Webinar Economic Briefing: The Economic Fallout From COVID-19

| 28-04-2020 | TIS |

Webinar: Economic Briefing: The economic fallout from Covid-19. Looking beyond the unprecedented.

Tuesday May 5, 2020 from 4 pm to 5 pm CEST

Our Partner TIS, Treasury Intelligence Solutions, will host a webinar, discussing the economic fallout from COVID-19, while looking beyond the unprecedented. How can we make sense of the ever more dynamic and globalized world we live in? Carsten Brzeski, Global Head of Macro Research and Chief Economist Eurozone at ING, will give you an up-to-the-minute economic briefing which is both insightful and entertaining at the same time.

Your host for this session will be: Kate Pohl, Adviser to TIS and an expert in her field of payments and payment innovation. She will give a short introduction concerning the payments landscape and reflecting the situation today in Europe. If you would like to pose a question, you can either send it in before the session to Kate via [email protected] or during Carsten’s presentation. At the end, there is time for Carsten to take audience questions.

Take a journey with TIS to better understand the implications of the future and the shape of things to come!

Enroll yourself for our free Webinar and get the answers!

Presenters:

Carsten Brzeski
Global Head of Macro Research and Chief Economist Eurozone at ING

Kate Pohl
TIS Advisor and Expert Payments

Date, time and registration

Date: 5 May, 2020

Start: 16:00-17:00 CEST

Register Now and safe your virtual seat

 

 

 

The ultimate battle between Letter of Credit and Credit Insurance

| 28-04-2020 | Ger van Rosmalen | treasuryXL

For decades, there seems to have been a debate between using Letters of Credit (L/C) and credit insurance. Both methods offer their advantages and disadvantages. Last week, I read an article on how working with credit insurance is so much better than working with Letters of Credit, highlighting that L/Cs are labour intensive, have bad financial implications, and global trade generally prefers credit insurance. Now that some have called credit insurance the better alternative, there is further discussion about the usefulness of Letters of Credit, which raises many questions. In this blog, I highlight the contextual benefits of Letters of Credit and my opinion.

This blog is available in English and Dutch. See Dutch version below.

Scenario

Is credit insurance the fully comprehensive solution for the customer? What if the exporter has a nice deal in the so-called “emerging markets” where the credit insurance only covers 80% or no coverage at all and the importer does not want to pay because of a commercial dispute? Can the exporter afford to take a 20% deductible (residual) risk?

Benefits of Letter of Credit

If the credit insurer does not cover at all, a Letter of Credit is a very good alternative. If the transaction has a delayed payment of, for example, 180 days, it is not certain whether the exporter can wait that long for the money. Banks are no longer waiting for you at the door with a bag of money. Lending is scarce. With a confirmed L/C you don’t have to wait until the end of the payment term, but the bank can make money available when L/C compliant documents are provided. We call this “discounting without recourse”.

Customer interest

Discover the best solution for the customer and the transaction. Often you can accommodate a large part with credit insurance, but certainly not everything! If your sales area is Europe, you may still be able to avoid using L/C’s, but if you export all over the world, you cannot avoid using Letters of Credit.

Are L/Cs really that laborious and difficult?
I think you can influence that yourself. With sufficient knowledge in house, it already means that you can often sit in the director’s chair with L/C transactions. I have seen many L/C ‘s go through my hands and then I also see if you take exporters into the L/C world they find it interesting and more importantly, they will recognize the value of an L/C. The exporter feels himself with the newly acquired information comfortable to start using Letters of Credit.

Letters of Credit vs Credit Insurance

The battle between Letter of Credits and Credit Insurance has to be buried because both methods have pros and cons. Find a combination between the two that suits the needs of the customer and you will realize that both methods actually complement and reinforce each other.

 

in Dutch

De ultieme strijd tussen Letters of Credit en kredietverzekering

Al tientallen jaren lijkt er een debat te zijn geweest tussen het gebruik van Letters of Credit (L / C) en kredietverzekeringen. Beide methoden bieden hun voor- en nadelen. Vorige week las ik een artikel over hoe het werken met kredietverzekeringen zoveel beter is dan werken met Letters of Credit, waarbij er werd benadrukt dat L/C’s arbeidsintensief zijn, slechte financiële gevolgen hebben en dat de wereldhandel in het algemeen de voorkeur geeft aan kredietverzekeringen. Nu Sommigen kredietverzekeringen het betere alternatief noemen, wordt er verder gediscussieerd over het nut van Letter of Credit, waarbij veel vragen naar boven komen. In deze blog belicht ik de contextuele voordelen van Letter of Credit en mijn mening.

Scenario

Is een kredietverzekering de allesomvattende oplossing voor de klant? Wat als die exporteur een mooie deal heeft in de zogenaamde “emerging markets” waar de kredietverzekering slechts 80% of helemaal niet dekt en de importeur niet wil betalen vanwege een commercieel geschil? Kan de exporteur het zich veroorloven om een ​​aftrekbaar (rest) risico van 20% te nemen?

Voordelen van Letter of Credit

Als de kredietverzekeraar helemaal niet dekt, is een Letter of Credit een goed alternatief. Als de transactie een vertraagde betaling heeft van bijvoorbeeld 180 dagen is het niet zeker of de exporteur zo lang kan wachten op het geld. Banken wachten niet langer op je voor de deur met een zak geld. Kredietverlening is schaars. Met een bevestigde L/C hoeft u niet te wachten tot het einde van de looptijd, maar de bank kan geld beschikbaar stellen wanneer er L/C-conforme documenten aangeboden worden. We noemen dit ‘discounting without recourse’.

Klantbelang

Ontdek de beste oplossing voor de klant en de transactie. Vaak kunt u met een kredietverzekering een groot deel onderbrengen, maar zeker niet alles! Als uw verkoopgebied Europa is, kunt u misschien nog vermijden om L/C’s te gebruiken, maar als u over de hele wereld exporteert, kunt u het gebruik van Letters of Credit niet vermijden.

Zijn L/C’s echt zo bewerkelijk en moeilijk?
Ik denk dat je dat zelf kunt beïnvloeden. Met voldoende kennis in huis betekent het al dat je bij L/C transacties vaak op de regisseursstoel kunt zitten. Zelf heb ik veel L/C’s door mijn handen zien gaan en dan zie ik ook als je exporteurs meeneemt naar de L/C-wereld ze het interessant gaan vinden en nog belangrijker, ze gaan de waarde inzien van een L/C. De exporteur voelt zich met de opgedane kennis comfortabel genoeg om ermee aan de slag te gaan.

Letters of Credit vs Credit Insurance

De strijdbijl tussen Letter of Credit en Credit Insurance moet worden begraven, omdat beide methoden voor- en nadelen vertonen. Zoek een combinatie tussen beide die past bij de behoefte van de klant en u zult zich realiseren dat beide methoden elkaar daadwerkelijk aanvullen en versterken.

 

 

Ger van Rosmalen

Trade Finance Specialist

 

 

How to start money flow by using creative sources of financing

| 24-04-2020 | Stichting MKB Financiering | treasuryXL

Our Expert Ronald Kleverlaan, Chairman Stichting MKB Financiering, recommends the must read blog from Fons Huijgens with answers to the opposed question by presenting various examples.

The corona crisis is disrupting society. Social quarantine, education at the kitchen table, public transport cut in half, museums closed, restaurants and cafes closed, events postponed, sports suspended, music and club life suspended. Ordinary people are numb, dazed, in a sense disoriented. And in the meantime, people in the health and care sector and all related supplies and services are under high voltage and perform impressive. That said, there is not only concern for people’s health, but also for the health and survival of companies. The crisis has immediately degenerated into a life-threatening liquidity crisis for companies. Where do you get money NOW if the combination of bank financing, government measures and non-bank financing offers insufficient relief? Brainstorm with your colleagues and dare to take unorthodox measures.

Blog continues in Dutch language.

Hoe creëer je NU extra liquide middelen?

Spaarkopen

Bied afnemers een spaarsysteem aan in combinatie met korting. Bied op deze wijze de klant de mogelijkheid een (grote) aankoop op termijn te doen. Geef bijvoorbeeld op het totaalbedrag een korting van 10% plus op de maandelijkse vooruitbetaling een rente van 5% op jaarbasis. De klant krijgt gedurende de spaarperiode 5% rente (vergelijk dat eens met de huidige spaarrente) plus een korting op de aankoop.

Waardebonnen

Vergelijkbaar met spaarkopen, maar dan gemakkelijker overdraagbaar. Je verkoopt waardebonnen van bijvoorbeeld € 100 bestedingswaarde voor een prijs van € 90. Men kan deze bonnen nú kopen en pas inleveren vanaf bijvoorbeeld 1 juni.

Ketenafspraken

Kijk met welke zakenpartners in de keten tijdelijk afwijkende afspraken zijn te maken. Bespreek een tijdelijke (3 maanden) huurverlaging van 30% die bijvoorbeeld wordt terugbetaald door op termijn gedurende 6 maanden 15% extra huur te betalen. Beoordeel op deze manier alle leveranciers van producten en diensten en selecteer diegene waarvan je verwacht dat tijdelijke afspraken kansrijk zijn.

FFF

De term FFF staat voor ‘Family, Friends and Fans’. De zogeheten inner circle van de ondernemer. Het betreft mensen die jou goed kennen. Ze kennen jou vooral als mens, die een onderneming heeft. Durf een beroep op hen te doen. Soms hoor je “met vrienden doe je geen zaken, met vrienden ga je naar de kroeg”… Alles is anders in Coronatijd. Die kroeg is dicht en die vrienden krijgen 0% rente op hun spaarrekening. Durf te vragen. Maak wel goede, zakelijke afspraken. Je zult ontdekken: het word je gegund.

Abonnementen

Verkoop je een zich herhalende dienst of product en val je onder de lockdown? Bijvoorbeeld kapper, restaurant, bar, etc. Door de lockdown is de geldstroom abrubt tot stilstand gekomen. Misschien kun je reeds nu aan klantenbinding werken voor over een paar maanden. Biedt nu abonnementen aan met iets extra’s, die men na de lockdown kan verzilveren.

 

Bron

Money Transfer Spotlight: What You Should Know About Forward Contracts

23-04-2020 | treasuryXL | XE |

XE said it before: not all money transfers are created equal. Depending on…

  • How much money you want to transfer,
  • What currencies you want to exchange,
  • When you want to make your transfer, and
  • Whether you want to take your time to get the best possible rate

…the type of transfer that’s best for you could vary.

When you just want to make just one quick transfer on the spot, without any additional considerations or extra hassle, a simple spot transfer will make the process quick and simple. If you know you’re going to be making multiple transfers on a consistent basis, Regular Payments will ensure that you can make all of your payments, without having to worry about entering the same information ad nauseam.

But let’s say that you know you want to make a money transfer, you know how much you want to transfer, and the rates are good, but you’re not quite ready to send it out. In that case, you’ll probably want a forward contract for your international money transfer.

What is a forward contract?

In a forward contract, you’re making an agreement to transfer:

  • A predetermined amount of a certain currency
  • To another predetermined currency
  • At a predetermined date
  • At a locked in currency exchange rate.

In short? You let us know what you’re exchanging, how much you want to transfer, and when you want to make the transfer, and your transfer will be sent on that date. So if the rates are in your favor but you aren’t planning on making a payment or purchase just yet, you can still take advantage of the favorable rate without having to make your full transfer.

We like to think of forward contracts as the buy now, pay later option. You’ll pay a small deposit now, but you won’t make the bulk of your payment until your set transfer date.

When would a forward contract be the right move for me?

Forward contracts are a great option if you’re worried about potential fluctuations in your currency pairs. Sure, you could just wait until you’re ready to make your payment or purchase to make your transfer, but you can’t guarantee that you’ll like your rate when the time comes.

Are you planning on making any larger purchases, particularly property or investments? You can ensure you’ll get the most for your money if you lock in your good rate now, even if you won’t be making your transfer for months.

How do I set up a forward contract?

Setting up a forward contract is no more complicated than any other money transfer. Ready to get started? Visit our Money Transfer page to learn more about our options and how we can help you initiate your transfer.

 

Get in touch with XE.com

About XE.com

XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.

Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.

Your company money is safe with XE, their NASDAQ listed parent company, Euronet Worldwide Inc., has a multibillion-dollar market capitalization, and an investment grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have a truly global coverage.

Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page

 

 

 

 

Source

treasuryXL announces partnership with Kyriba to strengthen dissemination of the latest trends about treasury

| 22-4-2020 | treasuryXL | Kyriba |

VENLO, The Netherlands, April 22, 2020 – treasuryXL, the community platform for everyone who is active in the world of treasury, and Kyriba in the Netherlands, the global leader in cloud treasury and finance solutions today announced the signature of a premium partnership.

The partnership aims at offering a continuous flow of treasury content, making treasury knowledge available. This partnership includes:

  • collaboration on messaging, content production, and visibility
  • mutual distribution on select items of interest
  • collaboration on larger themes: event promotion, speaking and experts contribution, publications

Treasury management is currently experiencing a revolution under the effect of digital transformation. With this partnership, treasuryXL and Kyriba are striving to make sure that treasurers are always up to date with the latest news and events in their field.

According to Kendra Keydeniers, treasuryXLWe are happy to welcome Kyriba in our community. Kyriba is recognised by leading analyst firms, treasury and finance trades for its innovation and its leadership in cloud finance solutions. Kyriba will have a prominent role in the Treasury Topic environment with coverage in Cash Management, Risk Management, Treasury Software, Payments & Banking, Fraud & Cyber security and Working Capital Management which is a considerable contribution to our ecosystem.”

With an increasing focus on digital transformation, financial leaders must be empowered with insights into all the latest treasury trends. They need rapid access to on-the-pulse information around the latest industry news, plus new services and products to support their initiatives for innovation and competitiveness. With this partnership, treasuryXL, Kyriba has access to a well -established communications forum and a wide treasury ecosystem.says Luuk Linssen at Kyriba.

About treasuryXL

treasuryXL started in 2016 as a community platform for everyone who is active in the world of treasury. Their extensive and highly qualified network consists out of experienced and aspiring treasurers. treasuryXL keeps their network updated with daily news, events and the latest treasury vacancies.

treasuryXL brings the treasury function to a higher level, both for the inner circle: corporate treasurers, bankers & consultants, as well as others that might benefit: CFO’s, business owners, other people from the CFO Team and educators.

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 consultancy services in collaboration with qualified treasurers.
  • a broad network of highly valued partners and experts.

About Kyriba

Kyriba empowers CFOs and their teams to transform how they activate liquidity as a dynamic, real-time vehicle for growth and value creation, while also protecting against financial risk. Kyriba’s pioneering Active Liquidity Network connects internal applications for treasury, risk, payments and working capital, with vital external sources such as banks, ERPs, trading platforms, and market data providers. Based on a secure, highly scalable SaaS platform that leverages artificial and business intelligence, Kyriba enables thousands of companies worldwide to maximize growth opportunities, protect against loss from fraud and financial risk, and reduce costs through advanced automation. Kyriba is headquartered in San Diego, with offices in New York, Paris, London, Frankfurt, Tokyo, Dubai, Singapore, Shanghai and other major locations. For more information, visit www.kyriba.com.

How to simplify Procurement and Finance in the Supply Chain

| 21-04-2020 | Wim Kok | treasuryXL

Accelerated by the Corona pandemic, an unforeseen global crisis affecting us all, digitalisation, transparency, efficiency and real time settlement has moved dramatically up north on the priority scale of all global industries. At least it makes an important move to rethink sustainable business models in the post Corona era.

Secured (cyber proof) Platform connectivity bolstering strategic supply chains will become a very important aspect in the future survival of trading companies globally.

More and more initiatives are seen to phase out the “old school” handling of paper-based settlement. Rain forest of papers are being used to settle payment out of export and import contracts. Its cumbersome processes to settle payments through bank using old payment methodologies like Bills of Exchange, Cash Against Documents and Documentary Letters of Credit. Do not misunderstand my objective, nowadays contract settlements are strongly embedded in society supported by different legislation countries by country. This is also the reason why things are moving so slowly. Institutions like ICC, Swift, Customs & Harbour authorities (to name few) are constantly trying to move the needle in digitising processes. The reality is that the transformation goes to slowly. Maybe when COVID19 is behind us there will be an acceleration after reconsidering existing business models of supply chains dependent from documentary evidence.

In this 15 trillion USD ($) global trade market there is enough space next to the big banks and big corporates, who started to explore already after the 2008 crisis using agile inhouse innovation labs.

Initiatives like Komgo and R3 syndicates already looking at blockchain technology, however still geared toward the larger (commodity) trading community. It is interesting to see that the big Agri trading companies recently started a new initiative Covantis.

After PSD2 introducing Open banking a lot of financial FinTech’s are entering the market not having the burden of an absolute (outdated) big banking system. Big tech giants like google, Facebook and Amazon are looking into their enormous data bases trying to grasp their market share.

TransDocLink is developing a platform based upon the above ideas, capturing as much as possible stakeholders & features. Transdoclink already can make use of the TDeal concept on its platform. Creating in a supplier/buyer relationship full transparency, efficiency and trust in their contracted supply chain. A dashboard gives visibility around the whereabouts of the goods and money (triggered movements are settled through a dedicated wallet). TransDocLink aims to serve the SME market in an open (independent) platform environment.

In 2016 TransDocLink already recognised that the Letter of Credit (and its very paper heavy documentary settlement) is a “dinosaur” in the expensive settlement of payments in the banking industry. The aim was to digitise these processes and offer an alternative on a platform-based initiative. Buyer and Seller create on the platform a trusted lane (supply chain) by matching contracts. The settlement of agreed terms is being executed through an independent trust account instead of the alternative using an expensive settlement via Letter of Credit. The original concept was built around a straight through processing payment engine (exempted by the Dutch Central bank) and further enhancements are being made (escrow-TDeal , working capital, asset based & trade finance modules) to keep up with the quick changing landscape in the FinTech industry.

Curious what TransDocLink can do for your business? Visit transdoclink.com and/or contact me directly for some advice.

 

Wim Kok

International Business Consultant
Trade Finance Specialist

 

 

 

Webinar and Q&A: Covid-19: Where to next?

| 17-04-2020 | XE.com

Webinar and Q&A | COVID-19: Where to next?  | Wednesday April 22, 2020 at 5.00 pm – 5.45 pm CET

As financial markets continue to react to the global pandemic and the daily news headlines, XE will share insights into how businesses that have a commercial exposure to the currency markets can look to protect their bottom line from further impacts.

During this next Xe-Pert Webinar, the Xe team will walk you through two scenarios – a base case given current developments in addition to a significantly less favourable case should infection rates reverse course and start to climb again. We’ll discuss each cases’ potential impact on currency markets and outline risk management strategies applicable to each scenario. Register now and submit your questions, and our experts will also look to answer the common challenges during the live session. We may not have all of the answers, but we can look to provide some support to issues regarding currency exposure.

Register Now and and submit your questions, and the XE experts will look to answer the common challenges during the live session. XE may not have all of the answers, but they can look to provide some support to issues regarding currency exposure.

Date, time and registration

Date: April 22, 2020

Start time: 5.00 pm – 5.45 pm CET

Register here

 

Do you a question that you’d like one of the XE Experts to answer during the session? Please provide details and XE will endeavour to respond during the session. You can submit your question at the registration page.

 

 

 

Money Transfer vs. Wire Transfer: What’s Really the Difference?

17-04-2020 | treasuryXL | XE |

And is there really a difference? The two methods follow the same process. You have someone that you want to send money to, and sending cash in the mail isn’t going to cut it. So, you take your money to another service provider, pay them, give them your recipient’s information, and let them take care of the heavy details. Within the next couple of days, they’ll receive the money and you’re all set until your next transfer.

For a lot of customers, the biggest difference is where you set up the transfer. Wire transfers tend to run through banks, while money transfers are facilitated by other providers. It seems like a no-brainer: you already go to your bank for other financial matters, and you trust them to handle your money and information.

But is that really the best option? Let’s take a few minutes to explore the difference between wire transfer and money transfer, and what that means for you (and your wallet).

Wire Transfer

Wire transfers are a form of electronic funds transfer (ETF) that travel through banks and financial institutions. And though we used the word “travel” in the previous sentence, there’s no physical money transport. Instead, your bank verifies that you have the funds for the transfer and sends information through the SWIFT system to your recipient’s bank that will tell them to credit their account with the funds.

Money Transfer

Like wire transfers, money transfers don’t transport any physical money but transmit financial information between the relevant parties. But as we said above, money transfers don’t go through banks (though), and they use their own communication systems instead of using the SWIFT system.

So, what’s the difference?

Is how they send the money the only real difference? That is the biggest difference, but it also leads to a few smaller (but important) distinctions. Traditional wire transfers and online money transfer differ in these key areas:

  • Depending on your bank, you may or may not need to set up your wire transfer in person. Electronic money transfers, on the other hand, can be initialized online, often any day or time.
  • The SWIFT system and other systems function in the same way, but SWIFT system transfers require a fee for using the system. Online money transfer can vary; some providers will have third-party fees, while others have just a small service fee.
  • SWIFT fees aren’t the only fees. Wire transfer is typically considered a premium service, and comes with a higher price tag than other services. When a money transfer provider doesn’t involve any third parties, the fees will be much lower.

Now that you know the difference between the two services, you’ll know which questions to ask your provider and what to look for in a transfer provider.

 

Get in touch with XE.com

About XE.com

XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.

Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.

Your company money is safe with XE, their NASDAQ listed parent company, Euronet Worldwide Inc., has a multibillion-dollar market capitalization, and an investment grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have a truly global coverage.

Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page

 

 

 

 

Source

Cashforce Webinar: How Treasury is dealing with the new normal

| 14-04-2020 | Cashforce

We highlight the following event, held by our partner CashForce  in collaboration with Citi; Webinar: How Treasury is dealing with the new normal

Only a short few weeks back Treasury professionals were operating in a relatively benign environment; managing routine funding needs, investments and supporting expected business growth.
Today, Treasury is in unchartered waters, working remotely, with a return to 2001 and 2008 levels of market uncertainty.
Join the panel of Corporate Treasury professionals (speakers to be announced) who are managing this business and market disruption at the frontline.
Together with Nicolas Christiaen (CEO – Cashforce), we’ll learn about their response and what steps could be taken now to prepare for the emerging new norm for Treasury.
Furthermore, Dr Duncan Cole (Principal – Citi Treasury Advisory Group) is joining this webinar.

Date, time and registration

Date: April 21st, 2020

Start time: 11am EDT / 5pm CET.

Register here

Blockchain and European payments: banks in the defensive mode

| 14-04-2020 | Carlo de Meijer | treasuryXL

The European Banking Federation (EBF), the European Association of Co-operative Banks (EACB) and the European Savings and Retail Banking Group (ESBG) point out that the crisis has brought to the fore the importance of well-functioning payments services.

The three groups have put together their vision for payments in the EU over the next five years, as they “seek to meet changes sparked by a mix of evolving customer needs, regulatory action, technology and innovation, and increased competition”.

Top of the list of priorities is the importance of developing instant payments across the EU that allows for both the differentiation of EU companies and the reduction of dependency on the dominant non-EU payment card schemes.

But reading the document not one single word was mentioned about using  blockchain or distributed ledger technology. It seems banks are increasingly getting in the defensive mode worrying the disruptive impact of this technology on their business.

Some critical remarks

Looking into the report the focus is rather limited. It shows a rather isolated EU-oriented view. It does not take into account the new realities such as globalisation of the payments world, the upcoming of new technologies and the global role of organisations  such as Visa and MasterCard, but also the likes of Facebook and Google.
It is too much EU but above all too much euro-area focused, while not taking into account the cross border element especially towards non-euro EU countries.
The report also does not go into more detail towards the various technologies including Big Data, Artificial Intelligence and above all blockchain.

Present state of EU payments market

But let us first look at the present state of the EU payments market. And what blockchain could mean to improve. As EU banks you cannot deny the outside world. I agree, most European domestic payment systems are pretty efficient. But not where one has to transfer money cross-border, especially where it relates to non-euro countries.

Most established centralised payment systems were designed decades ago, in a completely different world. While they are considered to be reliant, secure and stable domestically i.e. inside individual EU countries, these centralized systems have not been able to catch up with the needs of our digital, open and hyper-connected world.

Banks have continued to use the old-style correspondent banking systems for international payments – despite their inherent weaknesses. Notably, these systems are expensive, slow, and complex. In the correspondent banking system, both the originating bank and the foreign bank retain their own ledgers, from which they make reconciliations and settlements. This may lead to a lack of transparency, but also make them vulnerable for hacks.

According to a SWIFT and EuroFinance joint survey, lack of payments traceability, invisibility on banking fees, and amount discrepancies are the key concerns in cross border payments. It can take days to clear traditional cross-border wire payments, which carry fees as high as 10%. According to a McKinsey Research, cross border-payments take 3–5 days, which is quite long for corporates seeking to receive money. In the event of a dispute or investigation, the duration can be longer.

Disruption

New technologies are revolutionizing the way we pay and transfer money all over the globe. With the advent of mobile banking, e-commerce, and digital wallets, banks have to rethink their correspondent banking system of making cross-border payments. Blockchain is another area that – if adopted in a more massive way – could majorly transform the global payment systems and disrupt banks, causing them to realign  or rethink their products.

SWIFT defensive stance

So it is not that strange banks are increasingly in the defensive. SWIFT is still the dominant payment-processing ecosystem with more than 11,000 banks. Blockchain, through its distributed ledger, however may disrupt SWIFT’s operations in the future. To neutralize the rapid adoption of blockchain in the cross-border payments industry, SWIFT developed a cloud solution called Global Payments Innovation (gpi) to connect all clients in the payment chain. Currently, gpi accounts for more than 55 percent of SWIFT cross-border payments. Half of these transactions are reaching the recipients within minutes, but all of them within 24 hours.

Although SWIFT plans to rely on common standards, core architecture, and APIs to be a leader in the industry, it is also slowly embracing blockchain technology. SWIFT has launched a proof-of-concept (PoC) trial with R3′s Corda platform, which is blockchain-powered, to initiate payments that then go to gpi.

How can blockchain improve payments?

Though blockchain is still in its early stages, this technology has a number of inherent characteristics  presenting a fundamentally new way to transfer information and value over digital networks.

This technology could play a huge and central role in payments, underpinning core market infrastructure as well as end-user products, as a source of efficiency, innovation and competitive advantage.

As it is slowly maturing, blockchain technology could gain the trust of banking institutions and adopted widely in the coming years. From large banks and enterprises optimizing global liquidity, to retail stores accepting payment in digital currencies, to new forms of customer identification for retail transactions, blockchain could permeat the payments landscape at an accelerated space.

New forms of payment rails could “blur the lines” between currencies and countries, while cryptography solutions like zero knowledge proof could shift paradigms in areas such as identity, compliance and data privacy.

What are the real benefits?

Blockchain is a promising technology for payment processing. The broad implications for payments, especially improving settlements’ times, removing the middleman and security of cross-border transactions are hard to ignore.

The ability to speed up the payments process, improve capabilities when it comes to cross-border payments, reducing fraud by using smart contracts and making the whole payment processes more efficient and transparent are all elements that may impact its future potential and use.

Efficiency

Blockchain’s primary feature is its efficiency. Because the core idea of a decentralised ledger technology (DLT) is to forego centralised institutions, paying on a blockchain is “as easy as clicking send.”  The distributed ledger facilitates the bilateral, immutable distribution of value with the assistance of a settlement agency. Blockchain, allows the sender and the receiver, as nodes in the network, to have a complete copy of the ledger. In such a scenario, there are no correspondent banks/intermediaries involved, eliminating any chances of manipulation. The results are no money transfer waiting periods or unnecessary third-party processing fees. Blockchain-based cryptocurrencies can be transferred (and recorded for auditing purposes) instantaneously across the world, increasing liquidity and efficiency in the markets.

Security/Safety

Another important feature of blockchain technology is safety. Blockchain allows for the safe transfer of money between different individuals, currencies and countries by securing all transactions on the network with cryptography. The crux of many of its purported benefits for the enterprise is its decentralized nature, which promotes visibility and makes it more difficult for data to be manipulated. The transactions are linked with previous transactions and are distributed to all the participants in the network. For a hacker to tamper with any transaction, he/she must alter all the previous ones, which is (almost) impossible. Additionally, the use of blockchain smart contracts can halt payments when agreed terms are violated.

Cost reduction

And blockchain may support real-time domestic and cross-border payments at lower costs compared to traditional payment services. Blockchain technology completely eliminates the need for intermediaries and facilitate a direct transfer over the platform, thereby eliminating foreign exchange fees while increasing speed of transfer. Instead of incurring these fees, blockchain allows customers to pay only a nominal fee or sometimes no fee at all.

The present state of blockchain adoption in payments

Of course, blockchain technology is still in their early ages and largely still immature. Blockchain payments are not (yet) mainstream and many banks and payment service providers are just testing it, trying to combine the so-called old monetary system with the new one (blockchain solution based values or solutions). Most institutions are still reluctant to embrace blockchain fully until there is broader support for it.

But what about Ripple?

A leading player in the blockchain payment world is Ripple. Its RippleNet blockchain platform facilitates transaction of global payments at a rapid speed, allows users (mostly small business) make payments across the globe and send and receive money in local currency, requiring lower capital amounts for cross-border payments. The company’s ledger technology secures, tracks and reconciles payments, so small businesses have a transparent history of all incoming and outgoing payments.

RippleNet has a product called xRapidthat is already providing low-cost liquidity to financial institutions responsible for facilitating cross-border payments. xRapid can facilitate the process without relying on mandatory pre-funded nostro accounts, as is the case in a correspondent banking system for the execution of cross-border payments, thereby lowering the cost of cross-border transactions. As a result, the transactions occur in a matter of minutes, saving time on recipients.

Currently, the network of banks and commercial platforms has grown to 365, and they are now able to resolve problems that delayed cross-border payments, such as missing data and compliance checks. As more banks join the network, payment delays will reduce importantly.

The Ripple payment system is still in strong competition with SWIFT but is super-fast and can settle a cross border transaction in a matter of few seconds where SWIFT takes more than 3 days at times. Ripple is much more cost effective as well.

Along with this also blockchain platform Corda R3 is helping financial institutions to settle payments.

From hype to more realism

The excitement about blockchain has subsided over the last couple of years. The blockchain hype is over and we are now in the trough of disillusionment, according to Garner’s Hypecycle. Lots of experiments and R&Ds have been taken place from start-ups to central banks, however no full scale working use case has been presented at the moment.

We now moved into a stage of “rational practicality”. However, that is not all bad for the further development of blockchain, as “in the trough is where the real work gets done”. The industry knows what is possible, but also is learning what is practical given the complexity of cross-border payments. Blockchain — assuming it is attached to relevant, pragmatic use cases — can add incremental value to a business or other organization.

Regulatory barriers

One of the primary barriers is the complex global regulatory framework surrounding money and its underlying infrastructure. Central banks, governments and regulatory bodies around the world have varying perspectives and attitudes towards blockchain and its implications to critical matters such as money supply, privacy and financial crime.

As a result, most payment-related innovations either get trapped in ‘proof-of-concept’ mode with limited options for global scale, or end up buried in complicated cross-jurisdiction approval processes. The question now is not will blockchain work, but rather how do we put it to work to create more efficiency in global payment systems and can we get regulatory bodies on-board.

What should banks do?

Inevitably, banks will have to re-evaluate and revamp their existing payment systems to meet the needs of their customers with or without blockchain. However, it is increasingly clear that the scale seems to be tipping towards blockchain given the various benefits including its transparency, speed, and cost of transactions. In the realm of cross-border payments, some financial institutions are already working with blockchain providers to give their customers fast, secure, and cheap services.

When applied correctly, it has the ability to significantly change the way organizations do business with one another. As the global payments ecosystem continues to transform in response to a rapidly shifting commerce landscape, we may see the number of blockchain applications in payments exponentially growing.

A growing number of financial institutions world-wide have reached the point where they recognize blockchain as something that’s not going away and realize that they have to be involved in it if they don’t want to be disrupted by other payments players that use blockchain to bypass slower-moving banking infrastructure.

So, European banks, if you can’t beat them, join them.

By the way, a joint effort of ECB and European banks in creating a European digital currency would be a great step forward.

 

 

Carlo de Meijer

Economist and researcher

 

 

 

 

Source