Startup FinTech company Facturis and the traditional bank: How do they do it?

| 23-8-2017 | PowertoPay – Unified Post | Sponsored content |

Facturis, a partner of UnifiedPost, is an online platform that helps to optimize the financial situation of small and medium-sized enterprises in the Netherlands. The platform facilitates a more efficient flow of incoming and outgoing invoices, debtor management, retrieval of digital debit authorizations, dynamic discounting and dynamic working capital credit. In this interview, Nico Ten Wolde, CEO of Facturis, is telling more about developments in the financial technical (FinTech) world.

 

How did Facturis originate from the Rabobank?

Nico: “Rabobank started a strategic orientation in 2010 to increase its added value and uniqueness for its business customers. Rabobank wants to provide services within the customers’ business processes whenever and wherever they are needed. Where Rabobank has traditionally focused on offering products such as transactions, finance and insurance, she wanted to offer services to support the full order-to-cash flow process of her customers. This goes further than the execution of transactions and the provision of funding. By offering different services that work in synergy on one platform, the customer has lower operating costs and a lower need for external financing. In order to achieve this, Rabobank has established a partnership with UnifiedPost in the form of Facturis. UnifiedPost delivers the invoicing platform technology.”

What is the target group of Facturis? What do you do to connect the product to this target group?

Nico: “Facturis focuses on the business market, with the primary focus on small and medium-sized enterprises (SMEs). These types of organizations need to obtain services from many different parties in order to optimize the financial and administrative processes. Because they buy services from different parties, there is insufficient insight into and grip on the overall financial process. By integrally providing services from various partners on one platform, we give entrepreneurs more insight into their financial situation. That goes further than sending invoices – it’s about getting bills paid as quickly as possible.”

Fin Tech initiatives – what changes?

Everyone talks about the changing role of the banks, partly through the FinTech initiatives. What do you think are the things we already notice?

Nico: “What I see is that 10 years ago a bank was the only place you would consider for financial services, this is no longer always the case. Think of FinTech parties like Adyen, which offer a wide range of financial products from banks and other financial institutions on a platform. The customer no longer deals directly with a traditional bank. In addition, we see a strong growth of (crowd) funding platforms. The financing is no longer obtained through a bank. More recently, several blockchain initiatives and the oncoming implementation of PSD2 will create new opportunities for players outside the traditional banking world.”

Why do you think banks will increasingly work with FinTech companies? What is the benefit for the banks?

Nico: “On the one hand, banks often have to deal with complex legacy systems which limit the possibilities to quickly implement new solutions. On the other hand, banks have to deal with implementing and maintaining new rules and regulations with the current processes. This makes it almost impossible to quickly implement innovations. FinTech companies can quickly launch new concepts for specific target groups. Through cooperation with banks, the power of the existing brand and distribution channel is optimally utilized. A win-win situation for the customer, the FinTech company and a bank.”

What was the biggest success in Facturis?

Nico: “The launch of the pilot Invoice Credit. The Invoice Credit is a dynamic working capital credit that moves along in real-time with the (outgoing) invoice flow of a company. As a result, the entrepreneur does not always have to return to his bank to make an adjustment on his credit line. Due to the flexibility of InvoiceCredit, companies can streamline the flow of money, thus optimizing their working capital. InvoiceCredit fulfils the companies need for a credit that reflects fluctuations in the invoice flow and that grows along with the company.”

What is your biggest challenge within Facturis?

Nico: “Our biggest challenge is to maintain the speed you need as a FinTech to be successful and to be able to continue to innovate. Laws, regulations and legacy systems sometimes limit the speed to launch new services quickly within large corporate organizations. In cooperation with large organizations, such as banks, we face the challenge of balancing speed and adopting new banking services.”

How has such a creative thinking startup within the (traditional) bank been adopted so well?

Nico: “On the one hand, with a lot of missionary work within Rabobank in the form of presentations and writing many memo’s to convince the right stakeholders inside and outside the Rabobank. On the other hand, the arrival of Wiebe Draijer (Chairman of the Board of Rabobank) helped us greatly with the adoption of Facturis within the Rabobank. With the establishment of a FinTech & Innovation department, Rabobank made a clear choice for the adoption of FinTech companies in the future.”

What do you think is the most successful FinTech initiative in the market?

Name 1 launched and 1 that has not yet been launched.

Nico: “Launched: Kabbage: Kabbage is an American FinTech that can assess a consumer’s or SME’s financing request within a few minutes.

Not launched: Easytrade, an innovative currency hedging solution for hedging currency risks of (international) companies. Easytrade is a new FinTech initiative created by Rabobank Moonshot Program, an internal acceleration program aimed at realizing the advancing ideas of employees.”

What do you think are the most important FinTech developments in the near future?

Nico: “In the coming years, I see major changes in risk management. Through the application of AI and machine learning, we are able to better estimate risks and utilize opportunities with a much larger predictive ability. This has a positive impact on customers, we can deliver services exactly when the customer needs them. In addition, integrating blockchain initiatives and virtual currencies within the financial sector will take a huge run. With the implementation of PSD2, it is possible for FinTech companies to combine the old world and the new world. This allows for gradual adoption
of these new developments for customers.”

PowertoPay – Unified Post

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Saving on FX deals? Often neglected but potentially a “pot of gold”

| 21-8-2017 | Patrick Kunz |

 

Doing business internationally often means dealing with foreign currency (FX). This poses a risk as the exchange rate changes daily, basically every second. To mitigate this risk a company can hedge the position via FX deals (discussed in a previous article). But what are the costs of those deals to companies?

 

FX deals

FX is traded on exchanges where only authorized parties have access to. This can be brokers or banks, the so called market makers. They can take your fx position for a give rate and they try to find a counterparty for the deal who is willing to take the opposite trade. For this effort (and risk as they might not be able to directly match the position) they ask a provision. This is the bid-ask spread; the spread between rate for buying and rate for selling the currency. The fx (mid) rate is determined by supply and demand.

The spread depends on several things:

  • Market liquidity; how many people are buying and selling and with what volume
  • Market timing; is the market open for that currency
  • Restrictions: some currencies have restrictions

For a company to trade FX they need an account with a party that has access to fx market makers. This is often a bank. This bank will take another bite out of the spread for their profit (and maybe risk as they might take the position on their books). The spread the bank will charge depends on how many deals and how much volume you will be doing. Sometimes it is an obligation to trade with the bank from a financing arrangement. For the big currencies for big clients the spread can be as low as 2-3 pips (0,0002/0,0003).

Trading FX seems to be without costs as the bank charges no fees. However, those fees are put into the fx rate. When doing spot deals it is easy to calculate them, it’s the difference between the traded rate and the then actual market spot mid rate. When doing forward deals or trading illiquid currencies it is harder to determine the spread. Always try to get to know the spread you are paying. The spread is basically the costs of the fx deal (for forward deals there is an interest component).

It therefore makes sense to always compare your FX rates and get quotes from several banks. Trading with a broker sometimes can be cheaper as one party in the process is eliminated. Savings can be up to 5% per deal (for exotic currencies), for the bigger currencies an average saving of 1% is possible. If you do several million worth on FX deals a year this is a big money saver.

Pecunia Treasury & Finance b.v. has an online fx trading platform backed by one of the biggest worldwide fx broker.

Patrick Kunz

Treasury, Finance & Risk Consultant/ Owner Pecunia Treasury & Finance BV

 

 

PSD2 – Update and new developments

| 17-8-2017 | François de Witte |

Early 2017, I published a post about PSD2, a lot of opportunities, but also big challenges. Now half a year later, I would like to update you on some developments in this area. PSD2 still needs to be transposed in the national legal system of all the member countries, and according to my knowledge several countries, including Belgium, have not yet released the draft laws. This creates quite some uncertainty in the market, as there will be several country-specific specifications. Hence one can expect that Fintech’s and other TPPs might already have started their certification application in countries that already enacted PSD2 in their local legislation.

LIST OF ABBREVIATIONS USED IN THIS ARTICLE

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

Main updates on the regulatory framework

On 23 February 2017, the EBA published the final draft on the SCA (Strong Customer Authentication) and Secure Communication.
In this final draft, the EBA clarifies the new rules to be followed for customer authentication, applicable both for operations performed in traditional channels and over the new API (Application Programming Interfaces) services. The key clarifications concern the following:

The 2 factor authentication

Following systems would comply:

1. The 2-device-authentication, where the user has two independent devices:

  • one device to access the banking website or app
  • another device to authenticate himself or a payment: the authentication device, usually a hardware authentication token, a combination of a smart card and smart card reader, or a dedicated app on a mobile device.
    The authentication device generates one-time passwords (OTPs) over transaction data

2. The 2 app authentication:

This approach does rely on two different apps running on the same mobile device.

  • Banking app : when a user wants to make a payment, he opens the banking app and enters the transaction data.
  • Authentication app: When the user has submitted the transaction, the banking app opens the authentication app. After verification and confirmation of the transaction data by the user, the authentication app generates an OTP (One Time Password) linked to the transaction data and sends it back to the banking app, which submits it to the banking server for verification

The dynamic linking

In order to dynamically link the transaction, the draft RTS states the following requirements must be met:

  • the payer must be made aware at all times of the amount of the transaction and of the payee;
  • the authentication code must be specific to the amount of the transaction and the payee;
  • the underlying technology must ensure the confidentiality, authenticity and integrity of: (a) the amount of the transaction and of the payee; and (b) information displayed to the payer through all phases of the authentication procedure (the EBA hasn’t specified the nature of this “information”);
  • the authentication code must change with any change to the amount or payee;
  • the channel, device, or mobile application through which the information linking the transaction to a specific amount and payee is displayed must be independent or segregated from the channel, device or mobile application used for initiating the electronic payment transaction.

The exemptions from the SCA

The exemptions from the SCA including also:

  • Transactions between two accounts of the same customer held at the same PSP
  • Low risk transactions: Transfers within the same PSP justified by a transaction risk analysis (taking into account detailed criteria to be defined in the RTS),
  • Low value payments or contactless payments < 50 euro, provided that that the cumulative amount of previous consecutive electronic payment transactions without SCA, since the last application, of the SCA < 150 euro
  • Unattended transport and parking terminals

The draft RTS (not finalized, not approved yet) also states that Screen scraping is no longer allowed. Screen scraping is a method to take over remotely the data on the screen of the user. This creates a lot of opposition in the financial community, in particular the Fintech’s, as this complicates the interaction between the bank, the TPP, and the PSU. On the other hand, the both the EBA and the EBF (European Banking Federation) are against it. There is a power game ongoing.

Main developments

Banks will have to implement interfaces, so they can interact with the AISPs and PISPs. This compliance with PSD2 is mandatory and all banks will have to make changes to their infrastructure deployments.

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

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

In this framework, the challenge is to create standards for the APIs specifying the nomenclature, access protocols, authentication, etc.”. Banks will have to think about how their new API layers interact with their core banking systems and the data models that are implemented alongside this.

At this stage, following working groups were constituted to further elaborate on these standards:

  • UK’s Open Banking Working Group (OBWG). This initiative of UK Treasury aims to deliver a framework for open banking and data sharing via APIs for the UK’s banking industry. The joint industry/government initiative recently released its report on establishing the framework for an Open Banking Standard for the UK alongside a timetable for implementation.
  • The Berlin Group, a-European payments interoperability coalition of banks and payment processors, is pushing for a single standard for API access to bank accounts to comply with new regulations on freeing up customer data under PSD2. The aim is to offer operational rules and implementation guidelines with detailed data definitions, message modelling and information flows based on RESTful API methodology. It will be published for consultation in Q4 2017
  • STET has also released of a RESTFUL API standard which will allow TPPs to access payment accounts. This API has been built with the latest technology standards using REST, OAuth2, JSON and HTTP-signature. It relies on ISO 20022 elements for structuring the data to be exchanged between TPPs and ASPSPs

In the meantime, several providers are developing their services, including in the Benelux Equens Worldine, Capco, Sopra Banking and Isabel.

Along with the arrival of open API banking, there is also clear momentum for providing real-time services such as “instant payments”. This requires banks to shift their entire product and service mindset towards immediate delivery and to make fundamental changes to their legacy systems. While this is a challenge, it also presents opportunities (see also my article in TreasuryXL on this topic: SEPA Instant Payments – a catalyst for new developments in the payments market (https://www.treasuryxl.com/news-articles/francois-de-witte/sepa-instant-payments-catalyst-new-developments-payments-market and https://www.treasuryxl.com/news-articles/francois-de-witte/sepa-instant-payments-a-catalyst-for-new-developments-in-the-payments-market-part-ii/).

The large banks have already started working on being PSD2 compliant and on building for the opening of their banking architecture to the TPPs. However, several small or medium sized banks only started recently on this project. Hence a lot has to be done, and I do expect some shortages in resources in the next coming months.

With regard to the access to TPPs, article 113.4 of PSD2 explicitly states that the member states shall ensure the application of the security measures with the 18 months following the entry in force of the Hence, we might expect that this part of PSD2 needs only to be implemented by mid-2019. Given the strategic importance and the IT act, I recommend starting this exercise much earlier.

Conclusion

The PSD2 creates challenges. Several topics need to be clarified such as the RTS and the market players need also to agree on common standards for the interfaces.
However, there are initiatives, such as the Berlin Group, the UK’s Open Banking Framework and the STET group, which help give further clarity and direction in the absence of specific technical detail.
Consequently, there is no justifiable reason for any bank to delay starting these projects.
The clock is ticking in the PSD race.

If you want  further update on this topic, you can join the 1 day training session on this topic, which I will give on 22/11/2017 at Febelfin Academy.

 

François de Witte – Founder & Senior Consultant at FDW Consult

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Please read my earlier articles on PSD2:

PSD 2: A lot of opportunities but also big challenges (Part I)

PSD 2: A lot of opportunities but also big challenges (Part II)

Sepa instant payments – A catalyst for new developments in the payments market (Part I)

Sepa instant payments – A catalyst for new developments in the payments market (Part II)

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Industries are ready for blockchain take off

| 16-8-2017 | Carlo de Meijer |

An interesting study was released recently by Juniper Research. Given its findings this survey needs some more widely spread recognition and that’s the reason for this blog. Named “Which industries are the best fit for blockchain”, this study came to some interesting conclusions, that were broadly in line with my blog of early June (see: Blockchain technology by 2018: a breakthrough, June 3, 2017). Their findings may underline my statement that we are further in the Gartner Cycle and that 2018 may be the year of the real breakthrough for blockchain technology for a number of industries. But for whom? Let’s have a look.

The study and its main finding

The survey’s main finding is that almost 40% of all interviewed (almost 370 executives, managers and IT profs) including 56% of the largest companies were either “considering” or “were in the process of employing blockchain solutions”.

This indicates that a majority of companies nowadays have a much greater understanding of blockchain and distributed ledger technology. They are recognizing that blockchain has the ” potential to be deployed in a variety of use cases”. There is also increased awareness amongst industries to consider deployment to gain competitive advantage.

Other findings

This “dramatic” increase in awareness is shown by the outcome that more than 80% of the surveyed companies have ‘a little’ or ‘a good’ understanding of blockchain

“It is clear that companies across the board have a significantly greater understanding of blockchain technology than was the case 12 months ago,”Juniper report.

More than three quarter of the respondents believe that blockchain could be ‘very useful’ or ‘quite useful’ for their company.
The time of exploring what blockchain is and what corporates can do with it lies largely behind us. It is now more about what blockchain systems to choose and how to integrate it in their legacy systems. Or as the study stated “It’s now much more geared to competing protocols, or the vetting of use cases …”.

Companies anticipating integration of blockchain

The survey also shows that many corporates are actively considering blockchain deployments.

Amongst the largest companies even 54% are in the so-called Proof of Concept (PoC) stage, while a further 16% is already involved in blockchain trials.
And those who already are in the PoC stage, two-thirds expect blockchain will be integrated in their legacy systems by the end of 2018.
While 81% of the smaller companies surveyed expect integration to be completed by the end of 2018, almost 60% of the large companies surveyed say they will reach that stage at that date.

Corporates and disruption

Despite the dramatic increase in blockchain awareness and identified benefits over the past 18 months, however, it is “critically important that companies consider all alternative options before deciding whether or not to deploy blockchain” according to the report.
Juniper mentioned that companies should consider whether blockchain is the necessary solution to their needs, as some companies under-estimate the challenges of deployment. They should seek “systemic change, rather than technological” innovation.

That “might be a better and cheaper solution than blockchain, which could potentially cause significant internal and external disruption.” Juniper report.

One main concern for the surveyed companies is in what way, who and where blockchain might disrupt not only their legacy systems but also their relationships with their clients. This is in part due to their fears around interoperability. Customers’ systems may no longer integrate with (or be compatible with) their upgraded systems.

The survey further shows that:

  • 35% of all corporates surveyed are considering or actually deploying blockchain and feel it will cause ‘significant’ disruption (in general)
  • And more than half of these corporates considering or actively deploying blockchain feel it will cause ‘significant’ disruption to their partners/customers
  • 42% of them were concerned that the reluctance or refusal of their clients or partners to deploy blockchain might cause them difficulties , compared with a quarter of all companies surveyed.

“Companies may have underestimated the scale of the blockchain challenge. For issues such as interoperability, the proportion of survey respondents expressing concerns progressively increased as companies proceed towards full deployment, while concerns also rose sharply regarding client refusal to embrace blockchain”. Juniper research

Who are the industries with largest blockchain opportunities?

This is a very interesting part of the survey. Jupiner Research conducted a comparative assessment of blockchain’ potential’s across 9 key industry areas. Main conclusion is that “in most cases, the more a vertical (industry) is suited to blockchain deployment, the greater the degree of implementation challenges”.

“Essentially, blockchain offers particular benefits to improve efficiency and corporate transparency; if an enterprise is heavily dependent upon paper-based storage and has high volumes of transactions or transmitted information, it can be especially effective.”  says Windsor Holden, blockchain specialist at Juniper

Deployments in verticals such as Utilities and Content Publishing do not pose the scale and variety of challenges involved in Financial Settlement, according to the survey. They however “will not achieve the extent of gains, cost savings, efficiencies and risk reduction as is possible in the financial settlement industry”, according to the Juniper Research survey.

And what industries are (already) fit for blockchain

According to the survey, when challenges are measured against the scale of the opportunity, industries like Automotive, Financial Settlement and Land Registry emerge as particularly interesting prospects for blockchain application. This compared to other segments such as Utilities, Telcos a.o.

This is not that strange as next to the relative successes achieved in blockchain integration especially in the financial sector thus far, blockchain may bring more benefits as it will be a real problem solver for these industries challenges. While the inherent characteristics of these sectors make them more suitable for blockchain technology.

What else is needed?

But that is not the whole storey. Corporates are not isolated entities. To be successful corporates should raise the awareness of blockchain’s capabilities at their customers. And before integrating blockchain in their own systems they should get a greater understanding of the scale of potential hurdles.

 

Carlo de Meijer

Economist and researcher

 

Trump’s determination to protect American business

| 14-8-2017 | Rob Beemster |

 

Many negative issues surround the President of the United States.  Approval rating hits new low,  surprise on his erratic conduct seems to grow daily. Trump is a unique politician. He is incomparable to any other western political leader. I want to pinpoint his monetary policy in 2017, by looking at the pattern of the dollar so far this year.

The dollar in 2017

Currency pair             January 2017              August 2017               Relative decrease USD

EUR/USD                    1.05                            1.18                            12.4%

AUD/USD                    0.72                            0.80                            11.1%

GBP/USD                    1.22                            1.32                            8.2%

USD/JPY                      1.18                            1.10                            6.8%

USD/CNY                    6.96                            6.70                            3.7%

Maybe Mr Trump does have a foreign economic policy.

He sees the results of Chinese manipulation and soft American response as an unfair trade relationship. The President of the US must do something about these unbalances. At least, this is how Trump judges.

Let’s take into account this Potus is a streetfighter. Long bilateral meetings with the Chinese are not options for Trump. Fast and furious, that it is: Bring the dollar down!!
And this is going on for half a year now. It is going the Trump way. Tough (but efficient)!

How to see the future value of the dollar?

The current outlook for the dollar against its main trading relations is related to some issues:

–          Process of QE by ECB, and  Euro interest rates

–          North Korea

–          China’s position in this geopolitical stress

–          Economic conditions of the US

–          Economic conditions of the main trading partners of the US

These are very important to determine the future value of the dollar. But this is the holistic view, we are all used to. Let’s be flexible and take a different stance. Just conclude as Trump will do. Be his alter ego.Then the most important issues are:

–          Pattern of the Euro against the dollar and the bilateral trade balance between US and Germany

–          China’s reaction to a lower dollar

–          US trade balance

–          US corporates repatriation of overseas cash

–          US investments to produce within America

–          FDI (Foreign Direct Investment) in America

This is a totally different scope. If we want to understand Trump, then we have to use his view on the international arena. The above mentioned bullet points are crucial. All can easily be measured, Trump loves that. I would like to go through these points to be able to clarify the possible outcome of the dollar for the coming time.

Pattern of the Euro against the dollar and the bilateral trade balance between US and Germany

The more than 12% revaluation will have a serious impact on the trade balance between US and Germany. When the correction emerges, Trump might temper his view on Germany. When we notice correction in the trade data, the dollar has gone far enough…

China’s reaction to a lower dollar

So far the yuan has gained some territory but not as much as other major currencies rose against the dollar. How will PBOC and the Chinese Government react on Trump’s wishes to correct the trade balance by a devaluation of the dollar against the yuan? If they take action on Trump’s stated requirements, whatever this may be, then pressure may diminish.

US trade balance

For many years the US  faces a deficit on its trade balance. The more than $500 billion yearly shortage is a notable pain point. If a remarkable achievement can be noticed on short term, a more relaxed dollar attitude may be expected.

US corporates repatriation of overseas cash

In history, attempts have been organised by US governments to return overseas cash of US corporations. During President Bush jr Presidency, corporations did repatriate cash. When Trump does decrease the corporate tax tariff to  15% and he rewards the US corps to transfer their money back to the US without any other penalty payments, a large repatriation may get going. Many of these funds will until now be held in local currencies, so a switch to the dollar may occur.

US corps return back to America

Trump has ordered US companies to produce in the US instead of overseas. If he becomes successful by bringing factories back to the US, the trade balance will shift, employment will improve. Also when large repatriation is done, these funds can be invested in local factories.

FDI in America

Many non-US corporations are scared by the threat of the US government that regulations like import tariffs and other taxes may be charged on imports. It will damage the advantage corporations have experienced last couple of years due to the high dollar. If special import tariffs are installed, investments may be done in the US to avoid these special expenditures. Onshore producing on American soil will become an alternative.

How to manage this?

Foreign currency management has always been a hard part of the international business. Currency moves are unpredictable. But since Trump, one has to be aware of non-economic issues as well. Note that all the above mentioned issues can have effect on the value of the dollar. Professional guidance of your flows is becoming more and more important. Barcelona valuta experts helps you to install a decent strategy to counter unpredicted events. We guide you in protecting the cash flow.

 

Rob Beemster

Owner of Barcelona valuta experts BV

PSD2: The Disruption and Innovation of Open Banking

| 11-8-2017 | treasuryXL | The Paypers |

PSD2 is a recurring topic which is of great concern to financial institutions and other payment service providers, as well as finance professionals at corporates all over the world. We read an interesting article about the disruption and innovation of open banking at The Paypers and want to share it with you. The article is part of the Open Banking & APIs Report 2017, aimed to provide necessary insights to help readers understand the latest developments on the topic, as well as practical examples and best practices in Open Banking. Alisdair Faulkner of ThreatMetrix states that innovation, enhanced security and the drive for greater competition are the golden triptychs at the heart of PSD2.

PSD2: Game changer, opportunity and challenge

PSD2 is a game changer for digital payments and commerce in Europe and will have a significant global impact. It requires financial institutions to make changes to their platforms and systems, while making strategic decisions on how they want to play going forward. These changes will require significant investment as well as a strategic shift, as banks are forced to consider how they can safely open their banking platforms to external third parties. While this may negatively impact the revenue of large banks, it can also level the playing field for smaller fintechs, as well as provide opportunity for new product innovations.

Not only do banks and other PSPs need to work toward compliance, but they also need to define their strategy to position themselves competitively in the market. They will also need to align the somewhat competing demands of rapid innovation while maintaining vigilant security as the cybercrime war continues to rage.

Innovation and Disruption

Digital transactions have had a huge impact on the evolution of the fintech industry as niche products and services have emerged to fill the crevasses left by larger financial institutions. These include services for the unbanked and underbanked, instant insurance, crowdfunded loans and global online remittance. Fintech operators have been able to rapidly innovate for many reasons: a lack of legacy back end systems, lower regulations and less online scrutiny, for example. On the other hand, large financial institutions have unwittingly become the enablers with minimal benefit.

However, PSD2 and Open Banking regulations are set to create more opportunities as both financial institutions and new providers compete to drive smarter revenue from payments. With open banking, the financial institutions would be increasingly at risk of losing their direct relationship with the customer and becoming a back end utility. On the other hand, new providers could emerge, enabling customers to access their banking services from a common portal, without having to ever log into their bank. These portals may also enable the customer to get services à la carte from a menu of banks. As such, businesses are contemplating the path forward as they wait for new payment platforms and ecosystems that lead to new business models to emerge. It will be critical for established providers to decide how to take advantage of the opportunity and not be left behind.

What are the threats and possible solutions to navigate the future according to Alisdair Faulkner?

Please read more by referring  to the original article on The Paypers.

Business intelligence for cash flows & cash positions

| 10-8-2017 | Treasury Intelligence Solutions GmbH (TIS)  | Sponsored content |

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Do you want to find out more about this interesting topic?
Do you want to discover the benefits and functions of the Business Discovery Manager in detail?

 

Treasury Intelligence Solutions (TIS)

You can request the TIS Factsheet via the red button.

 

Cash management – Mandatory truck system

| 9-8-2017 | Douwe Dijkstra |

As an interim treasurer, several times when I commence a new assignment at a new client for a cash management implementation the bank selection for the cash management solution to be implemented has already been done. Not by the treasury (or any other) department, based on a request for proposal or any other selection criteria but as a result of the mandatory truck system (“verplichte winkelnering”).

The bank, or in case of a syndication the banks, already defined in the (syndicated) facility agreement which bank(s) will operate the borrowers cash management.

It goes without saying that this obligation means that not always the best choice for the company has been made. The “best cash management bank” can be different for each and every company (although some banks may pretend to have the best solution in all areas for all companies). Important criteria are whether a company is centralized or decentralized, what specific products the client requires from the bank, the price list of the bank, the foot print of the bank etc. etc.

It’s my observation that officers negotiating the (re)financing consider cash management as the way it is described e.g. “side business”. Banks try to make the decision makers for the facility agreement believe that they do not earn anything on it. Thus, the circle is complete.

Douwe Dijkstra

 

 

Douwe Dijkstra

Owner of Albatros Beheer & Management

 

 

SWIFT Blockchain POC: Enhanced cross-border payments

| 8-8-2017 | Carlo de Meijer |

Early July SWIFT announced that 22 global banks recently joined its Blockchain proof of concept (PoC) initiative introduced in January this year in collaboration with six leading correspondent banks (ANZ, BNP Paribas, BNY Mellon, RBC Royal Bank and Wells Fargo). The PoC is part of SWIFT’s ‘gpi’ (global payments innovation) service, the new standard for cross-border payments, aimed to “re-arm the correspondent banking system for a new age of technological disruption”. 

This Blockchain PoC initiative is designed to explore whether blockchain technology can help banks to improve the reconciliation of their international nostro accounts in real-time, optimising their global liquidity. If so, that would be a break through event for both SWIFT and blockchain.

Present state

Currently, banks cannot monitor their account positions in real-time due to lack of intraday reporting coverage. The present pain points banks currently experience when making cross-border payments center around a lack of visibility into the end-to-end transactions lifecycle. Under the current correspondent banking model, banks need to monitor the funds in their overseas accounts via debit and credit updates and end-of-day statements. The maintenance and operational work involved represents a significant portion of the cost of making cross-border payments.

“Cross border payments are like a black box for us. We don’t know when the funds will be credited, we don’t know what fees will be charged and we also have problems with reconciliation”. states Martin Schlageter, head of Treasury Operations at Swiss healthcare conglomerate Roche.

As such, the POC recognises the need for banks to receive real-time liquidity data in order to manage funds throughout the business day.

SWIFT GPI service

The PoC is being undertaken as part of SWIFT gpi, a new service that “may revolutionise the cross-border payments industry by combining real-time payments tracking with the speed and certainty of same-day settlement for international payments”.

The SWIFT gpi should be seen as SWIFT’s response to the problems they faced after a series of attacks events that showed that “all was not as secure as everyone believed”. SWIFT gpi initiative was first announced at the annual Sibos conference in 2015. The project went into live production in January this year to address core problems related to speed, transparency and traceability of cross border payments.

SWIFT gpi not only delivers a much-needed improvement in the speed of transaction, but also improves overall customer experience by creating predictable settlement times and clear statuses, through additional (unaltered transfer of) information on remittances and transparency around the FX rates and fees applied throughout the payment cycle.

“The ability to deliver enhanced remittance information alongside the payment will help customers make better decisions along the payment chain, while also creating better efficiency opportunities. The decision to make gpi available in the “cloud” is also exciting, and we anticipate this will lead to the development of entirely new services, that combine SWIFT gpi with capabilities provided by banks, clients and vendors.“ says Tom Halpin, Global Head of Payments Product Management, HSBC Global Liquidity and Cash Management

Key features

Key features of the SWIFT gpi service include a secure tracking database in the cloud accessible via APIs, and enhanced business rules.

Cornerstone of SWIFT gpi is the highly innovative new cross-border TRACKER, a special tracking feature that enables international payments to be traced real-time. It allows banks to provide corporate treasurers with a real-time, end-to-end view (visibility) on the status of their payments, including confirmations of the amount credited to the beneficiaries’ account. The Tracker is available via an open API, making it compatible with proprietary banking systems worldwide – helping to ensure maximum impact of gpi benefits at a greater adoption speed.

A second key feature is the OBSERVER, a quality assurance tool that monitors participants’ adherence to the gpi business rules. Gpi’s transparency ensures that remittance information such as invoice references, is transferred unaltered to recipients.

Gpi uptake

Membership is open to any supervised financial institution that agrees to comply with SWIFT’s business rules. But also non-bank organisations can join SWIFT gpi initiative. The SWIFT gpi service has received considerable bank support across the globe. And the number of global transaction banks that are actively using SWIFT’s gpi service is continuously growing. Since its launch the number of banks that are live with SWIFT gpi has risen beyond 100, and hundreds of thousands GPI payments have already been sent across 85 country corridors. This represents more than 75% of all SWIFT cross border payments.

“The increasing number of banks going live on this service addresses the demands of corporate treasurers. Hence, banks cannot afford to not join the initiative and go live as soon as possible. Our expectation is that all of our cross-border payments will be end-to-end Swift gpi payments in the future.” Group of Swiss corporates

SWIFT expects that numerous additional banks will join the gpi initiative in the coming months. The ambition is for all countries to be live by the end of 2017.

Phased approach

Next to the design of the second phase of SWIFT gpi, that is already underway focusing on additional digital capabilities and further enhancements such as ‘a rich payment data service’, for its third gpi phase SWIFT started exploring the potential of new technologies such as Distributed Ledger Technology (DLT), including blockchain, through a Proof of Concept (PoC).

SWIFT Blockchain PoC

Launched in January 2017 with six founding banks the SWIFT Blockchain PoC initiative, designed to validate/explore whether blockchain can be used by banks to improve the reconciliation of their international nostro accounts (these are accounts that a bank holds in a foreign currency in another bank to handle international financial transactions for their customers) (these are accounts that a bank holds in a foreign currency in another bank to handle international financial transactions for their customers) in real –time, optimising their global liquidity. At its core, the PoC builds on SWIFT’s rulebook as part of the intraday liquidity standard gpi.

This SWIFT Blockchain PoC initiative aims to help banks overcome significant challenges in monitoring and managing their international nostro accounts, which are crucial to the facilitation of cross border payments.

“Whilst existing DLTs are not currently mature enough for cross-border payments, this technology, bolstered by some additional features from SWIFT, may be interesting for the associated account reconciliation,” “This PoC gives us the opportunity to test DLT and determine if it can be applied to this particular use case.” Wim Raymaekers, Head of Banking Market and SWIFT gpi at SWIFT

Characteristics

In developing the POC, SWIFT is leveraging the Hyperledger Fabric v1.0 technology, and combining it with key SWIFT assets, to bring it in line with the financial industry’s requirements.

“SWIFT will leverage its strong governance, PKI security scheme, BIC legal identifier framework and liquidity standards expertise to deliver a distinctive DLT PoC platform for the benefit of its community.” Damien Vanderveken, Head of R&D, SWIFTLabs and User Experience at SWIFT 

The PoC application will use a private permissioned blockchain in a closed user group environment, with specific user profiles and strong data controls. User privileges and data access will be strictly governed. This to ensure that all the information related to nostro/vostro accounts is kept private. Only account owners and its correspondent banking partners will see the details.

Collaboration

SWIFT gpi member banks can apply to participate in this Blockchain PoC. Next to the 6 founding banks, another 22 banks have recently joined the SWIFT blockchain PoC. They include include:

ABN AMRO Bank; ABSA Bank; BBVA; Banco Santander; China Construction Bank; China Minsheng Banking; Commerzbank; Deutsche Bank; Erste Group Bank; FirstRand Bank; Intesa Sanpaolo; JPMorgan Chase; Lloyds Bank; Mashreq Bank; Nedbank; Rabobank; Société Générale; Standard Bank of South Africa; Standard Chartered Bank; Sumitomo Mitsui Banking Corporation; UniCredit; Westpac Banking Corporation.

“Collaboration is the cornerstone of innovation,” “This new group of banks allows us to greatly extend the scope of multi-lateral testing of the blockchain application and thus adds considerable weight to the findings. We warmly welcome the new banks and look forward to their insights”  says Wim Raymaekers, head of banking markets and SWIFT gpi at SWIFT.

Process

Moving forward, the SWIFT PoC Blockchain application will undergo testing, with the results scheduled to be published in September and presented at Sibos in Toronto in October. Working independently of the founding banks, the 22 institutions will act as a validation group to test in a deeper way the PoC’s Blockchain application, that is currently under development by SWIFT and the group of six founding banks. They will evaluate how the technology scales and performs.

Benefits

For banks

The potential business benefits ensuing from a successful SWIFT blockchain POC may be significant. If it proves to enable banks reconcile those nostro accounts more efficiently and in real time, that may lower costs and operational risk.

“The potential business benefits ensuing from the PoC are clear,” “If banks could manage their nostro account liquidity in real-time, it would allow them to accurately gauge how much money is required in each account at any given point, ultimately enabling them to free up significant funds for other investments.” Damien Vanderveken, head of R&D, SWIFTLab and UX at SWIFT.

It brings together banks worldwide who want to offer an enhanced cross-border payments experience to their corporate clients. By being part of SWIFT gpi, banks may improve the quality of their correspondent relationships and networks, helping to reduce risks and management costs and improve compliance.

“Transparency is key to a good end-to-end client experience. SWIFT gpi is a significant step in the evolution of correspondent banking, which remains the primary means through which cross-border payments are delivered worldwide. Bank of America Merrill Lynch is pleased to be working with like-minded institutions around the world to better serve each other and our respective customers.” states Greg Murray, head of Global Product Management for High Value Payments and FI/NBFI Products in Global Transaction Services at Bank of America Merrill Lynch.

For corporate treasurers

SWIFT gpi may enable corporates engaged in international trade to get paid for services, or delivery of goods, in a more timely fashion, enabling a faster supply chain process. It also enables a more accurate reconciliation of payments and invoices, optimizes liquidity with improved cash forecasts and reduces exposure to FX risks with same-day processing of funds in the beneficiary’s time zone.

“Being part of SWIFT gpi, and working with our industry counterparts, is giving correspondent banks a platform to examine and refine current processes, and to collaborate and explore different, more efficient ways of doing things. Ultimately, our clients will benefit most from this initiative,” Kent Marais, head of TPS product management at Standard Bank SA.

SWIFT and the banks have designed the gpi services so that banks have flexibility in how they offer the new services. They can deliver the gpi service in very different ways. Services could potentially include enhanced invoice presentment and reconciliation to facilitate financial supply chains, exchange of supply chain documentation to improve global trade, exchange and interactive enquiry of account and processing conditions to improve end-to-end straight through processing, and providing additional party and transaction information to support compliance and sanctions screening of cross-border payments.

Enhanced cross-border payment service

“SWIFT has addressed several of the pain points corporates have had with cross-border payments,” “Changes to existing corporate payments infrastructures should be very limited, if any. So hopefully, corporates won’t need to make any major investments to benefit from smoother cross-border payments.” says Magnus Carlsson, AFP’s manager of treasury and payments

Given the size of the number of banks and corporates participating in SWIFT gpi, the SWIFT Blockchain PoC may face the challenge of scalability. If that could be solved in a successful way it may be another prove of the viability of blockchain and DLT to enhance cross-border payments.

 

Carlo de Meijer

Economist and researcher

 

 

 

More on blockchain from this author:

Blockchain: accelerated activity in trade finance

Blockchain and derivatives: Re-imagining the industry

The digital trade chain: The blockchain train is rolling

Please feel free to visit the treasuryXL/articles page to see more articles.

 

Graphs with no time line – why and how

| 7-8-2017 | Lionel Pavey |

A key role within the Treasury function is providing forecasts to the directors and management. Graphs are a frequently used tool of course.
When constructing graphs it is normal to put time on the horizontal x axis and read the prices from left to right – from old to new. Visually, this appeals to us as we normally read from left to right. However, when the price does not change much for a long period of time the graph no longer looks fluid – there is a period of activity, followed by a long period of almost standing still, followed by another period of activity. To try and eliminate this period of inactivity whilst still presenting the data requires an approach where sequential time is removed from the equation. This brings us to the last article in this series.

The following two graphs ignore time and focus purely on changes in the price that have been filtered to meet specific criteria.

Renko Charts

 

Prices are represented by blocks – hollow for upward movements and solid for price falls.

Every block has a predefined value – if we were showing interest rates a block could represent 5 basis points. If we had an upward price movement this means that the following upward block can only been drawn once prices have risen more than 5 basis points from the last block. If the price moved up 4 basis points and then dropped by 3 basis points, no additional blocks would be added to the graph.

Blocks are plotted at a 45 degree angle showing upward and downward sloping price changes.
Price reversals are shown when prices have moved more than 2 blocks in the opposite direction. Yet again if we had an upward slope and the price was 1.25 (our blocks are set to 0.05 or 5 basis points) we would require a downward movement of more than 0.15 (15 basis points) to 1.10 to draw 2 solid blocks downwards.

What remains is a very smooth representation of price movements with a uniform value for every block, whilst filtering out smaller movements that have been filtered out by the conditions set on block size.

Point and Figure Charts

Price changes are represented by vertical columns – X’s for rising prices and O’s for falling prices.
As with Renko charts, the X’s and O’s have a predetermined size and a price reversal is shown when prices change by 3 boxes as opposed to 2 on a normal Renko chart. When direction changes a new column is drawn to the right of the present column. Otherwise, the same criteria is applied to both charts except point and figure show true vertical columns as opposed to 45 degree lines.

So why would someone look at prices in this particular way? Such a chart does not necessarily show the latest price – the predefined filters ensure that only price changes that meet the criteria are shown.

The main advantages include:

  • A constant filter that reduces the noise associated with normal time charts
  • Analysis is based only on movement – not on time
  • Perceived support and resistance levels are easier to see
  • The current trend is very clear to see

All the techniques shown in this series are applicable to everyday analysis and everyone has their favourite approach. Some like to see all data, whilst others prefer to see filtered, smoother data. The eternal question when looking at charts and seeing the current trend is to ask “where will the price go?” Initially, the immediate answer is that price will follow the current trend until such time as it does not anymore. This might seem a cheap flippant answer, but it is the truth. We have firmly established that we need to know the price in the past to determine if the present price movement is in a clearly established trend. If we knew nothing about the price in the past it would be pure guesswork to say which way the price would go?

We could still be wrong however, but at least we can establish why and how we made our opinion.

No chart or charting system can clearly determine what the future price will be with 100 per cent accuracy. By following the trend we can at least say what the current market direction is, without being able to clarify, purely on price, when the market will change direction.

Charts that eliminate time make it easier to see where the top and bottom of the market prices have been established. Therefore, if we are in an upward trend and approaching a market high that has been reached twice before, we can state with a reasonable amount of confidence that we are approaching a level that the market has tested twice before but not been able to break above. This would imply, on a technical analysis, that there is perceived resistance in the market to taking the price above the previous high.

However, a word of caution when using charts.
The best analogy I have ever heard for not relying 100 per cent on charts is as follows:

Would you sit behind the steering wheel of a vehicle and drive forward whilst the windscreen was blacked out and only have the rear view mirror to show you where you have been and only have that information to decide when you had to steer?

There is no system that can guarantee telling you what the future price will be. Analysis has to be taken with a pinch of salt but, any market professional should be able to perform analysis. If you can not analyse then you can not predict.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist


You might have missed the first two articles of this series and can find them here:

Treasury for non-treasurers: Data analysis and forecasting – seeing the future by looking at the past (Part I)

Treasury for non-treasurers: Data analysis and forecasting – Seeing the future by looking at the past (Part II)