News | Articles

Uitgelicht: Europese alternatieve financieringsmarkt groeit.

| 08-11-2016 | Jan de Kroon |

Allan & Overy publiceerde recent een onderzoek waaruit bleek dat de Europese alternatieve financieringsmarkt blijft groeien (bron: FM.nl). Er wordt, volgens het onderzoek, door ondernemingen vaker over de grens gekeken wanneer het gaat om hun financieringsbehoeften. Ze kunnen dan ook kiezen uit meerdere financieringsbronnen. Expert Jan de Kroon brengt ons zijn visie over de toenemende groei van de alternatieve financieringsmarkt.

Ik word altijd wat argwanend als een financieringsspecialist van een prestigieus advocatenkantoor plots de resultaten van een onderzoek naar Alternatieve financieringsbronnen presenteert. Heeft toch iets van ‘wij van Wc eend…..

Om tot de conclusie te komen dat de markt voor alternatieve financiering groeit, hoef je geen onderzoek onder 360 (!) Europese ondernemingen en investeerders te doen.

Verschillende en elkaar versterkende omstandigheden en invloeden leiden op zich al tot die toename. Denk aan Bazel voor banken, het krankzinnig lage rentepeil, risico’s op de beurs en het feit dat ook investeerders dientengevolge hun asset mix aanpassen. Het feitelijke percentage doet er niet zozeer toe.

Wat er wel toe doet is dat de groei voor een groot deel in de onderhandse markt te vinden is met bemiddeling door banken. Dat is een markt die al veel langer een alternatief biedt voor veel vooral grotere ondernemingen. Dat is daarmee een redelijk ontwikkelde markt.

Tegelijkertijd ook een markt die minder goed toegankelijk is voor het MKB. Dat wordt wel beter overigens naarmate pensioenfondsen hun asset mix ook naar financiering van MKB uitbreiden. Zij het dat ook hier de aantallen transacties het werk en de kosten, maar minder het rendement veroorzaken. Daardoor ontstaat er ‘near banking’ .

In het artikel wordt melding gemaakt van de gebrekkige kennis van de gemiddelde MKB ondernemer op dit gebied. Dat is ook geen verrassende conclusie; die ondernemer ziet het aantrekken van financiering als een ‘eenmalig event. En gaat zich er dus op inrichten. Zijn bank of een adviseur is vaker op de betreffende markt te vinden en heeft dus meer overzicht.

Wat nu juist aardig is om eens te onderzoeken, is het functioneren van de alternatieve vormen van financiering. Mijn waarneming is dat vooral de bron een andere is. De feitelijke kredietbeoordeling wordt vooral gedaan door voormalig bankiers die op tijd bij hun bank vertrokken zijn. Dat zijn echter bankiers die nog steeds met een wat achterhaalde bril naar cijfers kijken en juist op die manier de gang naar alternatieven lastiger maken voor de gemiddelde MKB ondernemer. Met een goed plan en mooie cijfers aan de basis geeft ook het traditionele bancaire kanaal gewoon ‘thuis’.

De uitdaging zit hem er nu juist in om het toekomstig duurzaam kas genererend vermogen te durven financieren. Maar of al die alternatieve bronnen dat al aandurven; ik vraag het me af.

Jan de Kroon

Owner & Managing partner of I mprofin Groep

Experts talk about a DIY Approach to Corporate Borrowing

| 07-11-2016 | Douwe Dijkstra, Lionel Pavey |

Last week we came across an article about DIY Corporate Borrowing (gtnews.com). The author stated that: “A do-it-yourself (DIY) credit application using publicly available information can help corporations better understand how they are seen by lenders and cuts the risk of financing not being available when it’s most needed.” We have asked our cash management experts Douwe Dijkstra and Lionel Pavey to give us their opinion on this approach.

Douwe Dijkstra
“I would like to react to the paragraph: “Services, such as cash management, trade finance and other fee-based services, require little or no equity for the bank to sell them and can appear to be much more profitable. From time to time a bank will instruct its sales force to push the products and services that require less capital and restrict sales of capital intensive ones such as loans.”

In my opinion banks nowadays already include exclusive provisions in their loan documentation for additional side business when providing finance to corporates. As a consequence you find yourself condemned to the cash management solution of a bank which is far from efficient for your purposes i.e. they do not have a presence in your area or one of the areas where you are active. The same is true for the “no further indebtedness” clauses in their loan documentation that prevents you, as a treasurer, selecting the best fitting financial product for your company. As an interim treasurer working for several private equity owned companies I am often faced with these restrictions. Regularly private equity companies have already signed the loan documentation without properly assessing side business terms in the contract. ”

Lionel Pavey
“Money is a commodity that is fungible – it is homogeneous and can be exchanged or replaced by a similar unit of currency and we would be indifferent to this change.

However, loan documentation is certainly not homogeneous – a quick scan through the documentation of different lenders will show different terms and conditions.

A DIY credit application therefore requires the existence of a standard set of documents. There are certain examples, such as the Loan Market Association, who do attempt to make standard documentation.

Up to now banks have traditionally been the suppliers of credit to companies, though there is no law or reason stating that they have the sole right to do this. To open up the loan market to third parties would require clearly defined documentation, along with criteria that must be met to engage with the market – detailed accounts that have been signed off and approved by independent auditors etc.

Lenders would have to submit their audited figures within an agreed timeframe so as not to be in default on their loans.

If such a market did come into existence and it was truly open to all contributors, it would also lead to fair greater transparency of the pricing policy that lenders use. The price of debt for each and every level of credit rating could be observed, together with implied premiums for country, industry etc. This is the opaque area where banks have a clear advantage – they have their own internal guidelines and pricing mechanics that no one else gets to see. The pricing should be more transparent – this would enable potential borrowers to have greater insight into price discovery which is a cause of concern for many funding issues as, for many companies, it is difficult to passively see what the potential price of debt for them would be.

An opening up of any financial market should be welcomed and make it easier for other potential lenders to see what risks the rest of the market are prepared to accept and also price changes. This would then allow companies to better manage their external relationships – they can separate their loan relationships from their core banking relationships.”

Blockchain: can it be of help for the agricultural industry?

| 03-11-2016 | Carlo de Meijer |

During my economics study in the seventieth of last century (indeed a long time ago!) one of the courses I followed was agricultural economics. Recently I met a Canadian (with Dutch roots) from the agricultural business and we were talking about the opportunities for using blockchain technology in this area. Up till now there has been very little talk of blockchain applications within core agricultural areas. But he told me that this is changing and that the agriculture industry is now increasingly exploring the potentials of using blockchain for the “agri sector”.

This triggered me to write this blog asking myself the question: how and where is the agriculture industry using blockchain and what is the potential for massive blockchain growth in the agricultural economy.

Agricultural business is a complex industry

The agricultural business nowadays is a huge, important, industrialised but very complex industry. The agricultural supply chain is an inefficient one, characterised by a large-scale non-transparent and non-communicating network consisting of many actors, processes, products and data. A big problem here is the great disconnection between supplier and retailer. The lack of transparency and disconnection makes it very difficult to track issues, tracing the origin of products and give a fair price for producers. And that while regulatory pressure, food crises and scandals (such as the mad cow disease (BSE) and cross contamination)) have increased the need for greater supply chain transparency and thus the need for data integration. These days, the public is increasingly embracing the need for transparency in food products and farming techniques.

Retailers want the best quality agricultural products, while also seeking to the lowest prices. On the other hand a growing number of consumers are demanding sustainable food products. They have less trust in existing agricultural products food, increasingly seeking information on authenticity and production practices. Consumers, especially within these niche markets, are increasingly willing to pay for products that provide this information.

“Consumer demand for “clean” food, including organic, is skyrocketing, but producers and manufacturers are often struggling to verify the accuracy of data from farm to table”.

Blockchain can help …

The agriculture industry is now looking for ways to alleviate the complex issues related to farming and distribution. They have a strong need for supply chain intelligence, especially for technology that supports traceability of critical products data through the supply chain across all of affected businesses. Currently, there’s however no easy, accurate and efficient way to identify the exact origin of an agricultural product.

Blockchain could here play an important role. While many of the existing technologies are inadequate or too costly to help, blockchain technology has all ingredients to become a real problem-solver. This technology records information in a distributed ledger in a way that is both secure and immutable. By being distributed among many users these ledgers are resilient with no single point of failure, and they can be (depending on design), transparent to all users. The blockchain technology thereby removes the need for formally identifying both parties to the transaction thus major cost savings can be achieved.

…. to solve existing problems

According to a report from AgriDigital using blockchain could solve many of the existing shortcomings/problems. The use of this technology could lead to improved product tracking and tracing origin of products, efficient supply chain management, fair pricing and decreased transaction fees, etc.

Efficient Supply Chains in Developed Economies

Possibly the highest potential for blockchain in agriculture is in the developed world, where it can be very helpful in monitoring the supply chain of food products. This technology seems to have the best potential to bring overall provenance and transparency throughout the food supply chain. The blockchain technology offers significant opportunities including increased transparency and data integrity, “with immutable provenance data from farm to table”, allowing a visible assurance of authenticity.

Product tracking

By providing both parties with access to information on similar transactions, as well as on the current stock price of goods, even suppliers in rural areas are able to determine what their harvest is currently worth and sell it to distributors at a price that reflects global market conditions.

Tracing origin

By establishing a blockchain-driven ecosystem for the registration, payment, and transport of crops or other agricultural products, retailers can also verify easily that the product they are receiving is exactly what they paid for (product origins).

“With every step of the transaction process recorded on the blockchain, if a supplier claims that its coffee beans are ethically sourced from Colombia, for example, this can easily be confirmed by tracing the journey from farmer to coffee shop, alleviating concerns about misrepresentation” AgriDigital report.

From a consumer point of view, using transparent distributed ledger could give consumers confidence about where their food comes from and how it was produced. With monitoring the consumer food chain they can have a better idea of the origin of the food, the date on which it was created and the efficiency with which it occurred, instead of relying on the existing systems that can be manipulated easily.

Fair pricing and decreased transaction fees

Blockchain can provide an easy solution for both buyers and suppliers seeking to negotiate a fair price for their product. Using Blockchain, commodity buyers are able to deal with their supplier directly and transfer payment via mobile. This may ensure that farmers receive fair payment for their produce and the retailer pays a fair price as that would save the retailer money in agents. Ultimately, this technology enables farmers, manufacturers, and retailers to justify premiums for certain products.

Minimising Human Error

Blockchain can also be used to minimise physical and financial losses in the agricultural sector caused by human errors. By adopting blockchain technology tasks can be taken from the workforce in many ways and automate them, minimising the amount of resource that is wasted or misused. Also, Blockchain can present information to farmers regarding diseased products throughout their supply chain: what types of crop are they; where were they grown? By drilling down into this data set, the farmer can then minimise future losses.

Use cases

There are nowadays various blockchain use cases that could be adopted by the agriculture industry, ranging from real-time management of supply chain transactions and financing, smart (farm) contracts, data monitoring to reduced human errors.

Management transparent transactions

Blockchain enables both small farm firms and agricultural concerns to be able to keep track of their transactions and contractual obligations with buyers, suppliers and other stakeholders in order to maintain accountability. Thanks to this technology the connection between commodity buyers and farmers can now be monitored more closely, and distribution channels streamlined yet further. This minimises fraud, maximises transparency, and ensures that each link in the supply chain is satisfied.

Efficient financing

But also financial transactions between farmers and buyers, that are nowadays hugely inefficient, could be improved thanks to blockchain technology. As it will enable real-time payment on delivery, this may improve the settlement process for farmers, buyers, and banks. As a result, farmers get paid immediately, industry competition increases and buyers save time and money. Also, adding transparency, trust, and efficiency to settlements can decrease risk and unlock new financing mechanisms for banks.

Smart farm contracts

Another use case is that of smart contracts in the agriculture industry. This especially relates to the provision of agricultural services linked to conditions and rules that could be specified in the blockchain, fulfilment of which is verified via the technology platform, such as pre sales of harvests or trigger compensation for the farmer based on confirmed weather data in real time. Sensors that automatically feed data into the blockchain in real time will provide the basis for smart contracts of this kind. The blockchain will not only be able to verify payments or record ownership properly. Rather it will automatically ensure that contracts are complied with, protecting the rights and obligations of contracting parties.

Data Monitoring

A fourth use case – and one of the most obvious one – is in data monitoring. It allows farmers to capture data in real-time. For instance, wireless sensors can be integrated into fields to monitor crop growth, harvesting, and subsequent yield, with all of the data recorded onto the blockchain. That will help them plan their areal more effectively and maximise the “success rate” of their harvests. Over time, this information would become an invaluable resource to the farmer.

Land registry

Another application of blockchain technology, especially for developing countries is to record land ownership in the country. In many countries in South America, but also Africa and South East Asia, a great majority of land is still unregistered. These countries often struggle with land tittle fraud, leaving the poor, who have most of their wealth in land, vulnerable. There is nowadays a growing number of countries in these regions that are thinking about using a permanent and secure land title record system based on blockchain technology.

Better Finance for the developing countries

Blockchain also has huge potential to create and improve access to finance in the developing world. For many of the farmers in these countries, affordable access to capital remains a huge challenge. Mobile banking creates novel financing opportunities such as micro-financing, but because of a lack of transparency and therefore high risk, the current paradigm is tons of small and costly transactions. Blockchain can — and already is — solving this problem for financiers and farmers. Examples include agri-ledger out of the UK, BitPesa in East Africa, and Rebit in the Philippines.

The concept of Smart Farms

The integration of all these various applications of blockchain technology in agriculture could lead to the concept of so-called smart farms. These are a form of sustainable agriculture that aims to enhance environmental quality, integrate technology with natural biological cycle controls and create economic viability within farm operations. Smart farming thereby involves the collection and distribution of large amounts of data related to different farming methods, weather conditions and animal health. Smart farming employs a lot of digital equipments and remote sensors, to collect the necessary information such as the information in advance so that timely measures can be taken regarding fertilisers, soil mapping, crop yields and machinery used. Smart farming also makes use of sensors for the early detection of animal health and upcoming reproduction events. This kind of livestock data is collected by monitoring the body movements of animals, their body temperature, pulse rate and tissue resistivity. GPS is also used for locating their positions.

Start-ups

Globally, there is a growing number of start-ups exploring the potential for blockchain in agriculture. Some of them already provide practical blockchain based solutions to various food items, to improve the traceability of food throughout supply chains and provide concrete proof of origin such as SkuChain. Other start-ups such as Filament provide blockchain solutions to create concepts like smart farms. Additional start-ups like Provenance and FarmShare are also researching and developing blockchain-based agricultural platforms.

SkuChain (supply chain)

SkuChain Technology is a distributed ledger blockchain-based system in the food industry that relies on its immutable nature to solve the problem of supply chain integrity. They focuses on the creation of direct relations, which simultaneously increases confidence and visibility of flow of goods. SkuChain is nowadays developing a system of improved (next generation) barcodes and RFID tags, with the aim to digitally secure the transfer of goods across the entire global supply chain and protecting end to end supply chains against counterfeiting. They therefor will provide cryptographic proof of each SKU’s origin and supply chain that can be verified all the way from the start to the point of consumption.

Filament (smart farms)

Another start up is Filament, a wireless sensor firm, that is developing sensors to monitor crop health and recording results in a blockchain. With Filament’s platform, users connect physical objects and existing networks into “wider networks and applications” – making smart farm technology into reliable infrastructure. By monitoring the food supply chain, consumers can get a better idea of where the food is coming from, the date it was created, and how it was produced more efficiently.

Provenance (tracking)

Others such as UK start-up Provenance are using blockchain to improve the traceability of food and provide concrete proof of origin. Provenance uses blockchain to keep a track of food supply chains and makes the information public, secure and all-inclusive. The ledger is used to document the supply chain of materials, ingredients, and products to provide consumers with greater transparency about their authenticity and origin. They provide buyers – in the format of a real-time data platform – with a fully transparent record allowing the end user to see each step of the journey the product has taken: where it is, who has it, and for how long.

Farmshare (community-supported agriculture)

FarmShare, another start-up, is developing an agricultural system that runs on the blockchain to evolve community-supported agriculture in developing economies. The project is an evolution of the CSA model, which takes advantage of the blockchain’s potential for creating new forms of community property ownership, collaborative labour relationships, and locally-oriented alternative economies. Farmshare has been networking with its local community and within the technology industry. Farmshare thereby uses blockchain technology to buy, sell and trade a local crypto currency (cryptographic tokens) that can be used/exchanged to purchase weekly deliveries of locally produced food from nearby farms within a natural community. FarmShare enable shares in harvested crops to be electronically distributed to members, creating self-sufficient local economies. This in turn generates greater involvement within the community, and ensures there are incentives for local agriculture to be run more effectively.

Real world examples

Tuna industry
Provenance is now experimenting with proving the supply chain of the tuna industry in Indonesia being delivered to Japanese restaurants. Mobile, blockchain technology and smart tagging were thereby used to track fish caught by Indonesian fishermen with verified social sustainability claims. They used information on sensors or RFID tags and local certification, recorded in the blockchain, to track the fish along its journey from “hook to fork”. Its ambition was to demonstrate a solution to the serious need for data interoperability: “for tracking items and claims securely, end-to-end, in a highly robust, yet accessible format without the need for a centralised data management system”. The pilot was successful in tracking responsibly-caught fish and key social claims down the chain to export. It was found that blockchain technology meet these needs and offer an “exciting paradigm shift” necessary for traceability in such vast complex supply chains as the South East Asia fishing industry.

Local grain industry

Start-up Full Profile is starting with an in-market blockchain pilot for the 2016-2017 grains harvest in Australia. Since the grain industry deregulated in 2008, growers have been increasingly exposed to payment risk — not receiving money for their crop once a shipment legally changes owners. Because blockchain records detailed information for every transaction along the value chain, this technology can take out a number of risks faced by growers and traders selling grain. Thanks to this increased transparency buyers and sellers both have access to the information, as well as information about similar transactions, so both parties have a fuller understanding of fair prices. For grain growers and traders, key features of blockchain, such as real-time payments and settlements, allow growers to get paid for their grain the instant they deliver loads of grain at harvest.

Agribusiness trade

The use of blockchain technology could also dramatically transform agriculture across Africa. WakChain is Africa’s first permissioned blockchain for the farmer and the continent’s agribusiness. Wakchain nowadays uses this technology to scale up the transformation brought about in Nigerian agriculture. Existing structural inefficiencies, poor market and transport linkages mean that the farmer is disincentivized from fully reaping the rewards. Blockchain could create the foundation for more seamless intra-African trade especially in the agribusiness value chain. The idea of Wakchain is that farmers and players in the African agribusiness value chain should be able to trade from anywhere in the continent, using blockchain technology and in a manner that maps the distributed nature of agricultural activities. Blockchain can help African farmers by enabling them transact, verify and enforce the provisions of their contracts better.

Future

Though we haven’t yet seen the large-scale commercial adoption of blockchain, and there are still many bottlenecks to remove, this technology has the ability to fundamentally transform the agriculture industry. Blockchain technology has big potential to solve significant problems in the food and agricultural industry. Farmers in the Western world have always been eager adopters of technologies that make sense and deliver real value. It will be interesting to see how lucrative blockchain can prove to be for the present day farming techniques. The challenge now for blockchain, and agricultural technologies in general, is connecting the technology to viable business models and compelling use cases. All the start-ups mentioned above are working hard to do just this.

Carlo de Meijer

Economist and researcher

Has the Bond bull market run out of steam?

| 02-11-2016 | Lionel Pavey |

The yield on Dutch 10 year government bonds has increased sharply in the last month (October 2016) –from 0.02% at the start of the month to 0.28% at the end – bond prices of course move in the other direction and have gone down. Why?

Possibility that the Federal Reserve will raise rates in America? Uncertainty over when the ECB will end their QE programme and the knock-on effects in the market?

ECB president Draghi has not said if the programme will end in March 2017 as originally envisaged. As monetary policy has not delivered the boost to the economy that was expected, maybe it is time for Government to look at changes to the fiscal policy via a Keynesian stimulus leading to lower taxes and an increase in direct government spending.

So if the bond market has reached the bottom and prices will start to rise, what will be the consequences?

The ECB is holding over EUR 1 trillion worth of bonds – can they unwind this position? Immediate selling would lead to a collapse in prices and a large increase in interest rates – deflating an already fragile economy and withdrawing liquidity from the financial system. Could the debt be monetized – the scale involved has never been seen before, so difficult to say.

But, what will happen to bond prices when yields start to rise?

If the yield on 20 year government bonds in the EU was to increase by 2% from their current levels, this would lead to a fall in price of 25%. If the yield on 30 year government bonds in the EU was to increase by 3% from their current levels, this would lead to a fall in price of 44%.

As the ECB would have to sell their existing bond holding at lower prices, there would be a huge loss on their portfolio – who ultimately would have to bear this loss?

What would be the effects on the equity markets – there has to be a knock-on effect if bond yields rise leading to a fall in equity prices. Is the current fragile market able to absorb these transactions – is there enough liquidity in the market?

Very worrying times ahead – companies will have to review their funding strategies, but this can lead to opportunities.

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

Will the Fed kill the EM currency rally, or will Trump?

| 01-11-2016 | Simon Knappstein |

The USD is strengthening again broadly across the range. As it had weakened since Q1 this year versus EM currencies, this trend now seems to have come to a halt. Obviously the expectation that the Fed will almost certainly raise interest rates in December is the major factor for this move. What also may be of importance here is the nascent notion that the expansion in global liquidity that has characterized financial markets for so many years might have come to an end. Both the ECB and the BoJ seem less willing and/or have less room to increase QE.

This tends to direct investment flows away from EM currencies, and to a lesser extent from EUR and JPY, into the USD. So expect a stronger USD into year-end. And possibly even more in case of a Trump win, as protectionism will hurt global trade and that will hurt other currencies more than the USD. According to ING MXN, CAD, GBP and AUD would be among the currencies that would be hurt most relatively.

Here is a summary describing the consensus-view on a number of currencies. You can find more information and details on consensus FX forecasts in my latest October report.

Developed Markets

The Fed appears set to raise rates again before 2016 comes to a close. The USD is strengthening broadly; expect this to continue in the run-up to year-end. The USD is likely to peak when rates are finally lifted again in December. With a Fed hike likely to come before year-end and questions regarding Eurozone bank stability looming, the outlook for the common currency is becoming slightly bleaker. Over the remainder of the year, the EUR is likely to fall out of favor with investors.

For GBP, the likelihood of a so-called ‘hard Brexit’ has increased. Such a scenario increases the chances for another rate cut by the BoE during the remainder of this year. Expect downside pressure to prevail for the next couple of months. Oil prices boost the CAD, but still the outlook for a weaker CAD near-term hasn’t changed.

The JPY is not weakening on BoJ measures; only USD strength is pushing USD/JPY higher. External factors are the main drivers for JPY weakness. Stronger-than- expected commodity prices are the major factor keeping the AUD elevated. A weaker AUD looks more likely from here.

Emerging Markets

The RUB seems less sensitive to oil price shifts. High carry is providing support in risk-on circumstances. TRY has weakened on capital outflows on the back of a ratings downgrade. Geopolitical risks will weigh further on the TRY.

Latam

The BRL continues to trade with a positive momentum on the back of fiscal reforms by the interim president Temer and also by a high carry. The MXN has proven vulnerable to portfolio outflows. Rate hikes have given little support. A Trump win might push USD/MXN above 21.

Asia

CNY is weakening against the USD as the Fed is expected to raise rates. PBoC will verbally support the CNY but depreciation trend will continue. INR looks stable through the transition to a new RBI Governor. Still supported by a relatively high carry.

Consider a treasury intern!

| 31-10-2016 | Pieter de Kiewit |

As you might know, I play an active role in the development of the Minor Treasury Management at the Hogeschool Utrecht. This is the second year this program is organized for Bachelor students, not only from Utrecht but also schools from other parts of The Netherlands.

I contribute in three aspects: informing students about why they should choose this minor, describe the relevant labour market to the students who chose the program and connect them with the market. Both guest lecturers as well as internship counselors found their way into the program through my mediation.

As far as I can oversee the Hogeschool Utrecht is currently the only higher education institute in The Netherlands with a structural focus on treasury. All other active in this field offer post graduate / evening study programs. In our recruitment we hardly see young graduates with thorough knowledge of corporate treasury.

In this blog I want to invite you to hire an intern. Perhaps they can offer the solution for the project where you do not know if you want to hire a consultant, ask a colleague or do it yourself. Interns ask surprising questions and present solutions you did not think about. Their recent classes taught them about theories you never heard of before. They can help you tackle projects and you can help them prepare for the treasury labour market. Win-win.

Did you ever hire a treasury intern? Tell us about your experiences in the comments below!

Editorial note

The internship for students of the Minor Treasury Management at the Hogeschool Utrecht will start February 2017 and will last for 20 weeks;
It is a full-time internship: the students will work for 4 days at your office and can work one day a week on their thesis, other structures can be discussed;
They prefer that students take the internship on their own, but in pairs may be negotiable.

Pieter de Kiewit
Owner Treasurer Search

The end of the Notional Pooling Era: What to do next?

TIS Webinar: SEPA in Sweden – The key to a smooth transition

| 27-10-2016 | TIS | Sponsored content |

Dear community members, we would like to bring this TIS webinar under your attention. On November 3th between 04:00 and 04:30 PM TIS will host : SEPA in Sweden – The key to a smooth transition. We think it will be an interesting session and hope to hear your reactions afterwards!

Are you set for SEPA? On October 31^st, Single Euro Payments Area (SEPA) aims to make the payment of goods and services in Europe easier while allowing you centralized payments and liquidity management.

However, what steps do you need to take to ensure your organization is prepared for this shift? Which elements can you already prepare for, and where should you reach out for assistance? And, have you ensured that your ERP systems are compatible for ISO 20022?

Stop wondering, start smooth sailing towards SEPA.
Join TIS for a live webinar to check off your list of to-do’s and also answer any questions you might have.

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Reports: Journeys to Treasury, Treasury Systems Guide and The Future of Treasury Management Systems

| 26-10-2016 | treasuryXL |

A few interesting reports came out in the last couple of weeks: ‘Journeys to Treasury’, ‘Treasury Systems Guide 2016’ and ‘The Future of Treasury Management Systems’. We did some reading and decided we wanted to share these reports with the treasuryXL community. Let us know what you think! Did you see a report, article or something else that could be interesting for the treasuryXL community? Don’t forget to share!

Journeys to Treasury – BNP Paribas, EACT, PwC and SAP

In this day and age being a treasurer can be a challenge. BNP Paribas, the European Association of Corporate Treasurers (EACT), PwC and SAP have joined forces to form a thought initiative whose aim is to help finance professionals resolve some of the intricate puzzles that constitute the treasury of today and tomorrow. This resulted in the report: “Journeys to Treasury “.

Journeys to Treasury is a report that bases itself upon the understanding and knowledge of the challenges treasuries face today as well as the ability to anticipate the impact of transforming trends. In Journeys To Treasury, each of the four contributors offers their own expertise gained from their own journeys in this bumpy – yet encouraging – landscape, structured in 3 sections: Continued Innovation, Anytime, Anywhere Treasury and Cybercrime and Fraud.

Interested in reading the full report? You can download ‘Journeys to Treasury’ here.

Treasury Systems Guide 2016 – Bobsguide & GTnews

This bumper edition is full of features and commentary from industry experts, as well as our traditional functionality matrix that delves deep into what different treasury management systems are capable of.

With the recent decision to Brexit and the upcoming US election, it could mean that treasurers might have to sleep with one eye open in order to tackle potential fraud, manage cash visibility and meet regulatory requirements in these uncertain times.

We also look into what’s happening with regulation in Europe, innovation in Asia and tax in the United Kingdom which tie into some of the topics discussed by the bank and the TMS provider we interviewed.

Interested in reading the full report? You can download it here.

The Future of Treasury Management Systems – FX MM

FX-MM brings together leading industry experts to discuss the future of Treasury Management Systems (TMS) and examine how technology is enabling Treasurers to ditch the data gathering and take on a more strategic role within their organisations.

Our panel examines how technology is also helping to democratise the use of TMS, with Software-as-a- Service offerings enabling corporates large and small to enjoy the benefits of the cloud and more user-friendly systems.

Interested in reading the full report? You can download it here.

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Did you came across something interesting for the treasuryXL community? Or are you interested in becoming a author? Contact us: [email protected]

Blockchain, near real-world projects and collaboration: viable approaches

| 25-10-2016 | Carlo de Meijer |

In one of my earlier blogs I wrote that we are beyond the hype of blockchain and distributed ledger technology. Support in the financial industry and beyond for this technology is accelerating in a rapid way. A lot of time and money is now invested into blockchain and its applications.

“Distributed ledger technology is set to move out of the test environment and into the wild next year, with nearly two thirds of banks expecting to be in production with full-scale, commercial blockchain projects by 2019”, according to recent research from IBM.

If so, that would mean much earlier than the 2020 to 2025 period that was earlier predicted for mass adoption of blockchain technology.

Collaborative near real-world examples

Financial institutions, technology companies as well as start-ups are increasingly collaborating on projects and pilots (or are planning to do so) to use distributed ledger/blockchain technology in trade finance, payments and securities. Next to existing platforms such as Ripple (payments), there is a growing number of collaborative initiatives including the Distributed Ledger Group (R3CEV) and the Hyper Ledger Project (Linux Foundation) (see earlier blogs). This could really accelerate the whole process towards mass adoption.

The first collaborative near real-world tangible use cases and practical applications of distributed ledgers in the financial industry are now being brought to the open. And more are expected soon. Here follows a number of interesting examples of actual projects, initiatives and trials. Main question is: will they be viable in the long run?

R3CEV

Credit Suisse (syndicated loans)

Led by Credit Suisse and the bank-backed blockchain consortium R3CEV, a group of seven member banks (BBVA, Danske Bank, Royal Bank of Scotland, Scotiabank, Société Générale, State Street, US Bank and Wells Fargo) and a number of buy-side firms have started a new initiative to apply distributed ledger technology to overhaul “antiquated” and costly manual intervention in the global syndicated loans market. Goal is that in the future, syndicated loan data processing can be done exclusively on the distributed ledger, eliminating the cost for each market participant to maintain its own separate lending system. The Swiss bank is working with Synaps Loans (a joint venture created earlier this year through a partnership between smart contract vendor Symbiont and loan settlement platform provider Ipreo), on a proof-of-concept (PoC) which will run through the end of this year. Through Synaps, loan investors have direct access to an authoritative system of records for syndicated loan data. By connecting a network of agent banks through blockchain, faster and more certain settlements in the syndicated loans market can be achieved. This allows immediate savings by reducing manual reviews, data re-entry and systems reconciliation.

R3CEV and eight member banks (treasury bond trading)

Working under the R3CEV flag, a group of eight member banks have successfully tested a distributed ledger prototype for bond transactions. Thereby they used an implementation of Intel’s proprietary distributed ledger platform, Sawtooth Lake, for the trial. The platform featured advanced smart contract functionality, enabling trading, matching and settlement of US treasury bonds on-chain, as well as automated coupon payments and redemption based on network time and third party data sources. The partners used physical, non-cloud-based nodes hosted across the US, Canada, Asia, Australia and Europe to interact and simulate US treasury trading on the ledger. In addition, the technology enabled an on-chain identity registry to facilitate the permissioning of validators and transactors, and the association of those roles to different organisations. Intel is now donating the bond-related transaction families developed for the trial to the Hyperledger Project.

R3CEV and 15 member banks (Letter of Credit)

R3CEV and 15 of its consortium member banks successfully completed a number of prototypes using distributed ledger technology for trade finance purposes. The involved member banks in the trials (including Barclays, BNP Paribas, Commonwealth Bank of Australia, Danske Bank, ING Bank, Intesa Sanpaolo, Natxis, Nordea, Scotiabank, UBS, UniCredit, US Bank and Wells Fargo), designed and used so-called smart contracts on R3CEV’s Corda distributed ledger platform to process accounts receivable (AR) purchase transactions, invoice financing or factoring, and letter of credit (LC) transactions. Estimates suggest that “such technology has the scope to reduce operational and compliance costs of paper-based trade financing by 10 to 15% and provide a platform for banks to grow revenues by as much as 15%”.

R3CEV and 40 member banks (Commercial Paper trading)

R3CEV and 40 member banks have successfully completed a number of cloud-based ledger experiments. The (then!) 40 member banks were connected to five different R3CEV managed private distributed ledger technologies. Objective was to test, compare and evaluate the strengths and weakness of different blockchain offerings on the market today. The banks thereby modelled a series of smart contracts that were programmed to manage Commercial Paper transactions including facilitate issuance, secondary trading and redemption of Commercial Paper. Each of the distributed ledgers thereby ran a smart contract based on identical business logic to enable the banks to accurately compare the difference in performance between them. These experiments followed a test in January to unite eleven global financial institutions on a private distributed ledger provided by Ethereum.

Barclays and R3CEV (smart contracts repository)

The R3CEV blockchain consortium is working with Barclays Bank, ISDA and legal and academic bodies to explore the development of a repository of master templates for smart contracts when trading and managing securities on distributed and shared ledgers. The new group, has been set up to address the challenges of developing master templates for smart contracts, with an initial focus on how they could be implemented within existing legal and regulatory frameworks. Earlier this year, Barclays Bank demonstrated a Smart Contract Templates prototype creating an ISDA agreement and an interest rate swap trade that then executed as a smart contract on R3CEV’s Corda platform.

Credit Suisse and others (reference data management)

Coordinated by Credit Suisse and working with R3CEV and capital markets tech startup Axoni, seven buy-side and sell-side firms (including Citi and HSBC) have completed a multi-months proof-of-concept (PoC) exercise, which aimed to simplify reference data processes through a distributed ledger prototype. The prototype was created using proprietary distributed ledger software of Axoni (a distributed fintech solutions company) to simulate the collaborative management of reference data, as well as the use of that data for corporate bond issuance. Participants could interact with reference data after issuance, with any proposed changes requiring validation by the underwriter to ensure the ledger provided a single, immutable record of all data related to the bond. The results show how blockchain technology could be used to allow regulators and network participants to view in real time which parties on the ledger have created, issued and proposed amendments to the data record. “This may remove the need to reconcile multiple copies of data and help reduce duplicate reference data costs and improve data latency which will ultimately lower costs and reduce operational risks”, according to Credit Suisse.

Hyperledger Project

UBS and IBM (trade finance)

Swiss bank UBS and IBM have designed a project that replicates the entire lifecycle of an international trade transaction on Hyperledger`s Fabric blockchain. The trade finance project that is still in its earliest stages and focuses on just a single aspect of the process, combines payment transactions, foreign exchange payments and more, into one single, elaborate smart contract. By programming that process into a smart contract on Hyperledger, UBS “expects to be able to cut the processing time down from seven days to one hour”. Besides the letter of credit process, the project also aims to incorporate the account opening process, to build a user-friendly interface “capable to operate on the go, from a transportation vehicle for example”. It remains unclear how long it will take to complete the international trade project, according to UBS.

CLS (payments netting service)

CLS, the multi-bank foreign exchange counterparty, is to build a payments netting service for trades settled outside the core membership thereby using distributed ledger technology based on the Hyperledger Fabric. CLS wants to use its position to standardise and expand bilateral payment netting capabilities for the entire FX market, eliminating intra-day liquidity demands caused by inefficient “bespoke” approaches to netting throughout the market. The company has signed up 14 banks as early adopters of the proposed service, which will accept FX instructions for six products, including non-deliverable forwards (NDFs), and 24 currencies over existing SWIFT-based channels. Participants will also have the option of connecting directly to the platform via a permissioned distributed ledger, administered by CLS using Hyperledger Fabric. CLS will be working with IBM to build new infrastructure. The new service will be delivered in a phased approach – subject to regulatory approval – beginning with a payment netting service for FX spot, forwards, NDFs, swaps, tomorrow/next day and same-day trades across the 18 currencies CLS currently settles, as well as the Chinese renminbi (offshore), Russian rouble, Polish zloty, Turkish lira, Thai baht and Czech koruna.

Bank of America Merrill Lynch/HSBC (Letter of Credit)

A bank consortium consisting of Bank of America Merrill Lynch, HSBC and the Infocomm Development Authority (IDA) of Singapore successfully applied distributed ledger technology to replace paper-based letters of credit (LCs) in trade finance transactions and streamline global trade. They thereby used the open source Hyperledger Project software for the prototype app, supported by IBM Research and IBM Global Business Services. By sharing information between exporters, importers and their respective banks on a private distributed ledger, this enabled them to execute a trade deal automatically through a series of digital smart contracts. The partners now plan to conduct further testing on the concept’s commercial application with selected partners such as corporates and shippers. Their challenge is to take this from concept to commercial use “making it quicker and easier for businesses to connect with new suppliers and customers at home and abroad.”

BTMU and IBM (contract management and trade finance)

The Bank of Tokyo-Mitsubishi UFJ (BTMU) and IBM are collaborating to use blockchain technologies for the design, management and execution of contracts among business partners. They thereby make use of the Hyperledger Project’s open-source platform to automate business transactions with each other on the IBM Cloud. Both partners have built a prototype of smart contracts on a blockchain that should improve the efficiency and accountability of service level agreements in multi-party business interactions. To help improve efficiency, the two will monitor delivery and usage of equipment with a sensor that embeds information into the blockchain. This will then automate invoicing and payment processes between the two companies. BTMU plans to begin using it to manage contracts within their business in fiscal year 2017.

JPX and IBM (post-trade settlement and proxy voting)

Officials of the Japan Exchange Group (JPX) and IBM Japan recently announced advanced plans to test the use of blockchain technology for post-trade settlement and proxy voting. The exchange will investigate how blockchain technology could be used to create new systems for the trading of low-liquidity assets. They thereby will use the framework provided by the Hyper Ledger Project. JPX is also working with Nomura Research Institute (NRI) and several major financial institutions (including SBI Securities, Mitsubishi UFJ Financial Group and blockchain specialist Currency Port) to test the use of blockchain technology for future applications across the securities industry. Until the end of June, the partners have examined various business scenarios and validation items involving distributed ledger technology and prepare prototype systems based on those scenarios.

Credit Mutuel Arkea (verify customer IDs)

Credit Mutuel Arkea has completed a pilot of an operational permissioned blockchain network to verify customer “bona fides” in compliance with Know Your Customer (KYC) requirements. Using the open-source Hyperledger Project fabric, the software “tapped into all valid existing evidence” already stored in the bank’s multiple systems of record such as from mortgage applications or life insurance enrolment and bank accounts opening. Following the success of the initial pilot, Credit Mutual Arkea plans to work with IBM to integrate the different silos of customer data across the bank to create a single ID data chain that can be used across all business processes.

Ripple

The Ripple network recently announced that seven banks including Santander, CIBC, UniCredit, UBS, ReiseBank, National Bank of Abu Dhabi and ATB Financial of Edmonton “had made a breakthrough by being among the first financial institutions in the world to move real money across borders using blockchain-based distributed ledger technology provided by Ripple”. Focus is thereby on international, low-value, high-volume and velocity payments (as these can often be expensive and not profitable for banks). The seven banks are all planning to deploy Ripple commercially, while most having already moved real money via the network.

In the meantime Ripple has signed up several major banks to a steering group on the use of distributed financial technology for global payments (including names like: Bank of America Merrill Lynch, Santander, UniCredit, Standard Chartered, Westpac, and Royal Bank of Canada). The creation of the Global Payments Steering Group (GPSG), is significant because this represents the first time that major banks have formulated policies to govern the transfer of money across borders using blockchain. The group will oversee the creation and maintenance of Ripple payment transaction rules, formalised standards for activity using Ripple, and other actions to support the implementation of Ripple payment capabilities. This Group might become a great competitor for SWIFT.

Standard Chartered (trade finance)

The first bank-developed blockchain platform for trade finance was the product of a partnership between Standard Chartered, the Development Bank of Singapore (DBS) and the Infocomm Development Authority of Singapore (IDA), the government’s IT and communications arm. They developed a blockchain-based invoice trading platform (code-named TradeSafe) that uses the distributed ledger technology developed by Ripple. Invoices and bills of ladings are allocated unique identifiers and stored on this distributed ledger. The use of unique identifiers enables users to view the status of a particular invoice/bill, but also reduces the risk of duplicate financing of the same invoice/bill. Further, to maintain confidentiality, users are allocated encrypted identities.

ATB Financial and Reisebank (international interbank payment)

SAP (the world’s third largest independent software manufacturer), partnered with Ripple and two banks, ATB Financial (Canada) and Reisebank (Germany), to demonstrate how banks can improve the efficiency of cross-border payments by using blockchain technology. For that SAP and Ripple designed and built a proof-of-concept (PoC) prototype based on this technology (thereby connecting SAP HANA Cloud, the open platform as a service (SaaS), and the SAP Payment Engine application, which centralizes payment processing in one solution with Ripple’s network of enterprise blockchain solutions).

This prototype was used to send the first international interbank blockchain payment of CAD $ 1,000 from ATB Financial to Reisebank. With parties representing different continents, this cross border payment transfer using blockchain technology was completed successfully. The payment which would normally have taken between two to six business days to process “was now completed in around 20 seconds, so nearly instantaneous”. In addition for being far quicker, this blockchain payment transaction cost a fraction of current transaction rates.

Japanese bank consortium (real-time settlement and domestic fund transfers)

A consortium of 15 Japanese banks are to work with blockchain joint venture SBI Ripple Asia, to build a new payments platform for 24 hours real-time settlement and domestic fund transfers, thereby using Ripple’s blockchain technology. This should firmly reduce the fees currently paid by banks for performing cross-border transactions and pave the way for the arrival of real-time domestic and cross-border payments. Initial participants include Bank of Yokohama and SBI Sumishin Net Bank (SBI Holdings owns part of it). It is expected that the size of the consortium will increase to 30 banks, and that the new service will go live in Spring 2017.

Santander (cross border payments)

Santander has become the first major UK bank (and the first bank in the world) to use Ripple for cross border payments. Starting in May Santander has begun piloting a Ripple-powered payments app built on the blockchain technology, that facilitates international payments. The app, currently being tested by bank staffers, connects to Apple Pay, and allows cross-border payments to be made between GBP 10 and GBP 10.000, around the clock and at any time of the day, using Touch ID. Funds appear in the recipient’s account the next working day. These transfers can be made from sterling to euros and US dollars (currently payments made in euros can be sent to 21 countries and US dollar payments to America only). The results of this trial will be used to assess whether to bring this technology to its customer base at a later date.

Foundational challenges

When it comes to blockchain, we may say that we are beyond the hype. The many experiments, proof of concepts and other real-world trials with blockchain technology are all evidence of that. And we will see many more of them this year and beyond. But quoting Terry Roche of Tabb Group in a recent blog the technology now needs to deliver real-world benefits.

“While blockchain’s promises remain bright, however, there are (still) numerous foundational challenges (process, technical, community, etc.) that the financial services industry needs to overcome to get a beneficial blockchain world.”

While all these projects ask a lot of investments, not all of them may prove to be viable in the end. The financial industry however has no endless funds available to explore endless options. In today’s constrained technology marketplace, there needs to be a defined and realizable gain associated with any project for firms to fund it. That is why the industry should prevent dead-end options and only focus on viable applications that have a long-term future and suits best in their business model!