from a treasury perspective

| 10-4-2017 | Hans de Vries |

In a perfect world, one currency is the ultimate dream for every Treasurer. The introduction of the Euro has been a major leap forward in that direction. However, current anti-euro sentiments boosted by populist movements all over Europe, seriously threaten to hamper this unique and visionary European accomplishment.  This article focusses on what impact the introduction of the Euro had for the corporate treasurers and what will happen if the Euro gets skipped.

Let’s start with the beginning. One must be aware that the introduction of the Euro is the world’s largest economic policy experiment so far with heavy repercussions on the autonomy of the countries involved with regard to their monetary regimes.  So naturally this expedition has met a lot of criticism ever since the beginning, the creation of the European Monetary System (EMS) on March 13,1979.

The Euro skeptics mostly feared that the wide-spread adoption of the Euro would deteriorate the economies of countries that accepted this currency and was in favor of the larger countries, like France and Germany, that now could easily manipulate the Euro’s puppet strings. Main belief was that the Euro would weaken instead of strengthen the European economy.

 As from the start, Euro stronger than expected

Although the Euro met quite some negative public attention, looking at more than 15 years of Euro, the track record has not been that bad at all. As the graph shows, after a relatively weak position against the USD at the beginning of this century, the Euro has held a strong position against the USD as from 2003 on, although weakening after 2014 in the aftermath of the banking and economic crisis that followed it. However, the predicted downfall of the Euro never took place. Remarkable phenomenon was that when the value of the dollar was higher, it was regarded in the media as a sign of weakness of the Euro against a “strong” Dollar and when the value of the Euro was stronger than the USD it was regarded by the analysts as a sign of weakness of the Dollar.

More important is that the introduction of the Euro as per January 1, 1999 has indeed brought the predicted transparency to the European market but also to the global market. This transparency has contributed to the substantial growth (5-40% according to Bun and Klaassens) of the internal trade flows within the EU countries due to the fact that the Euro has lowered the fixed and/or variable costs of exports. Prices can be compared across the whole Eurozone, allowing companies to choose the most price-competitive suppliers. The newly exported goods are of lower unit values than those previously exported because the Euro has made exporting them profitable, particularly for small exporters. Don’t forget that with 28 member states in 2014 Europe was the strongest economic player on global level taking care of 17,1% of the World GDP whereas the USA had a share of 15,9% and Russia 3,3%.
From a more monetary viewpoint the Euro brought price stability. Inflation in the Eurozone has been around 2-2.5% for most of the time since its creation.
A strong Euro mitigated the impact of the volatility of dollar-denominated commodity prices.This advantage was particularly visible before the beginning of the financial and economic crisis, when the oil price and the price of some other important food commodities reached unprecedented peaks. Due to the Strong Euro or weak USD, the consequences for the European market were relatively minor.

Euro leads to transparent treasury operations and substantial cost reductions

In today´s Euro environment, most Treasurers in Europe only have to deal with the USD, GBP and sometimes CHF and the Nordic Currencies. This makes live quite overseeable and has substantially enhanced their risk portfolio. The same applies for the Treasurers outside the Euro zone, who are now freed from the hassle of the past European currency palette.

Although a number of Euro critics pointed their finger at the Euro as direct cause for the Banking crisis a few years ago, it is almost impossible to imagine the consequences of the crisis in and outside Europe if every European country had been dealing with their own currencies. This would have resulted in a pandemonium of devaluations and revaluations with even more severe consequences for the values of all national and international operating companies and even more bank bankruptcies. Not to mention the impact this might have had on pension funds and other investment vehicles on short and longer terms.

From a corporate perspective, the benefits of the introduction of the Euro are therefore quite clear.

But also the consumers more and more are sharing the benefits of the common Euro market. Not only during travels abroad but also internet shopping becomes more and more international with new initiatives on the way to support payments like the Fast Payment project.

Looking at all these benefits, the current anti Euro sentiment in a number of European member states is from an economic point of view hard to understand and might pose a serious threat on the future European economic development.

Consequences of a Euro exit from a treasury and cash management perspective

Imagine getting back to the world without the Euro. This means an enormous rise of the operational costs considering:

  • The daily currency shifts that influence directly the position of the corporate’s accounts receivable/ and accounts payable and therefore the short time profit/loss situation. To minimize the impact substantial investment in systems and manpower will be needed;
  • The monetary developments as result of the internal economic/ political situation per country resulting in overnight currency devaluation/ revaluation and it’s inter currency reaction’s. (The recent takeover of Opel by Peugeot was merely a result of the strong decline of the GBP against the Euro which had severe consequences on the UK based Vauxhall subsidiary and shows the impact of the monetary developments on the corporate world.)
  • The banking costs involved in setting up swaps/ hedges/ Long term deposits etc.
  • The banking costs involved in buying and selling the various currencies;
  • The impact on money transfers which will be treated as international payments again with different clearing systems, correspondent banks, local payment instruments and formats etc. resulting in delayed payments and receipts and therefore threatening the growth of the economies.
  • The impact on international trade that will strongly diminish due to the lack of transparency of the international markets, the rise of costs and the loss of trust.
  • Re-opening of local accounts to support local business

Banking industry as sole winner

The only party that will benefit from this skip of the Euro development is the banking industry, because of the margin to be made on currency exchange, swaps and other derivates, and the backshift to a Non-Sepa/ international payments environment with substantial higher transaction costs. Looking at the public opinion on banks in general ever since the bank crisis, it’s hard to believe that the populist movements in Europe are in favour of this development.

Take the loss or start a counter movement?

This leaves us with the question, what benefits are there to gain by consumers and businesses alike by leaving Europe and the Euro? Looking at the economic development of the Euro countries today and all the benefits the Euro has brought the corporates and consumers,  there is no clue why we should not stick to the current status quo and enhance it in any possible way.

It is therefore high time to start advocating the true merits a United Europe has been gaining thanks to the pan European ideals: a unprecedented war free community already lasting for more than seventy years combined with an enormous economic and cultural development.

Hans de Vries

Treasury/ Cash Management Consultant

Will the European banks strike back?

| 27-12-2016 | Hans de Vries |

europe Last November The European Payments Council (EPC) launched the single euro payments area (SEPA) instant credit transfer (SCT Inst) scheme. The scheme will be live in November 2017 and allows the European banks to propose innovative, digital, and fast payment solutions to their customers. The EPC describes the SCT Inst scheme as “a world first, enabling individuals, businesses, corporates and administrations to make instant euro credit transfers between accounts across an international area that will progressively span over 34 European countries. This new scheme is a revolution for the traditional 9 to 5/ weekdays only operating banks. Will it also block the way to relative newcomers like Paypal? Will the banks seize this opportunity and strike back?

As a result of the internet experience, banks had to deal with the fact that their systems were not able to cope with the subsequent demands of the 24/7 demands of the retail market. Paypal attacked the weakspot of the banks by introducing their worldwide internet banking solution. Downside of this approach is of course the fact that the consumer had to first open and credit their Paypal accounts, before they were able to use  this payment method. And of course the merchants had to support this payment method as well and find ways to collect their funds. As an alternative creditcard payments were implemented and local solutions like I-Deal in the Netherlands, Mister Cash in Belgium etc. All these alternatives had their ups and downsides looking at costs and reachability. Most important value of these solutions were that the Merchant was to some extent sure that he received the funds before delivering the goods. And it worked both ways, the consumers were also sure that the goods would be delivered as soon as the transaction was finished.

With the upcoming introduction of the SEPA instant credit transfer scheme, as announced by the EPC last month, this whole picture is about to change. The EPC describes the SCT Inst scheme as “a world first, enabling individuals, businesses, corporates and administrations to make instant euro credit transfers between accounts across an international area that will progressively span over 34 European countries. This implicates that the consumers can directly debit their accounts and instantly transfer their funds to their beneficiaries all over Europe with the same effect as the current local schemes like I-Deal. This means that Internet Merchants all over Europe are by now reachable for the total European consumer market. Of course it will take some time before all banks are able to support this service and are also able to provide the consumers as well as the Merchants with the tools to obtain the information real time. However, the PSD2 regulations will certainly support this development and the FINtech industry will make sure that the information flows are connected to allow for flawless operations. By implementing the SEPA instant credit transfer scheme the European banks are able to recover lots of grounds they lost uptill now to external parties like Paypal: the banks will strike back! And they will have to in order to survive in today’s world.

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Hans de Vries

Treasury/ Cash Management Consultant

 

New norms in banking: more than 30 new areas emerging. Pick your Fights!

| 28-11-2016 | Hans de Vries | treasuryXL |

motherboardWe came across an interesting ‘panorama’ from McKinsey& Company about the key Fintech trends and asked our expert Hans de Vries to comment on it. He came back with interesting insight, that we want to share with you:

Blockchain, PSD2, Bigdata, Crowdfunding, Bitcoins: never a dull moment in the banking world. The McKinsey Panorama provides a perfect overview of the rapid technological changes taking place in the banking world today. However it’s hard to predict the impact of all these developments on the day to day operations of the corporates. Over the years we have seen trends like the “Holy EDI Grail” never coming fully of the ground due to a lack of general acceptance and interoperability. Some corporates stepped-in really early and now finally reap the benefits as a result of a generic acceptance of for example XML standards for the information exchange. This does not mean that you’ll have to lean backwards and wait for the future developments to start materializing. The challenge is to keep moving forward while optimizing the internal processes according to the latest more or less standardized techniques. In some cases you may not be using the latest technical solutions, however you achieve the goals in a more practical way and it leaves room for further improvement on the way. The main message should be: don’t get overwhelmed by all these new developments, keep moving forward and pick your fights carefully.

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Hans de Vries

Sales Consultant at PowertoPay

How Bank Independency improves your Treasury Performance

| 18-11-2016 | PowertoPay |

bankgebouwenAs RBS in april 2016, ABN AMRO announced recently that they will lay off another 1500 employees worldwide and reduce services due to ongoing digitalisation. We came across an article of PowertoPay and in the light of recent developments you might find it interesting to read.

As we emerge from the global credit crisis and banks are starting to (geographically) withdraw from some parts of the market, managing cash flow more effectively is a top priority for treasurers. Monitoring, analysing and reporting on underlying business cash flow and risk has become extremely important. Despite the changing role of the treasurer which resulted in new requirements, treasury must still determine the optimal organizational structure that meets both strategic goals and supports overall efficiency. These efficiency goals have created the need for centralized bank-agnostic solutions that aggregate all financial information onto one platform.

The evolved need for bank-independency

As competition increases in the payments market, banks need to create competitive differentiation, either in-house or in a shared model. Banks need to reshape their focus and keep a consistent client focus. A recent example of a bank that needed to reshape was the withdrawal of RBS from a large number of countries. RBS has made the choice of being a consumer bank for the UK and decided to end servicing the earlier acquired Global Transaction Banking customers.

The withdrawal of RBS from large parts of the market created the need for large corporates to investigate bank-independency and bank-agnostic solutions more thoroughly. A logical consequence, because how can you be certain that your bank will remain active in a specific country for over five years? Frank Nolden, CEO of PowertoPay states:  “If the financial crisis has taught us anything, it’s that no matter how big, banks can go bankrupt. Therefore, corporates want to decrease their risk on financial counterparts, because these counterparts might no longer exist in a few years”.

Reducing risk

In order to: 1) reduce the risk on financial counterparts 2) overcome the bottlenecks  3) reduce potential credit inefficiencies found within the use of single banks, corporate treasurers increasingly focus on bank-agnostic solutions. Connecting to multiple banks via a centralized bank-agnostic solution means lowering the risks of having to change and select new banks in the future, which allows corporates to have greater financial performances.

Succeeding with simple connectivity

Large corporates more often choose for developing channels and services that support a multi-banking, bank-agnostic approach. According to the CEO of PowertoPay, Frank Nolden, “the maintenance of all the different multiple technology systems have driven corporates to opt for simple hub connectivity through centralized solutions”. Many corporates have to connect to a myriad of bank portals with numerous security tokens to handle their treasury operations, which considerably increases risk. Bank-agnostic solutions automate, centralize and standardize globally these payment and cash management processes, allowing treasurers to make better, more informed and faster decisions based on real-time holistic insights, improving their performance.

Conclusion

Corporates are always seeking to increase the levels of operational efficiency. Maintaining all types of different multiple technology systems with low efficiency levels have driven treasurers to opt for bank-agnostic, centralized solutions. These solutions reduce the risk on financial counterparts, creating more streamlined and effective treasury operations.

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Impressions after the DACT Treasury Fair 2016

|16-11-2016 | De Kiewit Treasurer Search, Treasury Intelligence Solutions GmbH, Cashforce |

talk

 

DACT Treasury Fair 2016, organised by the Dutch association of treasurers, is the most important annual treasury event in the Netherlands, where you can share treasury best practices, learn about the impact of latest trends and exchange experiences in a relaxed and informal environment.

After it closed its doors we asked four experts to give us their impression:

 

 

 

Pieter de Kiewit  –  Owner of  Treasurer Search

Pieter de KiewitWhen you have time for only one treasury event in The Netherlands per year, you should go to the DACT Treasury Beurs in Noordwijk.
For me and I think many others the Treasury Beurs 2016 was a continuation of a successful concept. I particularly enjoyed the masterclass by Professor Boot. He was able to include recent events, of course the election of Donald Trump, in his lecture giving me food for thought. An other aspect that was obvious is the increase of technology providers present. I think end users understand each separate solution but placing them in a bigger overview is not an easy task. One can also see that channel management is an issue for tech providers. Some of them make the connection to end users directly, others cooperate with sales partners or consultants. There is no standard. My final observation is that the current venue, Hotels van Oranje, will limit a further increase of the number of visitors. A luxury problem for the DACT, will we meet in Noordwijk again?

Jörg Wiemer – CEO Treasury Intelligence Solutions GmbH

The DACT event in the Netherlands was again a great opportunity for the TIS team to discuss the latest treasury trends, technology and challenges with the audience.

“Coming to Noordwijk is always a nice chance to meet with some of our existing customers here in the Netherlands as well as to network with other treasury professionals. The themes and painpoints are often similar, such as risk and fraud in treasury being a common topic this year. This allows us to gain a good feel for the marketplace as well as introduce our contacts to each other as part of the overall community,” says Jörg Wiemer, CEO of TIS.

The TIS team of corporate payments professionals looks forward to continuing the conversations started at this premier event in the Netherlands during the weeks to come.

Cashforce
logo-cashforceVoor Cashforce was het de eerste editie van de DACT Treasury beurs. Als Belgische onderneming die steeds meer klanten in Nederland bedient, was dit natuurlijk de plaats bij uitstek om bestaande contacten aan te halen en nieuwe relaties te ontmoeten. De borrel op donderdagavond vormde de perfect setting om polshoogte te nemen van de zogenaamde ‘hot topics’ in treasury. Relevant voor Cashforce waren vooral de verhoogde interesse in Cash Flow Forecasting. Ook vrijdag was een boeiende dag, met veel nieuwe contacten en interessante sessies. Cashforce is er volgend jaar zeker opnieuw bij op de DACT!

 

 

Hans de Vries – Sales Consultant PowertoPay

hansdevriesLast Thursday night proved to be a great starting point for this year’s Dact event. A lot of delegates joined this meet and greet session at a perfect location for freely discussing the state of affairs. The next day offered a great variety of interesting items to be discussed like Block Chain, Brexit, alternative financing options, bank agnostic developments like CGI MP and of course the Notional Pooling evolution. Good thing was to have these new developments explained not only by the vendors but also by the corporate treasurers involved which resulted in lively discussions with delegates. During the breaks and afterwards we had the chance to discuss these items and of course the position of PowertoPay with quite a number of delegates we met in and around our stand.

 

 

How to cope with the interconnectivity trap part II

| 16-08-2016 | Hans de Vries |

Erphansdevries (1)

 

Electronic Banking has been here for more than thirty years now. And it certainly had a big impact on the way the corporates and banks communicate. Nevertheless, ever since the introduction Treasurers have been struggling to incorporate this feature into their IT ERP environment. They get stuck in the middle. You can read more about that in part I of this article. Today I will show you my “way out”.

A bank and ERP (and TMS) system agnostic solution to upgrade the Treasury function

The SaaS solution described in this article is particularly interesting for Treasurers because of the very limited implementation efforts that are needed to set-up the system at the corporate side. All the platform needs, is a connector that takes care of the automatic upload of files from the ERP environment to the platform. The platform takes care of the conversion of transaction files to the file format needed by the specific banks for processing and performs a validation on the contents of the files to ensure Straight Through Processing at the bank.

So there is no need for changing the output at the current ERP system. This is extremely handy in situations where the corporate landscape consists of various ERP systems, or various versions of an ERP system. The same goes for the download of statement files. After collection of the bank statements, the platform takes care of the conversion into the needed file formats and delivers them into the ERP (and TMS) environment for automatic reconciliation purposes. By using the (SaaS) bank agnostic platform the Treasurer is immediately freed from all usual IT concerns with regard to the bank connections. Most systems also provide the Treasurer with a Dashboard Function to monitor the actual total balances at all banks and the cashflows (End of day and Intraday) that enables them to perform bank (automated) independent cash balancing transactions if needed.

Streamlining the authorization processes to get full control

In most multibank situations the treasurer is faced with one bank only authorization schemes that in most cases use unique bank authorization codes tokens and procedures. This wide variety of tokens, passwords etc. makes life for a Treasurer far from easy especially from a compliancy perspective.

Routing all outgoing transaction files via the SaaS platform, provides the Treasurer with the unique opportunity to streamline the authorization process. He now gets the opportunity to fully control and maintain the granted functionalities / authorization levels per user that are applicable on all bank accounts. Especially in the upcoming times of real-time 24/7 processing by the banks, using this sole gateway to the banks will provide the Treasurer with maximum control of all outgoing transactions and therefore avoiding fraude to the max. Since these systems also provide all necessary audit trails, the Treasurer can take full accountability for the banking processes.

Saving substantial money

Depending on the platform and the number of banks that need to get connected, the costs of the implementation and annual subscription fee will vary per provider. However, the benefits of such an investment are not only measured by the upgrading of the internal cash management processes.

Implementing the platform will also directly lower the operational costs:

  • Experts estimate costs of € 15,000 per year per e-banking solution (maintenance, license fees, software updates, system administration, system tests, database configuration etc.)
  • Elimination of expenses for manual liquidity tracking, manual administration of bank accounts and bank master data as well as the bank-specific administration of signatory authorizations.
  • Reduced banking fees as a result of higher transparency, easier comparability as well as the maximized flexibility towards banks: daily choice of transaction bank(s) per currency/ transaction type.
  • Saving operational costs due to the elimination of manual intervention for the collection and upload of bank statements to the ERP system. In the perfect set-up the reconciliation process can be fully automated and finalized in the early hours of the day providing a head start to the credit management department.

In most cases, these savings pay back the investment in the bank agnostic platform within a year. The introduction of this relatively new cash management service will free the treasurer from the interconnectivity trap, upgrade the internal organization, provide a uniform authorization scheme on all banks while at the same time reducing the operational costs. This solution is also future proof due to its capacity to adopt quickly to new standards, formats etc. All in all, a perfect perspective on upgrading the cash management function within the treasury. For more information, check: PowertoPay.com.

 

How to cope with the interconnectivity trap?

| 09-08-2016 | Hans de Vries |

Erphansdevries (1)

 

Electronic Banking has been here for more than thirty years now. And it certainly had a big impact on the way the corporates and banks communicate. Nevertheless, ever since the introduction Treasurers have been struggling to incorporate this feature into their IT ERP environment.

This struggle has proven to be a tough one, due to the ever changing internal ERP environment as a result of various versions of the same ERP system or even various ERP systems within the company due to take-overs/ mergers. And of course there was quite some turmoil in the banking industry itself: the introduction of the Euro, then SEPA with all new transaction formats and regulations, meanwhile a banking crisis etc. Moreover, the ever growing demands on security and compliance pose further pressure on the interconnectivity. As a result, it has become more and more difficult to keep all connections in place and up-to-date. Especially since most corporates are forced to spread their cash management business amongst multiple banks from a risk mitigating perspective. On top of that the Treasurer is facing a radically changed attitude towards data processing operations, from management but also business environment perspective. We now live in an internet world that does not allow for slacking reactions and inefficient procedures. Action is reaction and efficient reconciliation processes are the key for survival.

Treasurer gets stuck in the middle

To optimize this situation, the Treasurer usually finds himself squeezed between the limited IT budgets for optimizing the connections with his back office environment on the one end and his banks on the other with their multiple banking solutions. While SEPA was presented as a unifying power to align all European banks, in practice there still appears to be a great variety in approaches per bank. So therefore in practice, the Treasurers dreams of a flawless interconnectivity often proved to become nightmares and he most of the time winds up somewhere in the middle of an endless implementation process.

Is there a way out?

The answer is negative as long as the Treasurer remains dependent on the internal IT departments and the offered bank solutions. However, if the Treasurer wants to actively take control of this situation there are now options available that will provide the Treasurer with all the connections and security/ compliance checks he needs for his day to day cash management operations. Instead of using the internal systems, the Treasurer can have his back-office systems (ERP and TMS) connect to the banks via a bank independent (SaaS) platform that will take care of conversion and validation of the uploaded files, the authorization according to the internal compliance guidelines and the routing towards all corporate banks. At the same time the electronic bank statements will be collected and forwarded to the back-office systems for automatic reconciliation in the ERP (and TMS) environment. Apart from the authorization of the transactions, no manual intervention is needed.

Next week Hans will introduce you to his ‘way out’: the SaaS platform.