PSD2 – new opportunities but an issue of trust

| 07-11-2017 | Lionel Pavey |

PSD2PSD2 (Payment Services Directive) is an extension on the existing PSD within the EU. The objective is to increase competition in the payments industry, whilst increasing access from non-bank firms. This should lead to standard payment formats, infrastructure and technical standards – at first glance an improvement for consumers. However, there appears to be a particular threat to privacy and the threat of third parties gaining excessive access to personal data.

What are the objectives of PSD2?

  • Standardising, integrating and improving payment efficiency across EU states
  • Harmonise pricing and improve security of payment processing across the EU
  • Providing better consumer protection
  • Encouraging innovation and reducing costs
  • Create a level playing field and enable new entrant payment service providers
  • Incorporate emerging payment methods such as mobile payments
  • Bring new and emerging payment services under regulatory control

For the fintech industry this is a welcome development – they are focused on providing alternative platforms for standard bank products.

 What changes will take place because of PSD2?

  • Third party Access to Accounts (XS2A) – E-commerce companies can take online or mobile payment directly from a consumer’s bank account without going directly through PCI intermediaries (Payment Card Industry); this process will be known as Trusted Third Party (TTP) Account Access.
  • The ability of API’s to take payment – The ability of an Application Programming Interface (API) enabling payment by directly connecting the merchant and the bank
  • The ability to consolidate account information in a single portal – An API enables a new type of financial services company – an Account Information Service Provider or AISP – which aggregates account information to let consumers with multiple banks view all bank details in one portal

A Dutch television programme that informs on consumer issues (AVRO/TROS RADAR) recently broadcast a report on the potential dangers of PSD2 with regard to issues around personal privacy. By granting access to TTPs they are able to access your bank account and retrieve all the data from the last 90 days. This will enable them to provide consumers with a better overview on products and services. However, it also means that they gain a valuable insight into how much you earn, how you spend your money and which companies you transact with. In theory they could offer you alternatives which are cheaper and more tailored to your individual requirements.

But to be able to do all this, they will also need access to your verification methods – in other words they will need to know your PIN numbers. We have always been told, especially by the banks, that this information is strictly confidential and should never be given out. There is also the possibility that they could offer you a special discount that can only be obtained if you give away your personal access codes.

This opens up the payments market to potential fraud – how do we know our personal data will be protected; how will the companies guarantee that the data is only used for a specific product or service; who can ensure that our data is not sold to data mining companies; how can we be sure that our personal data is erased if we decide to opt out in the future?

Commercial banks are subject to numerous directives to ensure they conform to all legislation regarding banking and data protection. How can we get the same guarantee from a fintech solutions provider who might be tempted to increase its revenue by selling data?

However advanced our technology becomes, finance is an industry that has always relied on trust. Banks can only thrive if customers trust them with their money. We assume that if we deposit money into a bank, the bank acknowledges our position as a debtor and will repay us when we demand it. We expect them to exercise a duty of confidentiality and not disclose information about us. When that trust is broken, confidence in the bank is lost and this can quickly escalate to a run on the bank as mistrust leads to customers wanting their money back.

Do we feel the same level of trust for non-bank parties who gain access to our bank data?

 

Lionel Pavey

Cash Management and Treasury Specialist

 

What happens after Brexit – the morning after 29th March 2019

| 06-11-2017 | treasuryXL |

On the 23rd June 2016, Britain voted via a referendum to leave the EU. On the 29th March 2017 they invoked Article 50 starting the process to leave the EU, meaning they should leave on the 29th March 2019. Between now and then, negotiations are taking place between Whitehall and Brussels to agree the terms of Brexit. But what are the consequences if there is no agreement by the 29th March 2019?

This is the so-called Hard Brexit – but what does it really mean for businesses and individuals? The EU has stated that Britain can not receive favourable treatment – President Juncker has stated that Britain must pay. So if Britain does not pay and no agreement is reached, what happens after Brexit?

Trade will still continue, but in all reality, it will be subject to WTO rules. Both the EU and Britain are members of the WTO, so a framework does exist even if it is just that – a framework with no body. The simple concept would be covered by the existing EU’s Common Customs Tariff, which details a broad range of taxes on imports. This is a starting point for ascertaining what the likely costs would be.

There is a healthy trade between Britain and the EU, resulting in a surplus for the EU in the region of EUR 100 billion per year. According to a report from Civitas (an independent think-tank) looking at physical goods, exports from Britain would incur tariffs of EUR 5.9 billion per year, whilst exports from the EU would incur tariffs of EUR 14.5 billion per year.

This is a macro approach looking at trade at the most global level. When a micro approach is applied, there are significant variations between different industries and products. Dairy products attract tariffs of 40 per cent, flour 25 per cent, plastics 6 per cent, and wood 2 per cent, Additionally the tariffs on exports to Britain per country in the EU vary greatly; Germany EUR 2.8 billion, Netherlands EUR 1.7 billion, Italy EUR 1 billion, Portugal 0.2 billion.

So, what can you do to prepare for Brexit?

 The scenario shown above is a guideline on the basis of no deal, which is assumed to be the worst-case scenario. It would be prudent to download the guidelines from the WTO and understand what tariffs your products would attract – this is for imports as well as exports. Using the guide lines you can calculate what the effect would be on your business. At least this would provide you with a base line for future calculations. This can enable you to analyse your expected data and could lead to you seeking out other markets or looking at ways to reduce costs if price increases can not be directly passed on.

What about the logistical problems?

 With a Hard Brexit there will be no free movement of goods. Trucks will be stopped at customs and have their goods verified; this will add to the travelling time and add to the costs. This means that it will be necessary to ascertain which ports are the most efficient and have the least delays etc. British goods could be determined not to meet EU standards and vice versa.

Conclusion

  •  With no agreement, costs will increase for companies and individuals
  • There will be uncertainty over laws and regulations
  • There could be logistical problems
  • Ex-pat citizens do not know where they stand

A change is coming – do not be unprepared. Make your own risk assessment on your business and create contingency plans based on the worst case scenario.

IT treasury management systems

| 03-11-2017 | Treasurer Development | Minor Treasury @ Hogeschool Utrecht | Frans Boumans |

Today’s blog has been written by Florian de Bruin & Jake Verspeek , who are 2 students studying for the minor Treasury Management at the University of Applied Sciences in Utrecht. We welcome their contribution – it is good to see the youth engaging in Treasury matters! Here is their opinion on IT Treasury management systems.

The complexity of financial control is increasing, but the demand of treasury management to process the right information on time is still there. The treasury management systems enable the treasurer to process the information on time. This involves responding quickly to developments in the money and capital markets and the continuous optimisation of liquidity management and financing. The complexity of the function increases because it is not just about managing and optimising incoming and outgoing cash flows, managing liquidities & investments, and financing of various activities of the company; but also for managing interest rate risks and currency risks. As a result, the Treasury management systems have taken a central role in the overall management of risk in an organisation.

Treasury management systems are available to optimise the treasury management within a company. It is often companies that are diverse, complex and operating internationally that use this IT software. It will therefore not be very common for small businesses with a simple business/structure or a small revenue. The risks and costs of treasury management usually run parallel to these structural features. The features of a treasury management system can be summarized in 10 points:

  • Cash management
  • Payment transactions
  • Foreign currency risks
  • Loans
  • Hedge accounting
  • Derivatives
  • Real- time links
  • Reporting
  • Analysis
  • Risk management

Treasury management maps these processes and manages them. A treasury management system is crucial in supporting such treasury functions in such types of companies.

As seen in the general market for IT, the market for treasury management systems is getting bigger and evolving at the same time. The market for treasury management systems has grown sharply, partly due to the increasing use of IT within companies. Because of the decent use of IT within companies for some while, the level of the market has reached a decent maturity level and the systems functionalities are increasingly expanded and developed. What is of great importance is that these systems have a great security implemented. It is not desirable that unauthorized persons may make any changes to data, such as cash flow of some deals. Such things can have major consequences for the treasury department and the company.

It is a challenge to find the right system that fully complies with the wishes of the treasury department. Creating the perfect match is the biggest challenge. Each system has their own specialty. For example the supplier DiscoverEdge delivers a system that is specialised in Cashflow forecasting, but the supplier Equens SE deliver has a system specialised in Payment management. It is a key factor for making the perfect match that you keep in mind that this match will be for the long term. Also, it is important for a company to ask what do we really desire from the system and what are we going to desire in the near future from the system. In this way you can make a choice that you still will be satisfied with after a couple of years.

At this moment there are no major developments for Treasury management systems. But the IT industry is one of the most innovative industries. So, you never know when there is a new major development for Treasury management systems.

Resources
http://www.treasury.nl/files/2007/10/treasury_239.pdf
http://www.ey.com/Publication/vwLUAssets/EY_-_TMS_Survey_2%C3%9F14/$FILE/EY-TMS-Survey-2014.pdf
https://www.accountant.nl/globalassets/accountant.nl/web-only/0034_bottemanne_14augustus2014.pdf

Minor Treasury Management

More information about the minor Treasury Management at the University of Applied Sciences?
Please contact Frans Boumans.

 

Frans Boumans

Manager Minor Treasury Management @ University of Applied Sciences in Utrecht

 

 

 

Due to the improved economy and other factors we notice a rising interest in the development of the treasurer as a person. Education, competence development and labour market changes are the most obvious topics this concerning. This is why we started the Treasurer Development initiative. 

 

Banken en Financiële Markten in Vogelvlucht – E-learning uitgelicht

| 02-11-2017 | Financial Training Hub |

Zonder banken en financiële markten zou onze huidige economie en welvaart niet mogelijk zijn. En of u het nu leuk vindt of niet, banken waren en zijn onmisbaar voor onze moderne maatschappij. Iedereen doet, al dan niet bewust, dagelijks zaken met of via banken. Sinds de jaren ’80 heeft er een ongekende schaalvergroting plaatsgevonden in de financiële sector. Door deze schaalvergroting hebben banken zich ontwikkeld tot gigantische financiële supermarkten die een zeer uitgebreid aantal financiële diensten en producten aanbieden. Banken zijn tegenwoordig IT-bedrijven waar een grote groep specialisten werkt met beperkte financiële vakkennis.

Een groot deel van deze specialisten en de meeste bankklanten weten niet wat banken doen en waarom ze een sleutelrol spelen in onze economie. Wat is de invloed van banken op ons dagelijks leven en waarom zijn ze zo belangrijk? En: hoe is het mogelijk geweest dat banken een ongekende crisis op financiële markten en onze economie hebben veroorzaakt? Wat gebeurt er op financiële markten en waarom? Welke rol speelt de Europese Centrale Bank en waarom staat de huidige rente zo laag?

Met het volgen van deze gemakkelijk toegankelijke e-learning maakt u een vogelvlucht over de financiële wereld waardoor u algemene kennis en inzicht verkrijgt over diverse onderwerpen waaronder: monetair beleid, betalingsverkeer, banksoorten en activiteiten, kenmerken van financiële producten, prijzen en prijsvorming, benchmarks, motivatie en organisatie van handel, financiële risico’s, toezicht en compliance.

Deze e-learning bestaat uit vijf sessies

  • Kernactiviteiten van Banken
  • Dienstverlening en Banksoorten
  • Activiteiten op de financiële markten
  • Motivatie en uitvoering van handel
  • Banken, operationeel risico en compliance

Elke sessie bestaat uit een presentatie met uitgebreide begeleidende teksten en een quiz met ruim 20 meerkeuze vragen. Een aantal presentaties bevat korte videofragmenten.

Studieduur

De geschatte tijdsduur voor het doorlopen van iedere sessie plus het maken van de quiz is  2 – 2,5 uur. Het doorlopen van de volledige e-learning-module zal ongeveer 10-15 uur kosten.

Doelgroep

Deze e-learningmodule is geschikt voor alle medewerkers binnen de financiële sector en andere geïnteresseerden.

Over deze module

Deze module is gecreëerd door Financial Training Hub en wordt op het platform van Financial Training Hub aangeboden. Na afronding van deze e-learning heeft u voldoende kennis om bij de Financial Training Hub op diverse onderwerpen een meer specifieke traditionele training te volgen op aanvraag.

Korting

Deze online training bestaat uit 5 sessies. Elke sessie bestaat uit een presentatie met aanvullende tekst (notes) en een bijbehorende quiz. Deze training kost EUR 89.

Ontvang via treasuryXL korting op deze e-learning en/of de e-learning MiFID II/ MiFIR.
Stuur een mail naar [email protected] voor meer informatie. 

 

Trading places – is big tech the real threat to banks?

| 01-11-2017 | Lionel Pavey |

 

Reading yesterday’s article about Fintech banks reminded me that, in the last few weeks, I had seen articles in the news about the growing interest in providing banking services by so-called Bigtech companies. Bigtech is defined as established “platform” players such as Amazon, Google, Alibaba and Paypal. These companies are already providing finance to small businesses – Amazon has already lent USD 3 billion to online merchants.


Whereas Fintech startups are trying to find funding for their ideas, they do not have a large supply of capital to truly offer large scale lending facilities. They are well suited to participate in peer-to-peer lending initiatives and can certainly show established banks how to do things in a new way, but they do not have the true scale to compete against banks. Bigtech companies, with their vast cash reserves and huge databases, present a very serious problem for existing banks.

Bigtech already collect and analyse data from all their clients. This gives them a unique insight in how to review and redesign the processes for banking, allowing for faster services, reduced costs and reaching a critical mass for trading on an electronic platform.

According to research from consultants McKinsey & Company “Seventy-three percent of U.S. millennials say they would be more excited about a new offering in financial services from Google, Amazon, Paypal or Square than from their bank — and one in three believe they will not need a bank at all”. Platform companies therefore appear to have a very strong and loyal relationship with their customers.

Japan’s largest online retail marketplace – Rakuten Ichiba – offer their customers:

  • Loyalty points and e-money usable at hundreds of thousands of stores, virtual and real.
  • Credit cards issuance to tens of millions of members.
  • Financial products and services that range from mortgages to securities brokerage.
  • Run one of Japan’s largest online travel portals.
  • Instant-messaging app, Viber, which has some 800 million users worldwide.

This is a very comprehensive list of what are, basically, supporting services to their main function as a marketplace. Banks offer traditional services with little or no additional services.

Where can Bigtech make a difference in the current banking model?

All online marketplaces bring both buyers and sellers together. Most sellers are companies that can be classed as SME (Small and medium-sized enterprises). In the current market SME’s are experiencing difficulties arranging finance. A survey conducted by the Asian Development Bank (ADB) concluded that there is a gap in trade finance – based on bank rejections on applications for trade finance – of about USD 1.5 trillion. SME’s make up around 75 per cent of that total. Furthermore, 60 per cent of companies that responded, stated that rejection led to losing trade. Realistically, if 10 per cent of those rejections had been financed, that would lead to an increase of 1 per cent in staffing levels for SME’s worldwide.

Trade finance is a special form of banking. It provides finance for a relatively short time – the average tenor is less than 180 days. It is a crucial form of finance as shipping goods around the world places a great strain on working capital – all the costs are upfront and the goods are only paid for after receipt. Any form of lending entails risks and for trade finance a good source of information can be obtained at the International Chamber of Commerce (ICC). This organisation is responsible for the business conduct codes for international trade. They analysed data between 2007-2014 with an exposure of USD 7.6 trillion. Defaults for short-term finance for import/export stood at 0.06%.

Providing trade finance is complimentary to online marketplaces and certainly an area where Bigtech firms can increase their presence in the financial industry. With all their data, they are better equipped than a bank to analyse the financial health of an export company. They can see how many orders have taken place, their geographical distribution, their trade value etc. They are also able to offer finance to buyers – their data is also available to Bigtech fims.

Bigtech companies have the means to take on banks; they have the data; knowledge of the marketplace; work completely in an online environment; are open 24/7 and are better known and regarded by young people. The opportunities are there – the question is how much of the supply chain do they want to influence?

When I first started in banking I worked in import and export departments. It provided a good insight into how an economy really works. I was raised on the South coast of England and, as a child, regularly played around the local commercial harbour. I still recall the smell of fresh timber and casks of Sherry and Port. The harbour was the gateway to the world; it was where adventures started. I still live on the coast – some things never change.

 

 

Lionel Pavey

Cash Management and Treasury Specialist

 

Uitgelicht: ECB strenger voor fintechbanken

| 31-10-2017 | Peter Schuitmaker |

 

Recentelijk lazen we een artikel over de verhoogde toezicht dat de ECB wil toepassen op Fintech-partijen die bancaire diensten aanbieden. (bron: FD ) De ECB schrijft in zijn eerder uitgebrachte gids Guide to assessments of fintech credit institution licence applications dat fintechs zorgen voor unieke risico’s in het financiële systeem. De ECB zegt “Fintechbanken moeten aan dezelfde standaarden voldoen als andere banken.” treasuryXL vroeg een van onze experts, Peter Schuitmaker, om zijn mening:

Is er een fintechzeepbel?

Peter Schuitmaker – Registered Advisor for Business Transfer and Succession

Door de opkomst van ICT, met name de mobiele platforms (telefoons en tablets) en de gebruikte software (apps) is de bancaire dienstverlening ook in een innovatieve stroomversnelling gegaan. Waar traditionele banken de nieuwe ICT gebruiken om hun diensten te vereenvoudigen en te verbeteren, deels ook om operationele kosten te drukken, zijn een groot aantal fintech bedrijven die juist -denkend vanuit de ICT technologie- producten en diensten aanbieden. Het zijn vaak niche producten of een producten met een beperkte functionaliteit die juist wel aansluit bij een zekere doelgroep.

De ECB heeft dat geconstateerd en wil op die fintech dienstverlening enige grip krijgen. Dat lijkt vrijwel onbegonnen werk, omdat het aanbod, zowel de functionaliteit als de onderliggende ICT, zeer divers is. Hoe dan ook, geen richtlijnen waarbinnen fintech bedrijven zich op de markt mogen begeven en ontwikkelen, lijkt ook geen optie. Vandaar deze eerste voorzichtige poging “Guide to assessement of fintech credit institutions”. De motivatie is nobel: men wel gelijke monniken, gelijke kappen. Maar hoe zaken zich zullen ontwikkelen en binnen welke termijn aanvullende of nieuwe richtlijnen nodig is laat zich lastig voorspellen. Maar erg optimistisch daarover ben ik niet!

 

Peter Schuitmaker

Registered Advisor for Business Transfer and Succession

 

 

What do you want to know about Treasury?

| 30-10-2017 | treasuryXL |

It has always been our mission to promote Treasury as a profession and to increase the awareness of Treasury within business. Currently there are more education choices for students to study and appreciate Treasury, but we still felt there was a gap – knowledge for anyone who was genuinely interested in learning more about Treasury.

With this in mind, we decided to proactively launch a new initiative – Treasury for non-treasurers. We consider this as our call to action.

Who are these people?

These can be students; career professionals in other disciplines who are curious; people in the finance industry who are considering either a career change or specializing in the field of Treasury; anyone who just wants to understand what a treasurer does on a day-to-day basis.

What is our aim?

Having always written for the professional, we were confronted with the challenge of getting our information across to people who do not have in depth knowledge. After a lot of research and analysis we decided that the best approach would be to attempt to simply explain the workings of Treasury, without going into too many technical details.

What will be in our articles?

With our knowledge, that relies also on the invaluable input of our expert community, we are considering a framework encompassing such topics as:

  • Treasury department – roles and responsibilities
  • Financial products for trading – Spot FX, Forwards, Options, Futures
  • Financial products for liquidity – deposits, loans, commercial paper
  • Financial products for financing – private placements, bond issues, equity
  • Cash flow forecasting – models and procedures
  • Working Capital Management – payables, receivables, inventory
  • Risk management – interest rate, FX, commodity, credit, liquidity, operational
  • Fintech – Treasury Management Systems, inhouse, exchanges
  • Cash concentration – physical sweeps, notional pooling, overlay structures
  • Education – study, on-line courses, sources of data
  • Economic and political – inflation, unemployment, leading and lagging indicators

This is a comprehensive and challenging list – but not impossible – which will, hopefully, increase people’s understanding and perception of the treasury function.

What we need?

Feedback – and plenty of it please.

These articles will not be written chronologically but, if there are certain topics that you wish to have explained then please do not hesitate to contact us. It is only with your input that we can truly create a service to meet your demands. We think we know what you would like to know, but only you can tell us!

What next?

Hopefully, when the series is a success, we can consider publishing e-books. Credit would always be given to those they have taken their time and effort to impart their knowledge and wisdom to others.

Who are you?

Please feel free to contact us and let us know more about you:

  • What is your profession/vocation?
  • What industry do you work in?
  • What interests you about Treasury?
  • Are you interested in making career choices?
  • Need help for your company, but are too small to have in-house expertise?
  • What do you think about the finance industry?
  • What do you think about the EURO?
  • How about Brexit?

So, come back regularly and watch this space!!

Tell me and I’ll forget. Show me, and I may not remember. Involve me, and I’ll understand.

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FX-Risks Versus Technology

| 27-10-2017 | Treasurer Development | Minor Treasury @ Hogeschool Utrecht | Frans Boumans |

Today’s blog has been written by Daphne Piereij and Martijn Mullié, who are 2 students studying for the minor Treasury Management at the University of Applied Sciences in Utrecht. We welcome their contribution – it is good to see the youth engaging in Treasury matters! Here is their opinion on FX – risks versus technology.

“The one unchangeable certainty is that nothing is certain or unchangeable.” Those words were uttered by former US president John F Kennedy in a State of the Union address before Congress in 1962.

This still applies to the current state of the world. Especially within the financial markets and with FX Risks. Managing these risks have been completely revolutionized the past decades because of the new innovations in technology.

Traditionally traders manually update their volatility surfaces and bid-offer spreads, and that default pricing would have gone directly out to clients. More efficient is to use the electronic market data and automate much of that process, particularly in the most liquid currency pairs, creating a more transparent, data-driven practice.

According to McKinsey these are the trends in FX risk management with evolving technology and advanced analytics:

Big Data

Faster, cheaper computing power enables risk functions to use reams of structured and unstructured customer information to help them make better credit risk decisions.

In the future while this technology evolves and the quality of analytics of big data becomes better it will be easier to manage FX risks.

Machine Learning

This method improves the accuracy of risk models by identifying complex, nonlinear patterns in large data sets. Every bit of new information is used to increase the predictive power of the model.

Keeping in mind the words of former president John F. Kennedy the world will never be predictable and neither will the financial market. Because it’s not ran by machines but by humans, and humans are in general unpredictable. Which means this process has no end until the financial markets are managed by machines which are predictable.

Crowd Sourcing

The Internet enables the crowdsourcing of ideas, which many incumbent companies use to improve their effectiveness.

The internet can motivate people with challenges to work together to make algorithms for analytic functions so market data can be used more efficiently. It’s not always the most effective method to use the in-house developers to create algorithms. To make the most effective FX risk management algorithms is very hard and time consuming. Crowd Sourcing enables a whole different aspect to create algorithms, using more brains to create these immensely complicated methods to decrease FX risks.

Resources
https://www.mckinsey.com/business-functions/risk/our-insights/the-future-of-bank-risk-management
https://www.risk.net/risk-management/5276541/managing-fx-risk-how-to-prepare-for-the-unpredictable

Minor Treasury Management

More information about the minor Treasury Management at the University of Applied Sciences?
Please contact Frans Boumans.

 

Frans Boumans

Manager Minor Treasury Management @ University of Applied Sciences in Utrecht

 

 

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

Foreign currency hedging, a protection of cash flow

| 25-10-2017 | Rob Beemster |

Currency volatility is a well-known uncertain component of international business. In the pre-euro era one could suffer severely by currency movements of its European neighbours. Corporations, dealing within euro countries, have diminished the currency exposure.

A historical overview of the euro versus the us dollar

Looking back over the last 60 years, we can see that from 1958 till early 1970s there was  stability due to the Bretton Woods golden standard. At the end of this, the Vietnam War made it impossible to keep the dollar relation to gold. Early 1980s, the Reagan administration introduced a new economic policy; Reaganomics. Lower taxes and high governmental expenditure. This created a huge mess in America’s monetary situation. Interest rates went to enormous heights, the dollar climbed to unknown levels against the yen and European currencies. American exporters could not sell their products due to this high dollar.

Why the attention to Reaganomics? Well, the Trump administration is a vigorous trailer of the Reagan policy. Lower taxes might be introduced soon and Mr Trump also wants to invest heavily in infrastructure. Obvious, some similarities with Reagan. The new helm of the Federal Reserve Board will soon be appointed. When the board will have more hawks than doves, interest rates might raise sooner than expected. This might have consequences for the dollar and we may see here a reflection of the early 1980s.

 Trump and the us dollar

It is known that President Trump regularly protests to so-called currency manipulators like China and Germany. Their trade policies are in his view unacceptable. Due to this view of Trump on currencies, it will be questionable whether he would tolerate a higher dollar at all. The highly unpredictable Trump policy makes it impossible to judge in what direction the dollar will manoeuvre.

 The highly volatile euro/us dollar

The dollar has fluctuated severely since the euro introduction in 1999. ECB’s first President, Mr Duisenberg was facing tough times as the euro went from its introduction level of 1.17 to the low of 0.8350 a couple of years later. His world trip to recommend the euro as world reserve currency  has realized a demand from authorities to stock euro’s in their currency reserve system. The aggressive build-up of FX reserves by Asian monetary authorities has helped to revitalize the euro. Duisenberg made it happen that the currency went up from low 0.80s to almost 1.60 against us dollar in a couple of years. This occurred not so long ago!

 Two examples of neglected currency risk

1, many corporations have changed its landscape to the global market. A lot of exporters are billing their products in euros. A currency risk is obvious when these companies focus on one target area. Clients may find the products too expensive when euro is rising. So one runs indirectly a currency risk. Many countries have linked their currency to the dollar, so a change in the euro/us dollar may have consequence on your sales.

2, trading with China and agreeing to do the transfer in dollars, does not really mean that the risk exposure is in dollars. The transfer risk is in dollars, but the real currency risk is in yuan. Say, the European importer buys goods from China and both have agreed to do the payments in dollars. The Chinese counterparty will adjust the price of the goods when yuan moves against the dollar. The European corporation should install an us dollar/yuan currency risk hedging policy.

Don’t underestimate the course of currencies

Being an active international corporation is not easy, many components are changing markets constantly. Internet makes markets more transparent then ever thought, automation changes the landscape, consumer behaviour is sometimes not logical and newcomers/interrupters create new markets. Within this one has to deal with currency volatility. But this is a component one can conduct. Foreign currency strategy is essential for any internationally active corporation. Currency volatility cannot be underestimated and needs control.

Barcelona valuta experts can help you to create a decent foreign currency strategy. Call us on +31.654981315 or mail us via [email protected] for more information.

 

Rob Beemster

Owner of Barcelona valuta experts BV