Corporates: Caveat IBOR and Build-Up Your IBOR Knowledge!

01-03-2021 | treasuryXL | Enigma Consulting |

Last year November we published the article ‘Corporates: Caveat IBOR!’ regarding the IBOR phase out and the impact on corporates. Let’s have a look why today’s corporate treasurer should be even more aware of IBOR interest rate benchmarks.

It is highly likely that your organisation will be affected by the IBOR transition. Most corporate organisations underestimate the impact, thinking that the ‘only’ thing that will change is a base rate and its calculation method. Before you join their ranks, take some time to reflect on the following:

The IBOR will cease to exist, starting on the 31st December 2021 and be replaced by Risk-Free Rates (RFRs) with a different basis for calculation:

  • These changes will impact financial (e.g. bond, (intercompany) loan, (multi-currency) credit facility) contracts as well as commercial contracts with an IBOR related ‘late payment clause’
  • This in turn will impact processes in the Treasury functions, with knock-on effects to supporting departments, Legal, IT systems, accounting, and tax reporting to name just a few
  • IBOR transition is progressing at a different pace across jurisdictions and financial products (e.g. loans, bonds, and derivatives), adding to the complexity of managing the transition
  • The Working Group on Sterling Risk-Free Reference Rates (RFRWG) published the following milestones regarding GBP LIBOR:
    • By end-Q1 2021, all legacy GBP LIBOR contracts expiring after end 2021 that can be actively converted need to be identified, and progress active conversion where viable through to completion by end-Q3 2021
    • Active steps to enable a shift of volumes from GBP LIBOR to SONIA in non-linear derivative markets: by end-Q2 2021, initiation of new GBP LIBOR linked non-linear derivatives that expire after the end of 2021 will be ceased; and, by end-Q3 2021, complete active conversion

The good news is that there is still time to assess the impact of the pending IBOR changes on your organisation and to act upon it if needs be. The sooner you have a plan for the potential consequences for your organisation, the sooner you will be able to mitigate these. This understanding will also give you more leverage in the coming discussions with your bank(s).

Moreover, the IBOR phase out may bring a golden opportunity for corporates to re-evaluate the current contract agreements and look for better deals. Consider this: during the IBOR migration contracts are in fact ‘renegotiated’ and banks will need to come up with a new offer. Will you take that offer as a corporate client? That all depends on your level of understanding and preparation.

What should you do to prepare?

As the deadline approaches, you will need to know your level of exposure and impact in order to prevent surprises. What will the impact of the IBOR transition be on your TMS and ERP systems, your credit facilities, bank loans, cash pooling, bonds, ISDA agreements and intercompany agreements? What impacts will these have on your processes and supporting systems? Which complexities will need to be managed?

 

 

Having this information at hand will enable you to be a proper sparring partner for your banks when they renegotiate contract terms.

Depending on the complexity of your contracts, the IBOR phase out could substantially affect your corporate organisation. Prevent unnecessary loss by preparing yourself, following this five-step approach:

 

  • IBOR phase out knowledge build-up

Corporates should start to build-up their knowledge regarding the IBOR phase-out and get up-to-speed with developments related to different kind of products and RFRs in order to be able to assess the IBOR phase-out impact. Each corporate organisation has a different situation and a variety of financial contracts. Complexity depends on the type of business. A larger organisation active across multiple regions in the world with more complex non-Euro instruments will be impacted higher than a smaller organisation that only is active locally within the Eurozone. Thorough knowledge about IBOR is a key starting point to assess the impact on your organisation and to be able to assess, plan and implement the migration to alternative reference rates.

  • Assess impact

The second step you should take is to analyse the IBOR related contracts in use throughout your organisation. Determine which contracts have an IBOR related component and the size of the exposure. Once you have assessed the complexity of your IBOR related contracts, analyse the impact on related areas (ranging from Tax and Legal to IT systems, and procedures, reporting, accounting (e.g. hedge-accounting), and the like).

  • Become a prepared discussion partner for your bank(s)

The third step is to be prepared for a call with your bank to discuss an RFR offering! The magnitude of change is well-recognised by banks and financial institutions, and they are demonstrating an increasing sense of urgency to address contracts maturing after 2021. More and more newly issued IBOR related products by your bank(s) will refer to a new alternative reference rate during 2021.

  • Plan actions

Knowing the alternative RFRs is an important input on creating a detailed action plan. Define a project team governance to manage this action plan and the status of the transition across different areas, business lines, and geographical locations. In particular, take care to ensure external resource availability regarding e.g. Legal counselling and system provider experts, as demand for these specialists will rapidly increase as the IBOR transition deadline approaches.

  • Act and implement

Step five is the implementation of your action plan throughout the affected areas of your organisation. In this ‘Act’ phase it is important to maintain the conversation with external parties, such as banks and system providers. It is also of vital importance to support the implementation across all relevant business lines and functions, maintaining support for go-live readiness in line with the defined action plan and deadlines.

A golden opportunity starts with IBOR knowledge build-up

Enigma Consulting supports you in knowledge build-up by providing ‘tailor-made’ workshops in order to discuss the impact on your corporate organisation related to different RFRs for different products based on your specific situation and to help you to prepare and become a discussion partner with your bank.

IBOR may well be a golden opportunity, but it is up to you as a corporate treasurer to seize it by acting rather sooner than later! Corporates: Caveat IBOR and build up your knowledge!

If you are interested in how we can help you to build-up your knowledge and to assess your IBOR related contract complexity or if you want to understand how we can support your corporate organisation in the IBOR phase out transition, you can contact us on:

dpluta@enigmaconsulting.nl or look at www.enigmaconsulting.nl

Daniel Pluta

 

 

 

Banks are increasingly looking for an Ecosystem strategy

27-01-2021 | treasuryXL | Enigma Consulting | Paul Jans

Banks are increasingly developing an ecosystem strategy to realize competitive advantages. They use partners, software suppliers and BPO providers and link plug-and-play solutions.

“These ecosystems are the foundation of their changing business model (‘open banking’) and facilitate innovation. The basis for this development is a stable core banking and payment infrastructure that does not require all means in terms of budgets and resources, ”says Paul Jans, Managing Director at Enigma Consulting. The article continues in Dutch…

Hij vervolgt: “In onze gesprekken met klanten is dat de belangrijkste motivatie om tot outsourcing van deze non concurrentiele diensten over te gaan.” Jans verwijst in dat kader naar onderzoek van PwC, waaruit blijkt dat “de belangrijkste strategische reden voor banken om samen te werken met derde partijen is om het productaanbod van de bank te verbeteren (juli 2020).”

“De belangrijkste strategische reden voor banken om samen te werken met derde partijen is om het productaanbod van de bank te verbeteren.”
– Paul Jans, Enigma Consulting

Het streven naar meer samenwerking (met Fintechs) wordt mogelijk gedreven door een aantal ontwikkelingen, legt Jans uit.

Om te beginnen reageren FinTechs snel door gebruik te maken van technologische ontwikkelingen, snelle besluitvorming en de toegang tot investeringskapitaal. Jans: “Ze zijn wendbaar en kunnen snel nieuwe diensten aanbieden die aansluiten bij het veranderende gedrag van de klanten.”

Ook versnelt nieuwe wet- en regelgeving de ontwikkeling dat innovatieve partijen de klantinteractie overnemen en de banken naar de achtergrond drukken. De toegang tot rekening gegevens van derde partijen op basis van de PSD 2 wetgeving lijkt een eerste stap in een ontwikkeling waar banken de directe klantinteractie steeds meer kunnen verliezen aan derde partijen. “Succesvolle banken concurreren niet met deze derde partijen maar via hun ecosysteem strategie maken ze deze FinTechs onderdeel van hun businessmodel”, aldus Jans.

Verder ondersteunen technologische ontwikkelingen de nieuwe businessmodellen. “Het koppelen van innovatieve Fintech oplossingen via een integratie laag (API’s) maakt het mogelijk dat banken beter blijven voldoen aan de huidige hoge klantverwachtingen”, legt Jans uit.

“Samenwerking, outsourcing en partnering met een open ecosysteem lijkt de toekomst voor de bancaire core banking infrastructuur”

Tot slot wijst de Enigma Consulting managing director erop dat het bedrijfsmodel van banken onder druk staat. “We zien verdergaande schaalgrootte, digitalisering en consolidatie of samenwerking. Het afgelopen jaar zien we dit in internationaal en ook in de Nederlandse markt hebben we een aantal voorbeelden gezien (Van Lanschot Kempen met Hof Hoorneman Bankiers, Insingergilissen met Quintet).”

“In gesprekken met onze bancaire klanten naar aanleiding van onze outsourcing survey komt duidelijk naar voren dat de banken te weinig focus kunnen onderhouden op al deze ontwikkelingen. Wet- en regelgeving, verplichtende veranderingen zoals de SEPA rulebooks, Swift changes of zoals bijvoorbeeld de vervanging van benchmarks voor rentetarieven (IBOR) eisen alle aandacht op”, geeft Jans aan.

Om de nieuwe uitdagingen toch het hoofd te bieden, zo legt hij uit, zoeken de banken naar een oplossing met de volgende kenmerken:

  • Nieuwe bancaire architectuur die flexibel is
  • Geen zorgen over backoffice onderhoud en noodzakelijke aanpassingen
  • Ontzorging en implementatie van wet- en regelgeving
  • Architectuur die het mogelijk maakt makkelijk te koppelen aan nieuwe oplossingen en de mogelijkheid te switchen
  • Een integratie laag (de API-infrastructuur) die zowel integratie met het ecosysteem, de integratie met interne systemen als de klant interactie ondersteunt en faciliteert. Dit maakt een optimale en flexibele customer journey mogelijk

Jans vat samen: “Modernisering van de core banking omgeving om gegevensuitwisseling te vergemakkelijken en flexibiliteit te bieden is de oplossing om nu en in de toekomst alle bovenstaande uitdagingen het hoofd te bieden. Samenwerking, outsourcing en partnering met een open ecosysteem lijkt de toekomst voor de bancaire core banking infrastructuur. De huidige stand van de techniek maakt dit mogelijk.”

Paul Jans

Managing Director at Enigma Consulting







Source

 

 

Brexit: UK Payment Service Providers barred from EU

13-01-2021 | treasuryXL | Enigma Consulting | Geert Blom

UK Payment Service Providers without an EU-license are barred from doing business in the EU. As of December 31, 2020, the UK and EU have concluded arrangements that effectuate the partnership between both parties on many different levels. However, the arrangement agreed upon does not include specifications regarding provisions, exemptions or special treatment for UK Payment Service Providers.


On January 31, 2020 the UK left the EU on the basis of the agreed withdrawal agreement. This prevented a no-deal Brexit on that date and led to the transition period until the end of 2020. In 2020, lawmakers have argued over the possibility to arrange for so-called EU-equivalence decisions with regard to the UK. These arrangements have not materialized and neither did EU member state parliaments deem it necessary to extend temporary exemptions for the provision of services by payment service providers or electronic money institutions established in the UK.

This means that from 2021 onwards, all British financial service providers without an EU-license are no longer allowed to provide many of their services to EU-clients. Also, the access rights of British financial institutions to provide cross-border financial services in the European Union will in many cases no longer apply. The financial supervising authorities expect that British institutions have taken timely preparatory measures so that the relevant state laws and regulations are complied with. Compliance could and can still be attained by applying for – and receiving – a payment institution license in one of the EU member states.

In recent years, The Netherlands have served as a favorite hub nation for many UK PSP’s. At Enigma Consulting, we are experienced and market leader in applying for payment institution licenses specifically in the Netherlands, for both PSP’s and EGI’s. We specialize in creating all required documentation and provide expert guidance on all applicable policies, procedures and related topics. If you too aspire to do business in the Netherlands as a PSP or EGI and if you are currently in need of expert advice or assistance with acquiring a license, please do not hesitate to contact us at info@enigmaconsulting.nl.

 

Geert Blom

Senior Legal Consultant

+31 (0)6 13 91 88 22

 

 

 

 

 

Top 5 most read articles at treasuryXL.com and LinkedIn of 2020

| 31-12-2020 | treasuryXL | Kendra Keydeniers

The last day of 2020 is here. The whole world experienced a ‘year not to forget’. I can imagine that when you popped the champagne last year you had other thoughts and plans in mind for 2020.

To make sure you don’t miss out on the pieces that made the most impact this year, we sifted through the data to uncover the articles our readers loved most in 2020 on our website and LinkedIn. (Treasury Topic ‘What is’ articles excluded).

Top 5 treasuryXL website articles of 2020

  1. Corporate Governance and Treasury | Embrace the Corporate Treasury Policy

    by Francois De Witte

  2. Top 5 most common pain points in Treasury

    by Michael Ringeling

  3. Corporates: Caveat IBOR!

    by Daniel Pluta, Enigma Consulting

  4. Exclusive interview with FX specialist Arnoud Doornbos about FX Risk Management

    by treasuryXL, Arnoud Doornbos

  5. How to simplify Procurement and Finance in the Supply Chain

    by Wim Kok

Top 5 treasuryXL LinkedIn posts of 2020

  1. Nomentia (former OpusCapita) makes Liquidity Management free for all customers!

    by Nomentia

  2. What is the difference between Treasury and Accounting?

    by TreasuryXL

  3. The missing part of a Treasury Job Description

    by Aastha Tomar

  4. An introduction to Forwards, Futures and Options Part 1

    by Aastha Tomar

  5. Partner Interview Series | The deeper dive with TIS (Treasury Intelligence Solutions)

    by treasuryXL, TIS

Within two weeks we will post a full recap of 2020 with an overview of the partners and treasury experts that have joined us, together with some interesting treasuryXL facts!

Thank you for being part of the treasuryXL community. Now it’s time to pop the champagne! Let 2021 begin…

 

Kendra Keydeniers

Director, Community & Partners treasuryXL

New MiCA regulation further tightens regulations for crypto companies (Dutch Item)

23-12-2020 | treasuryXL | Enigma Consulting |

Op 21 november 2020 verliep de deadline waarop cryptodienstverleners, die in of vanuit Nederland opereren bij toezichthouder DNB, geregistreerd dienden te zijn om hun crypto-activiteiten te mogen voorzetten. Bijna vijftig partijen hebben een aanvraag ingediend bij DNB, maar tot op heden heeft DNB ‘slechts’ dertien partijen in het openbaar register bijgeschreven. Het volgende reguleringskader staat echter al in de steigers: de zogeheten Europese verordening ‘Markets in Crypto-Assets’ (MiCA). Deze verordening moet vanaf 2024 voor alle lidstaten van de EU gaan gelden. Erik van der Leer van Enigma Consulting beschrijft welke impact MiCA kan hebben op de bedrijfsvoering van (crypto)bedrijven.

MiCA zal de van toepassing zijnde regelgeving voor cryptoplatformen verder uitbreiden en aanscherpen. Onder MiCA zullen ook verschillende cryptodiensten die voorheen buiten het reguleringskader vielen moeten voldoen aan Europese regelgeving. Zo definieert MiCA drie verschillende soorten uitgevers van crypto-assets en zeven verschillende cryptodienstverleners. Naast  de cryptodienstverleners die zich vandaag de dag reeds dienen te registreren in Nederland worden daarmee ook andere cryptodiensten binnen bereik van de wetgeving van de Europese lidstaten gebracht.

MiCA typeert aanbieders van een of meer van de volgende diensten als cryptodienstverlening:

  1. Diensten waarbij advies wordt gegeven over crypto-assets;
  2. Diensten waarbij orders in crypto-assets worden ontvangen en uitgevoerd;
  3. Diensten waarbij crypto-assets in de markt geplaatst worden;
  4. Diensten waarbij orders in crypto-assets worden afgewikkeld door derde partijen;
  5. Diensten waarbij crypto-assets in bewaring worden beheerd;
  6. Diensten waarbij een handelsplatform voor crypto-assets wordt geëxploiteerd;
  7. Diensten waarbij crypto-assets worden verhandeld tegen fiatgeld of andere crypto-assets.

Hoe staan de eisen uit MiCA in verhouding tot het in Nederland geldende registratie-regime?

Onder MiCA moeten cryptodienstverleners, net zoals dat geldt binnen het DNB registratieregime, een bedrijfsplan opstellen, procedures inrichten voor de integere bedrijfsuitoefening, de betrouwbaarheid en geschiktheid van bestuurders en beleidsbepalers laten testen door de toezichthouder en over een transparante zeggenschapsstructuur beschikken.

Deze verplichtingen worden uitgebreid met o.a. de volgende zaken:

  • Het aanbrengen van een strikte scheiding tussen het vermogen van de dienstverlener en het geld in beheer van de klant;
  • Het opstellen van een uitbestedingsbeleid, waaronder het formuleren van een herstel- en exitplan;
  • Het opstellen en naleven van een, aan de wettelijke eisen voldoende, klachtenprocedure;
  • Het beschrijven van de geïmplementeerde IT-systemen en beveiligingsprotocollen;
  • Het voldoen aan strike eisen omtrent marktmisbruik en insider-trading.

Ook zullen cryptodienstverleners een cliëntenacceptatiebeleid moeten opstellen voor diensten waarbij crypto-assets worden geplaatst, alsook moeten voldoen aan verschillende transparantievereisten voor diensten waarbij crypto-assets worden verhandeld tegen fiat geld of andere assets. Naast deze zaken zal ook een eigen vermogenseis gaan gelden van minimaal € 50.000.

Wat zal de impact zijn van MiCA op de Nederlandse cryptosector?

Zoals blijkt uit de bovenstaande zorgt MiCA voor een flinke toename in regeldruk binnen de Europese en Nederlandse cryptosector. De cryptodienstverleners dienen niet alleen hun bedrijfsvoering verder aan te passen, maar dienen ook over een aanzienlijk minimum eigen vermogen te bezitten. Met name voor de kleinere Europese spelers in de markt kan dit potentieel een grote impact hebben.

Desalniettemin brengt MiCA ook voordelen met zich mee voor de Nederlandse cryptosector. Het huidige Nederlandse registratieregime staat binnen Europa immers te boek als relatief streng, waardoor de Nederlandse cryptosector zijn concurrentiepositie ten aanzien van Europese concurrentie heeft zien verslechteren. Doordat MiCA het Europese speelveld nu gelijk maakt verbetert de internationale positie van cryptodienstverleners in Nederland. Ook beoogt MiCA dat een verkregen autorisatie gepassport kan worden naar andere lidstaten, iets dat momenteel niet mogelijk is. Omdat Nederland al relatief strenge eisen stelt zullen Nederlandse registratiehouders naar alle waarschijnlijkheid beter voorbereid zijn op de additionele MiCA-vereisten.

Ten slotte zorgt MiCA ervoor dat de uitgifte van crypto-assets en het verrichten van crypto dienstverlening een duidelijk en universeel reguleringskader krijgt binnen Europa. Alhoewel de hieraan verbonden eisen streng zijn en wellicht een negatief effect zullen uitoefenen op de bedrijfsuitvoering van sommige spelers in de sector, brengt MiCA ook zekerheid voor de markt én de consument. Het ontvangen van een MiCA-autorisatie zal daarmee ongetwijfeld deuren openen die tot op heden gesloten waren en nieuwe commerciële kansen met zich meebrengen voor de Europese en Nederlandse cryptosector.

Savings and investment banks have a lot of potential for improvement in the onboarding process for customers

24-11-2020 | treasuryXL | Enigma Consulting |

(Dutch Item)

Hoe digitaal en gebruiksvriendelijk verloopt het proces om klant te worden bij spaar- en beleggingsbanken? En wat kunnen zij opsteken van banken die een betaalrekening aanbieden? In een nieuw onderzoek van Enigma Consulting komt naar voren dat spaar- en beleggingsbanken hun onboardingsproces naar een hoger niveau kunnen brengen door te leren van de klantreis van banken die reguliere betaalrekeningen aanbieden. Wat vooral opvalt is dat de onboarding bij spaar- en beleggingsbanken nog hoofdzakelijk via de website verloopt, terwijl betaalbanken de onboarding via de app aanbieden en overduidelijk meer inzetten op innovatieve oplossingen. Een bijdrage van Marc Groot, Managing Consultant bij Enigma Consulting en expert binnen het onboardingsdomein.

Als expert in het klantonboardingsdomein publiceerde Enigma Consulting in juni 2020 een artikel over de onboardingsprocessen van de belangrijkste ‘betaalbanken’ in Nederland. Dit onderzoek heeft een vervolg gekregen, waarin naar de onboarding van spaar- en beleggingsbanken is gekeken, die worden aangeduid als ‘niet-betaalbanken’. Banken die  – onder andere – een betaalrekening aanbieden, noemen we betaalbanken.

Wanneer onboarding niet via de app mogelijk was, is de onboarding uitgevoerd via de website op de smartphone. Het onboardingsproces is per bank doorlopen en beoordeeld aan de hand van verschillende criteria. De onderzoekers hebben zich in het onderzoek geconcentreerd op de klantervaring, waarbij niet achter de schermen is gekeken bij de onderzochte banken. De klantreis is beoordeeld op basis van drie categorieën:

  • Innovatie: door handig gebruik te maken van innovatieve technieken, zoals een selfiefilm en de NFC-chip voor het uitlezen van legitimaties, kunnen gebruiksvriendelijkheid en fraudepreventie bij elkaar gebracht en versterkt worden.
  • Gebruiksvriendelijkheid: het gemak waarmee de klant het proces doorloopt, de doorlooptijd, de begeleiding van de klant door het proces en de aanwezigheid van technische barrières.
  • Veiligheid en fraudepreventie: alle banken hebben de verantwoordelijkheid om fraude te voorkomen en de klant correct te identificeren. De banken zijn beoordeeld op basis van hoe de klant wordt geïdentificeerd,  klantidentificatie- en verificatiemethoden en in hoeverre deze  aan de voorkant voldoen aan de geldende wet- en regelgeving.

De volgende afbeelding geeft weer welke spaar- en beleggingsbanken zijn meegenomen in het onderzoek en welke het beste zijn beoordeeld per categorie.

Niet-betaalbanken weinig innovatief

Allereerst is gekeken in hoeverre niet-betaalbanken innovaties gebruiken in het onboardingsproces en hoe dit zich verhoudt tot betaalbanken. Bij de identificatie van een klant gaat de bank af op de door de klant verstrekte gegevens. Een voorbeeld is een kopie of scan van het paspoort. Vervolgens verifieert de bank de identiteit door vast te stellen of de opgegeven identiteit overeenkomt met de werkelijke identiteit, bijvoorbeeld door een selfie-foto. Innovaties in het onboardingsproces zijn onder meer vernieuwende klantidentificatie- en verificatiemethoden en het uitlezen van de legitimatie via een foto in de app of via een NFC-chip.

Bij de niet-betaalbanken bieden alleen beleggersbanken DeGiro en Semmie de mogelijkheid aan om via een foto het legitimatiebewijs te delen met de bank. Bij de overige niet-betaalbanken dient de klant een scan van het legitimatiebewijs te maken en deze vervolgens te uploaden of te mailen. Daarbij moet de klant de persoonlijke gegevens handmatig invoeren op de website. Dit leidt tot een langer proces en kan leiden tot incorrecte invoer van de klant. Verder bieden de niet-betaalbanken geen van alle een selfie-foto, selfie-film of stemopname aan als middel voor klantverificatie.

Daarentegen gebruikt een meerderheid van de betaalbanken wel innovatieve identificatie- en verificatiemethoden. Vijf betaalbanken laten hun nieuwe klant een selfie-foto maken, drie kiezen voor een selfie-film en twee voor een stemopname. Verder worden bij vier betaalbanken de persoonsgegevens automatisch overgenomen in de app door middel van een scan van het legitimatiebewijs of door het uitlezen van de NFC-chip van het paspoort.

Onboarding via app bij niet-betaalbanken nog in kinderschoenen

Kijkend naar gebruiksvriendelijkheid is het bij vrijwel geen enkele niet-betaalbank mogelijk om de volledige onboarding te verrichten via de app. Dit kan alleen bij vermogensbeheerder Semmie. Deze jonge fintech-onderneming maakt in alle categorieën een goede indruk. Bij de overige gevallen gaat de klant grotendeels door het proces via de website. De klant vult de persoonlijke gegevens handmatig in via een webformulier. Bovendien heeft een deel van de niet-betaalbanken überhaupt geen app waarin zij hun diensten aanbieden.

Bij de niet-betaalbanken onderscheiden BinckBank, DeGiro, Lloyds Bank en Semmie zich positief qua doorlooptijd. De klant weet binnen een uur wat het spaarrekeningnummer is. Bij Semmie moet aangetekend worden dat het rekeningnummer nog niet direct actief is na de onboarding, vanwege de afhankelijkheid van de acceptatie door hun depotbank.  Bij de andere spaar- en beleggingsbanken varieert deze doorlooptijd van binnen een dag tot binnen een week.

Uit het onderzoek komt naar voren dat banken waarbij de onboarding via de app verloopt beter scoren op gebruiksvriendelijkheid en innovatie. Het grote voordeel van mobiele apps in vergelijking met mobiele websites is de betere klantervaring. Mobiele apps zijn geoptimaliseerd voor een grote hoeveelheid aan smartphones en schermresoluties, apps werken sneller dan websites en apps kunnen gebruikmaken van apparaat-eigenschappen, zoals camera of GPS. Bij onboarding via een website zijn deze apparaat-eigenschappen niet mogelijk.

Een belangrijk element van een goede gebruikerservaring is dat de klant zo snel mogelijk gebruik kan maken van de rekening en diensten. Bij een aantal betaalbanken is de rekening binnen een uur al actief en kan de klant transacties uitvoeren. Om dit te realiseren is een gedigitaliseerde klantreis noodzakelijk. Bij de meeste betaalbanken is het mogelijk de onboarding volledig te doorlopen via de app. Duidelijk is dat bij de niet-betaalbanken een flinke stap valt te maken in het aanbieden van de onboarding en dienstverlening via een app.

Veiligheid kan gebruikersgemak verlagen, innovatie is de oplossing

De derde categorie is ‘veiligheid en fraudepreventie’. Voor banken is het van groot belang dat zij op de hoogte zijn van de laatste wet- en regelgeving en de processen volledig compliant zijn in relatie tot KYC en AML.

Zowel betaalbanken als niet-betaalbanken gebruiken de identificatiestorting regelmatig. Bij niet-betaalbanken is het primaire doel van de identificatiestorting het moeten verifiëren van een vaste tegenrekening. Bij betaalbanken gaat het om afgeleide identificatie van de klant.

Bij de niet-betaalbanken komt de identificatiestorting acht keer terug. BinckBank, DeGiro  en Semmie maken het mogelijk om via iDEAL te betalen, terwijl de overige niet-betaalbanken nog steeds een handmatige overboeking hanteren. Deze handmatige overboeking is tijdrovend en gaat buiten de directe flow van de klantreis om. iDEAL is de oplossing hiervoor.

De betaalbanken hebben iDEAL nagenoeg standaard opgenomen in de klantreis. Bij zes betaalbanken die de identificatiestorting gebruiken, kan de klant bij vijf de storting uitvoeren via iDEAL en bij één gaat dit via een handmatige overboeking.

Innovatie en app zetten betaalbanken op grote voorsprong

Uit het onderzoek kunnen een aantal conclusies getrokken worden. Ten eerste lopen niet-betaalbanken ver achter op betaalbanken op het gebied van innovatieve  klantidentificatie- en verificatiemethodes. Ten tweede bieden niet-betaalbanken het onboardingsproces hoofdzakelijk aan via de website, terwijl de onboarding bij betaalbanken verloopt via de app.

Kortom, spaar- en beleggingsbanken hebben veel verbeterpotentieel als het gaat om klantervaring en digitalisering van het onboardingsproces. Tegenwoordig voeren steeds meer bedrijven een ‘app first-strategie’ waarbij alle diensten, en dus ook onboarding, via de app verlopen om zodoende een vlekkeloze mobiele online ervaring te kunnen bieden. We zijn immers tegenwoordig meer online via onze smartphones dan via andere apparaten.

Innovatie en gebruikersgemak zijn op een positieve wijze nauw met elkaar verbonden. Door gebruik te maken van innovaties, wordt de veiligheid van het proces bevorderd zonder dat dit ten koste gaat van de gebruiksvriendelijkheid.

Corporates: Caveat IBOR!

03-11-2020 | treasuryXL | Enigma Consulting |

Many of the world’s leading benchmark base rates are about to change; this could impact your business in unexpected ways.

Since Roman times, the phrase ‘caveat emptor’ – let the buyer beware – has been used in agreements as a warning that a lack of due diligence could come back to bite you. For today’s corporate treasurer it might instead be more relevant to use (with apologies to the linguists out there) ‘caveat IBOR’.

For the past 40 years, IBOR has been the benchmark used to determine the interest rates applied to a myriad of financial products. All this is about to change: starting on 31st December 2021 many of these rates will cease to exist and be replaced by ‘Risk-Free-Rates’ (RFRs).

The potential impact of these changes is often seriously underestimated. Corporate companies need to prepare today to be ready for banks wanting to discuss changes to existing contracts in the coming months.

 

The 4 to 6 months ahead of us are arguably the most critical period in the transition away from LIBOR. The time to act is now.
 – FCA July 2020

 

Why should I care about the IBOR transition?

It is highly likely that your organisation will be affected by the IBOR transition. Most corporate organisations underestimate the impact, thinking that the ‘only’ thing that will change is a base rate and its calculation method. Before you join their ranks, take some time to reflect on the following:

  • The IBOR will cease to exist, starting on the 31st December 2021 and be replaced by Risk-Free-Rates (RFRs) with a different basis for calculation
  • These changes will impact financial (e.g. bond, (intercompany) loan, (multi-currency) credit facility) contracts as well as commercial contracts with an IBOR related ‘late payment clause’
  • This in turn will impact processes in the Treasury functions, with knock-on effects to supporting departments, Legal, IT systems, accounting, and tax reporting to name just a few
  • IBOR transition is progressing at a different pace across jurisdictions and financial products (e.g. loans, bonds, and derivatives), adding to the complexity of managing the transition

In the coming months you are going to be approached by your bank(s) to discuss changes to contracts maturing after 2021. To be prepared for these discussions, it is essential that you have a solid idea of what the repercussions of these changes will be on your organisation.

From IBOR to RFRs: a brief history

For the past 4 decades, IBOR (interbank offered rates, including LIBOR and EURIBOR) have been the benchmark for lending, hedge contracts, current accounts, valuation models etc. The (L)IBOR is calculated by processing hypothetical borrowing transactions that are submitted by a few ‘panel’ banks.
In 2012, the LIBOR scandal came to light: it was discovered that since 2008, panel banks had been colluding to illegally manipulate the rates. This set in motion that regulators, central banks, and market participants started a search for a safer alternative to the LIBOR. In 2017, the Financial Conduct Authority (FCA) announced that it would not compel or persuade panel banks to make LIBOR submissions after December 31st, 2021.

As a direct result, LIBOR term rates (1m, 3m, 6m, 12m) for USD, GBP, CHF, JPY, EUR will cease to be published as per December 31st, 2021. Other benchmarks such as EONIA and EURIBOR are similarly subject to an interest rate benchmark reform and it was decided to also discontinue the submission of EONIA after December 31st, 2021. Additionally, other benchmarks, such as JIBAR (ZAR), SIBOR (SGD), SOR (SGD) and Euroyen TIBOR (JPY) are undergoing comparable reforms[1]. See the sidebar (at the bottom of this article) for additional IBOR related details.

To minimise the possibility of fraud in future, global working groups have defined a new reference rate and calculation system. As a result, IBOR will be replaced by secured or unsecured transaction-based alternative Risk-Free Rates (RFRs) by the end of 2021. These new interest rate benchmarks are determined on the basis of transactions[2] and are therefore significantly more robust and resistant to manipulation.

Covid-19 will not buy you any time

After the worldwide outbreak of the Covid-19 virus, the world has changed rapidly. Uncertain times have arrived with a looming global economic recession. While many expected the pandemic to postpone the deadline, this does not to appear to be borne out by reality.

UK regulators have indeed postponed the deadline for the cessation of new issuances of GBP LIBOR-referencing loan products maturing after 2021 to the end of Q1 2021, instead of Q3 2020[3]. However, it is widely expected that the deadline for migrating existing LIBOR related contracts to alternative risk-free benchmarks will remain unchanged. Indeed, the FCA even emphasised in July 2020 that the LIBOR deadline is not going to change and that “The time to act is now.”

ISDA agreements and IBOR transition

On October 23, 2020 ISDA (International Swaps and Derivatives Association) finalised the protocols and other documentation by which outstanding derivatives contracts which reference LIBOR can be transformed in order to work with the new RFRs[4]. The FCA has repeatedly urged market participants from all sectors – sell side, buy side, non-financial, to ensure they are ready for the end of LIBOR by adhering to the protocol that ISDA is producing[5].

How will the IBOR transition impact you?

At a basic level, your corporate organisation’s existing IBOR-based interest rates will be replaced by new RFR-based rates. As these depend on a different underlying valuation methodology, any place in the organisation that currently relies on or makes use of an IBOR-based rate could potentially be impacted:

  • Corporates have a variety of products with financial contracts that refer to an IBOR related benchmark. These can be bond agreements, loan agreements, cash pooling agreements, (multi-currency) credit facility agreements, derivatives, intercompany loan agreements and many other instruments. In particular, larger organisations active across multiple regions in the world with more complex non-Euro instruments will be impacted
  • Commercial contracts with e.g. ‘late payment clauses’ with charges involving an IBOR related benchmark will also be impacted
  • Processes and other aspects related to these agreements and contracts across the Treasury functions (such as Corporate Finance, Risk Management and Cash Management & Working Capital) will need to be reviewed, and changed if impacted: Legal, IT systems and interfaces, reporting, accounting (e.g. hedge-accounting), Tax, policies, procedures, valuation models will all require attention
  • Interim milestones intended to smoothen the IBOR transition will lead to a cessation of the issuance of new LIBOR referenced products maturing after 2021. (For example, this will be the case for GBP LIBOR referenced bonds, loans, and derivatives; from Q2 2021, new GBP denominated issuances for these products will already refer to the alternative RFR.)
  • An additional complication is that the IBOR transition is progressing in different stages across different jurisdictions and different financial products
  • And, quite simply, there are many aspects that are as yet unknown, amongst which:
    • what the impact of applying hedge accounting to IBOR referenced instruments will be
    • whether and when alternative reference rate term structures will be available and for which products
    • how compounding daily rates over time will be handled in the absence of a term structure for cash management purposes
    • whether fallback language will be available
    • how liquid the market for (L)IBOR rates will be towards the end date of 31st December 2021
    • whether and when EURIBOR and other IBOR critical benchmarks will be discontinued

The magnitude of change is well-recognised by banks and financial institutions, and they are demonstrating an increasing sense of urgency to address contracts maturing after 2021. Be prepared for a call from your bank in the coming months!

What should you do to prepare?

As the deadline approaches, you will need to know your level of exposure and impact in order to prevent surprises. What will the impact of the IBOR transition be on your TMS and ERP systems, your credit facilities, bank loans, cash pooling, bonds, ISDA agreements and intercompany agreements? What impacts will these have on your processes and supporting systems? Which complexities will need to be managed?

Having this information at hand will enable you to be a proper sparring partner for your banks when they renegotiate contract terms.

Depending on the complexity of your contracts, the IBOR phase out could substantially affect your corporate organisation. Prevent unnecessary loss by preparing yourself, following this three-step approach:

1. Assess impact

The first step you should take is to analyse the IBOR related contracts in use throughout your organisation. Determine which contracts have an IBOR related component and the size of the exposure. Once you have assessed the complexity of your IBOR related contracts, analyse the impact on related areas (ranging from Tax and Legal to IT systems, and procedures, reporting, accounting (e.g. hedge-accounting), and the like).

2. Plan actions

On completing your impact assessment, create a detailed action plan. Define a project team governance to manage this action plan and the status of the transition across different areas, business lines, and geographical locations. In particular, take care to ensure external resource availability regarding e.g. Legal counselling and system provider experts, as demand for these specialists will rapidly increase as the IBOR transition deadline approaches.

3. Act and implement

Step three is the implementation of your action plan throughout the affected areas of your organisation. In this ‘Act’ phase it is important to maintain the conversation with external parties, such as banks and system providers. It is also of vital importance to support the implementation across all relevant business lines and functions, maintaining support for go-live readiness in line with the defined action plan and deadlines.

 

A golden opportunity

The good news is that there is still time to assess the impact of the pending IBOR changes on your organisation and to act upon it if needs be. The sooner you have an idea of the potential consequences for your organisation, the sooner you will be able to mitigate these. This understanding will also give you more leverage in the coming discussions with your bank(s).

Moreover, the IBOR phase out may bring a golden opportunity for corporates to re-evaluate the current contract agreements and look for better deals. Consider this: during the IBOR migration contracts are in fact ‘renegotiated’ and banks will need to come up with a new offer. Will you take that offer as a corporate client? That all depends on your level of understanding and preparation.

IBOR may well be a golden opportunity, but it is up to you as a corporate treasurer to seize it by acting rather sooner than later! Corporates: Caveat IBOR!

If you are interested in how we can help you to assess your IBOR related contract complexity or if you want to understand how we can support your corporate organisation in the IBOR phase out transition, you can contact us on:

dpluta@enigmaconsulting.nl or look at www.enigmaconsulting.nl

Daniel Pluta

 

 

 

[1] A more extensive overview of IBOR benchmarks and related alternative risk free rates can be found on the website of The Investment Association (in cooperation with Linklaters): Table Interbank Offered Rates (IBORs) and Alternative Reference Rates (ARRs), version September 24, 2020

[2] Source: Interest rate benchmark reform – overnight risk-free rates and term rates, Financial Standards Board, July 12 2018

[3] Source:  Further statement from the RFRWG on the impact of Coronavirus on the timeline for firms’ LIBOR transition plans, Bank of England, March 25 2020

[4] Source: ISDA launches IBOR fallbacks supplement and protocol October 23, 2020

[5] Source: LIBOR transition – the critical tasks ahead of us in the second half of 2020, Financial Conduct Authority, July 14 2020

SIDEBAR

Selected Highlights of IBOR Phase Out Related Facts[1]

General

  • LIBOR term rates (1m, 3m, 6m, 12m) for USD, GBP, CHF, JPY, EUR will cease to be published per December 31st, 2021
  • Overnight, transaction based “alternatives” for these currencies are already live: ESTER (EUR); SONIA (GBP); TONAR (JPY); SARON (CHF) and SOFR (USD)[2]
  • EONIA is based on Ester + 8.5 basis points (since October 2nd, 2019). EONIA will cease to be published per December 31st, 2021
  • As of October 2019, EURIBOR is published as a hybrid rate (mix of actual transactions + panel consultation) and will continue to be published. EURIBOR is expected to be continued into the foreseeable future, however discontinuation is still a possibility. At the time of writing, it is uncertain if and when this will happen
  • Various consultation groups are assessing reform proposals and alternatives, such as:
    • Working Group on Sterling Risk Free Rates regarding GBP LIBOR
    • Alternative Reference Rates Committee (ARRC) regarding USD LIBOR
    • Working Group on Euro Risk Free Rates regarding EONIA and EURIBOR
  • Financial institutions have performed a global impact assessment on their financial contracts and have created IBOR migration teams
  • Across different jurisdictions and different financial products, the IBOR transition is progressing in different stages
  • Calculation methodologies across different alternative RFRs could differ and a term structure is still missing for most of the alternative benchmarks

ISDA (International Swaps and Derivatives Association)

  • On May 14, 2020 a summary of the response to the “ISDA 2020 Consultation on How to Implement Pre-Cessation Fallbacks on Derivatives” was published. The majority of market participants support a combination of pre-cessation and permanent cessation fallbacks without optionality or flexibility in the IBOR Fallbacks Supplement and IBOR Fallbacks Protocol[3]
  • On July 21, 2020 Bloomberg and ISDA announced that Bloomberg Index Services Limited (BISL) had begun calculating and publishing fallbacks that ISDA intends to implement for certain key interbank offered rates (IBORs)[4]
  • ISDA launched the IBOR Fallbacks Protocol and the IBOR Fallbacks Supplement to implement the new fallbacks for legacy and new derivative contracts on October 23, 2020. From effective date January 25, 2021, all new cleared and non-cleared interest rate derivatives that reference the definitions will include the fallbacks[5]

SIDEBAR

Central Counterparty Clearing houses

  • On July 27, 2020 LCH, Eurex Clearing and CME Group implemented a discounting switch from EONIA to Ester for cleared OTC EUR denominated derivatives related to Price Alignment Interest (PAI[6]) and Price Alignment Amount (PAA) regarding Settle-to-Market collateral[7]
  • On October 19, 2020 LCH, Eurex Clearing and CME Group implemented a discounting switch from EFFR to SOFR for cleared OTC USD denominated derivatives related to Price Alignment Interest (PAI) and Price Alignment Amount (PAA) regarding Settle-to-Market collateral

USD LIBOR transition and Alternative Reference Rates Committee (ARRC)

  • The ARRC issued a deadline on September 30, 2020, in order to establish RFP processes to facilitate the eventual publication of (a) forward-looking term SOFR rates and (b) the ARRC’s recommended spread adjustment for transition of legacy contracts[8]
  • From September 30, 2020 onwards, new syndicated business loans must include ARRC hardwired fallback language
  • From October 31, 2020 onwards, new bilateral business loans must include ARRC hardwired fallback language
  • From December 31, 2020 onwards, no new Floating Rate Notes referring to USD LIBOR and maturing after 2021 should be issued

GBP LIBOR transition and Working Group on Sterling Risk Free Rates

  • New bonds issuances maturing after 2021 and referring to GBP LIBOR should be ceased after Q1 2021[9]
  • New loans issuances maturing after 2021 and referring to GBP LIBOR should be ceased after Q1 2021
  • Initiation of new linear derivatives linked to GBP LIBOR that expire after 2021 should cease after Q1 2021

 

[1] The list of highlights does not have the intention to give a complete overview of all events and only reflects recent developments

[2] A more extensive overview of IBOR benchmarks and related alternative risk free rates can be found on the website of The Investment Association (in cooperation with Linklaters): Table Interbank Offered Rates (IBORs) and Alternative Reference Rates (ARRs), version September 24, 2020

[3] Source: Summary of Responses to the ISDA 2020 Consultation on How to Implement Pre-Cessation Fallbacks in Derivatives. A pre-cessation announcement would be an announcement that the IBOR benchmark is no longer representative of the interbank lending rate. A cessation announcement would be a public announcement that the administrators of different IBOR benchmarks have or will cease to provide IBOR benchmarks

[4] Calculations published by BISL include the adjusted RFR (compounded in arrears), the spread adjustment and the ‘all in’ IBOR fallback rates for the following IBORs across various tenors: the Australian Dollar Bank Bill Swap Rate (BBSW), the Canadian Dollar Offered Rate (CDOR), Swiss franc LIBOR, EURIBOR, Euro LIBOR, Sterling LIBOR, HIBOR, Euroyen TIBOR, Yen LIBOR, TIBOR and US Dollar LIBOR (see https://www.isda.org/2020/07/21/bloomberg-begins-publishing-calculations-related-to-ibor-fallbacks/ )

[5] Source: ISDA launches IBOR fallbacks supplement and protocol October 23, 2020

[6] PAI is the overnight cost of funding collateral. It is debited from the receiver and transferred to the payer to cover the loss of interest on posted collateral. Imagine an Interest Rate Swap, cleared through a CCP such as LCH, Eurex Clearing or CME Group. At the beginning of the life of the swap the PV is close to zero, so worth little to either party. Over the life of the trade the value of the floating leg will vary leading to an NPV to one of the parties. The change in this NPV from day to day is what Variation Margin is, calculated and moved by a CCP on a daily basis.

[7] LCH Discounting Switch Ester and SOFR

CME Discounting Switch Ester and SOFR

Eurex Clearing Discounting Switch Ester and SOFR

[8] ARRC USD LIBOR Transition Timelines, New York Fed, version September 9 2020

[9] UK RFR Roadmap | 2020-21 intermediate update, Bank of England, September 2020

Partner Interview Series | This is a must read story about Enigma Consulting

27-10-2020 | treasuryXL | Enigma Consulting |

Get inspired by the extensive and catchy story of Robert-Jan Wekking about Enigma Consulting. Robert-Jan takes you into the warm corporate culture, mission, expertise, innovation and their continues investment in knowledge with great examples.

Enigma Consulting is a revolutionary knowledge hub in the field of Payments, Digitisation, Risk & Compliance and Treasury. They are a connecting factor in the financial sector thanks to our consultants’ engagement with their clients, both banks and companies and solution providers.

AN INTRODUCTION TO

Robert-Jan has more than 25 years of experience in payment transactions and he advises corporate clients in the areas of treasury, risk management and bank connectivity.He understands the solutions in the market, both from the B2B and B2C perspective.

Robert-Jan switches easily between executive and operational level within companies and the banking sector, as he easily combines his strategic vision with substantive process and product knowledge. He has a wide network with contacts at all (international) banks, which can speed up the implementation of corporates connectivity with their banks.

We asked him 11 questions. Let’s go!

 

INTERVIEW

1. Tell us more about Enigma Consulting and its mission

Enigma Consulting has in-depth knowledge of all ecosystems that are relevant in payments, transaction value chains and financial markets. Transactional connectivity and digitization increase the prosperity and well-being of consumers, companies and the public sector and thus serve a social interest. Our mission is to contribute to the development of efficient digital transaction traffic and to ensure that this is done in an innovative, sustainable, honest and effective manner with controlled business operations. Combined with a correct attitude and behaviour, this contributes to the translation of legislation and regulations into ethical business operations and a better market position. We follow developments closely, research, analyse and make connections. Our consultants reflect, structure and help organisations to achieve their goals.

2. What is the core topic Enigma Consulting aims to address and how does it differentiate it from the other players in the market?

Digitalization is all about the exchange of data, whether these are payments, information, identities, contracts, signatures or any other regular consumer or business transactions. The complexity of exchanging transactions is constantly increasing; regulations, fraud and data protection are just three of the factors impacting this complexity.  On the other hand, innovative technology is continuously providing easier interaction between data, leading to better and integrated business propositions and making client journeys faster, more friction less and safer.  This is exactly in this domain where Enigma operates.  We leverage our in-depth knowledge of payments and transactions to advise and implement.

We distinguish ourselves from other players by looking at the end-to-end value chain, not only from the viewpoint of efficiency but also with a perspective on regulations and compliance. We understand the guiding laws and regulations and can translate them into practical advice to make sure that our clients remain compliant. We recognize that laws and regulations applying to financial institutions are becoming stricter and that attention is now also shifting towards corporates.

Our legal consultants are specialised in transaction and data related legislation, and we have strong connection with for example DNB and AFM in relation to our guidance of our clients.

Our consultancy practice focuses on the  financial-,  corporate- and retail sectors, hence we understand the complexities affecting those areas. With our knowledge of the ecosystems and  vendor solutions we play the matchmaking role between individual client wishes and the solutions available in the market.

This combination of end-to-end view, legislation and compliancy, working in different sectors, and the matchmaker role gives us a unique position. The fact that we not only advise but also take responsibility for  implementations during the past 20 years, makes us a trusted and recognized partner for our clients.

3. Why choose customers for Enigma Consulting?

Our knowledge of payments and other transaction processes is often the starting point for customers to reach out to us. Our capability to advise and implement solutions from an end-to-end perspective is the basis for our interaction with our customers.  Additionally, customers also appreciate the fact that we are able to advise at a strategic level, but at the same time are pragmatic enough to look for feasible and not theoretical answers.

We have strong relationships with a number of our clients, some even stretching back over more than 20 years. This is something we foster, not only by delivering more than what is expected, but also by working closely together. For instance, our Treasury Barometer is an example where we cooperate with the Rabobank, whilst at the same time we are participating in a number of their projects.

At the end, it all comes together with trust, in the quality of delivery, in our people and in the overall relation. This is how we ensure that we will be shortlisted again the next time.

4. What has been the biggest challenge for Enigma Consulting regarding customer projects so far?

The most challenging projects are when we are asked to take end-to-end responsibility for delivering a complete project. Quite often, this means that we have a team onboard and the client is looking at us as lead consultant to get the job done. A good example is the setup of a complete bank payments infrastructure. Apart from the fact that these assignments are exciting and demanding, it is always challenging to make it happen in an environment with its own complexities.

For our individual consultants, stepping into a new assignment always has its own challenges.

Customers ask for us for different reasons, and our consultants have to quickly adapt to start advising the client. This means not only understanding the clients’ business, but primarily building trust relations with the client and their stakeholders. Hence for every consultant the adaptability towards the new environment is always an important challenge.

For myself personally, I am proud to have led a number of strategic programs, like SEPA, Instant Payments and iDIN.  Besides building completely new products, the key challenge is always to work and build bridges between internal and external parties (Banks, DNB, governmental bodies) with sometimes opposing objectives. Working with all these parties and ultimately developing a new product is what makes me happy and proud of my role as consultant.

5. Can you tell us in what sector you see the most innovative developments regarding payments and how does Enigma Consulting react to these?

One of the most exciting aspects of payments is the continuous innovation in the field. However, it is never a revolution but more an evolution. An example are the digital currencies. I believe that in the long run, these might become as important as, or even replace, the current way of paying. But it will take many years to get there. Where it started with the cryptos and Facebook’s Libra, the central banks are now seriously embracing it.

Additionally, the technical transitions to APIs and SaaS, Open Banking and Instant are ingredients for completely new business innovation. Through API and SaaS, corporates can select best in class software modules and integrate them, rather than select single platforms that will still sub-optimise their process. The introduction of Instant Payments in Europe will ultimately change the way the treasurer needs to forecast and manage their accounts.

In the B2C or C2C world, the client journey will continuously improve, seamlessly and friction less, with data integration as a key element.

Through our assignments, we are constantly in the middle of this innovation. For example, we are the leading consultancy firm in the Netherlands for supporting FinTechs, cryptos and payment software companies with their PSD2 application. Our role in digital identity and Mobility as a Service provides us with insights in yet other areas of innovation.

In order to keep all our consultants informed, we have a weekly meeting with our consultants to discuss the latest trends.

We also leverage this knowledge to assist our clients with their questions around innovation. For this purpose, we have initiated the Enigma Innovation Lab, an accelerator environment to answer client specific questions around innovation, vision building or technical solutions by injecting are our own knowledge combined with our ecosystem of solution providers and subject matter specialists, all facilitated by various methodologies like Design Thinking.

6. Do you experience differences in the world of payments before COVID19 and the time we live in now? What are the differences?

The differences are not that when you look at the regular payment products themselves. But we do see COVID as a steppingstone for digitalization. E-commerce and e-commerce payments have shown significant growth and people are spending increasing amounts of time online. The volumes of payments facilitated by Payment Service Providers are going through the roof.

Also “Cash is King” is the phrase that everybody uses, but this should now be “Digital Cash is King”. Volume of physical cash is dropping significantly, being taken over by contactless payments.

I believe these are just indicators for a bigger change, which is the acceptance of the consumer to step into a full mobile journey.

Customers are now more familiar with working with a cashless wallet and seem also to be willing to adapt faster to other contactless, digital processes. Examples are registration, ordering food and payments in restaurants (for example via QR). But also using mobile apps to order your groceries. Clearly, this has already been taking place for many years, but I believe that COVID has accelerated this transformation through necessity.  People are therefore more willing to change their attitude. What is interesting is whether this transformation will continue, or whether people will step backwards to the old normal or step forward to a new normal.

For the retail sector and corporates, before COVID they already had to understand how to become more relevant in the mobile cashless digital world.  COVID is demanding corporates to speed up this thought process.

7. How does the future of payments look like in your perspective? And how will it change the world?

Digital currencies will be an important element in our future, adopted stepwise, and will be overlooked by market systems and regulators. There will be a continuous drive for integrating payments in the client journey, seamless, frictionless and supporting the Internet of Things. Hence payments will be a key enabler of future growth towards the digital world. Digitization is also very attractive for fraudsters, money laundering etc, as your counterpart is not always visible anymore. The need for trustworthy digital identities will be an important building block for this roadmap.

At the same time, the pressure of fraud, regulations and compliance will shift from banks to other parties (corporates) in the end-to-end value chain. Where banks are currently the gatekeeper, corporates will have to integrate this responsibility in their own business processes.

Hence the roadmap to digital, whether it is digital payments, or any other data transaction, will demand continuous change from all parties in the value chain. This will be a stepwise change, but fast enough to need to keep an eye on it.

8. What has been the biggest success for Enigma Consulting?

The biggest success for Enigma is that we have made a transformation from payments “only” to understanding the full transaction, risk and data value chain. For example, we have made a transition from bank payments to treasury payments and risk processes, but also from payments to compliance, and to integrated transactions and data models.

During this period, we have also changed our internal organisation.  We have been running a number of Young Professional Programs. These next generation talents bring us a more diverse view of the world, which makes our proposition to the market stronger and our internal culture more diverse. As a result, we believe that we have the foundation for supporting our clients, now and in the future, with a passion for payments and transactions.

9. How does Enigma Consulting keep on innovating and stay one step ahead of its competitors?

Our ambition is to be recognised as a though leader in the domain of payment and transactions. Investing in knowledge is the basis for our current and future advisory services.

This means that we continuously invest in gaining and sharing knowledge with our consultants and clients. We have organised this in a number of ways.

We have introduced the so-called Theme Lifecycle within Enigma. When we expect a theme becomes relevant for our business, now or the future, we start a workgroup to progress this theme from idea through different stages. It starts with writing a one pager based on study and analysis, called the exploring stage. We validate the readiness for every next stage (exploring, campaigning, harvesting) so that we invest time in those subjects that also become relevant for the market. All our consultants participate in one or more themes, which helps keep them engaged with innovation and market developments.

Every week we organise meetings to discuss news and articles. On turn, every consultant is responsible to select a number of articles to be discussed during this half hour meeting.

For our clients, we have regular Breakfast and Brains meetings to share our insights and to have open discussions on a specific subject. The success is that clients that even might compete in a certain sector, are always willing to learn and share from our and other clients’ experiences.

Finally, we also participate in and cooperate with FinTechs. We support them by leveraging our network of solutions, whilst their innovative ideas are a good source for future improvements, leading to a broader ecosystem that benefits our clients.

10. We are heading to the end of 2020, can you give us an outlook on the scheduled developments for the upcoming year?

The best outlook would be that we leave COVID-19 behind us, however I think that COVID will strongly influence the developments and investments in 2021. There are a number of scheduled developments which will impact corporate clients. Corporates will have to put their capacity in the IBOR Migration.  Also, the transition to XML messages will impact the operating architecture and bank connectivity of corporates.  In parallel, the transition to instant payments including batches will have to be put on the calendar of the finance function.

And in parallel, it is recommended to continue to look at the potential of open banking and further integration of payments data in the corporate business processes. An example is how payment data can improve the risk profiles of insurance companies.

In summary, enough subjects to keep an eye on. Sitting still and waiting is not an option.

11. A great initiative is that Enigma Consulting supports charity projects, what kind of charity projects does Enigma Consulting support, why and how?

The why should never be a discussion, the real discussion is what you can do. One of our activities is the ZEPA challenge.  Our consultants do like sports, and a lot of them love to cycle. When the transition to SEPA was going on, some of our consultants took the initiative for this challenge: cycling from Zeist to Paris in 24 hours. We have done this now 3 times, and a number of our clients’ employees have also participated.  This year’s event was cancelled, but we are already “ready” for the next challenge. There is not a fixed charity goal, the last charity was support for the education of young refugees.

Apart from the above, we have a warm partnership with “Goede Doelen” charity organisations in Netherlands and facilitate a free payments helpdesk for them.

It is of crucial importance to us to participate in an open and honest society, in which diversity and inclusion are critical. This is important for our own culture, as as an organisation we benefit from our consultants and they, in turn, foster these values in their personal lives.

Is it time to revisit your bank connectivity solution?

| 29-09-2020 | treasuryXL | Enigma Consulting

A lot of organisations have implemented a corporate payment hub for bank connectivity at the time SEPA was introduced in Europe (2012). Since then the technology has changed drastically and new solutions offer richer functionality at a far more efficient operating model via Software-as-a-Service (SaaS). It is time to revisit your bank connectivity domain!

The usage of Corporate Payment hub solutions for bank connectivity between the corporate ERP/TMS systems and their bank relations is growing strongly. Trends as digitization, standardisation and the increased focus on fraud– and risk management make the automation of the connectivity with banks a topic on the management agenda. There are currently three interesting developments that result in an increased focus on bank connectivity in the Dutch marketplace:

  1. The increased focus of being in control by the Corporate treasurer

In the past the Treasurer was merely focused on the high value/low volume treasury payments and not too much looking at the commercial payment flows. From the discussions of Enigma with many corporate treasurers we see an increased focus on being ‘in control’ e.g. reduce manual activities, reduce the number of tokens for Electronic banking systems, have real-time insight in liquidity. The enhanced propositions of TMS systems and network facilitators like SWIFT, further encourages he logical step to automate the bank connectivity. This includes not only the automation of the payment flows but also the receipt and distribution of bank statements internally.

  1. New solutions are introduced with a revolutionary operating model

On the solutioning side we see interesting developments as well. New (fintech) vendors like Cobase, OpusCapita or TIS take (multi-tenant) SaaS as starting point reducing the IT footprint and enabling corporates to benefit from developments for other clients as well. Especially on the bank connectivity we see a shift in “tailor made customer demand” to “best-practise solution provider experiences” and therefore leveraging investments done for other clients which are already ‘part of the standard solution’. Some vendors even go further to support the entire bank onboarding ‘as a service’ making life very easy for corporates that do not want to know details about formats, channel options and contacts. Other (as well SaaS) vendors like BELLIN or Serrala focus on the creation of complete ecosystems and partnerships with other solution providers further strengthening the value proposition and relevance.  

  1. Replacing (legacy) Payment Hub solutions

A third interesting development is that ‘early stage’ payment hub solutions are at the end of their economic life cycle and need to be replaced. With the introduction of SEPA in 2012 a large number of corporates decided to implement a payment hub. Main focus at that time was on reducing the complexity of change to their existing IT landscape. At that time Payment hub solutions especially played a role in:

  • File conversion or enrichment capabilities from legacy (domestic in NL Clieop) formats to SEPA formats
  • SEPA Direct Debit mandate management to manage the (too complex) ‘first’ versus ‘recurrent’ rulebook guidelines and generation of mandate IDs
  • An alternative for ‘bank connectivity’ channels that banks decided to phase out to simplify their SEPA programmes (e.g. ING Finstream channel)

The state of technology at that time was completely different than nowadays. API’s, SaaS or Cloud did not exist. IT deployment method was ‘on-premise’ with a significant IT footprint and initial CAPEX investment.

In the past months Enigma Consulting has had multiple discussions on the necessity to replace these ‘early days’ payment hubs. Our Request-for-Proposal projects have interestingly resulted in a quite positive business case for different reasons:

  • Large additional investments (sometimes upgrades) are required in the legacy solutions to improve the IT security or make new business features available. New solutions immediately will eliminate these costs.
  • Pricing was high in comparison to current (often shared) solutions with more attractive pricing.
  • Some vendors have changed ownership and focus on the payment hub solution is gone (or ambitions at that time have not paid out) whilst new solutions do understand current market drivers and developments in the payment domain. One vendor recently informed their clients that they intend to withdraw entirely from the market.
  • New SaaS/Cloud solutions significantly reduce the IT footprint and therefore require far less (often scarce) capacity from IT for maintenance/upgrades.
  • Current Payment hub solutions offer a wider range of services and can be integrated far easier (API’s) with other solutions that are as well required (e.g. cash management, fraud, treasury, ERP).
  • Many payment hub solutions now offer a full support for ‘on-behalf’ POBO/COBO processing in combination with in-house banking and/or virtual account solutions.

Is bank connectivity a topic on its own?

Not per se. Although the topic itself can perfectly be addressed as single issue we see that our clients link the required change in this domain to a broader discussion on their financial value chain. Often a required change in the bank connectivity domain goes hand-in-hand with broader discussions on the Target Operating Model for payments, incorporating all market developments (outside in), internal ambitions (inside out) and discussion on the bank relation(s) itself. The selection of the best fitting vendor for the payment hub should than be seen in the broader perspective of a mid-term payments roadmap.

So what to do now?

We advise you to (let) revisit the solution you have in place for your bank connectivity. If not automated yet, there might be a strong business case to change this by improving efficiency and reducing risks. If a solution is already in place, there may be arguments to benefit from a replacement by one of the new solutions that offer more for less. You could even look beyond only bank connectivity and look at the entire payments domain to check if you are sufficiently prepared for the future taking into account all market developments in the payment domain.

Contact

Are you interested in how we can help you with your bank connectivity challenge or do you want to understand how we can support you with your Payment Roadmap?

Just contact me on: rkroon@enigmaconsulting.nl or look at http://www.enigmaconsulting.nl

 

 

Supervision costs 2020: AISPs versus other payment institutions

| 12-08-2020 | treasuryXL | Enigma Consulting

It is mid-2020 and that means that the costs of this year’s financial supervision have been announced. Looking at the payment institutions, there are some notable changes to report. For example, the supervisory costs that DNB passes on to payment institutions will increase significantly. This is partly due to an expensive relocation and subsequent calculation for 2019. The costs of AFM supervision have decreased somewhat.

Blog continues in Dutch language…

Achtergrond

Gedurende 2019 bestond er grote onduidelijkheid hoe om te gaan met de nieuwe betaaldienstverleners die als gevolg van PSD2 de markt hebben betreden: de betalingsinitiatiedienstverleners (PISP’s, dienst 7) en rekeninginformatiedienstverleners (AISP’s, dienst 8). Enigma Consulting heeft inmiddels zes vergunningaanvragen voor deze nieuwe diensten succesvol afgerond, en zocht het uit.

Bekostiging financieel toezicht

Sinds 2015 moeten de financiële instellingen de kosten van het financieel toezicht zelf dragen. De doorbelasting van de kosten vindt plaats naar draagkracht en betreft een percentage van de provisie-inkomsten. Bij de traditionele betaaldienstverleners (dienst 1 t/m 6) zijn provisie-inkomsten relatief eenvoudig te bepalen: deze omvatten de transactiekosten die door de betaaldienstverlener in rekening worden gebracht.

PSD2

Voor de nieuwkomers is lastiger te bepalen wat provisie-inkomsten zijn. Met name de AISP’s, waaronder een aantal boekhoudsoftwareleveranciers, hanteren een abonnementsmodel van soms tientallen euro’s per maand. In dit abonnementsmodel wordt met name betaald voor de software. Het ophalen van rekeninginformatie – voorheen via bankkoppelingen, nu via PSD2 API’s – wordt veelal niet separaat in rekening gebracht. Transactiekosten zijn evenmin van toepassing op AISP’s. In 2019 was de vraag aan DNB dan ook hoe provisie-inkomsten voor dergelijke partijen moesten worden geïnterpreteerd.

Provisie-inkomsten

Kort uitgelegd omvatten de provisie-inkomsten de, al dan niet incidenteel van derden ontvangen respectievelijk nog te ontvangen, vergoedingen uit hoofde van de vergunningplichtige betaaldienstverlening in de ruimste zin van het woord. Uitleg van DNB destijds, leidde ertoe dat werd gesteld dat ook abonnementsopbrengsten hieronder zouden worden verstaan. In potentie zou dit een enorme kostenpost betekenen voor de AISP’s.

De toelichting die DNB geeft op de regeling bekostiging financieel toezicht 2020, leidt gelukkig tot een andere, meer redelijke conclusie. Er zijn, zo meldt DNB, namelijk partijen die alleen het basisbedrag betalen (lees: dus geen variabele verhoging op basis van provisie-inkomsten). Mede om die reden wordt het basisbedrag van EUR 2.000 wel verhoogd naar EUR 5.000:

Kosten prudentieel toezicht door DNB, afhankelijk van provisie-inkomsten

2019 2020
Provisie-inkomsten € 2.000,= vermeerderd met € 5.000,= vermeerderd met
€ 0 – € 1 mln. € 65,41 per € 1000 € 101,50 per € 1000
€ 1 mln. – € 10 mln. € 18,97 per € 1000 € 34,60 per € 1000
€ 10 mln. – € 50 mln. € 1,31 per € 1000 € 2,49 per € 1000
€ 50 mln. € 0,13 per € 1000 € 0,26 per € 1000

Kosten gedragstoezicht door AFM, afhankelijk van provisie-inkomsten

2019 2020
Provisie-inkomsten Vaste jaarlijkse kosten Vaste jaarlijkse kosten
€ 0 – € 0,2 mln. € 702,= € 651,=
€ 0,2 mln. – € 0,5 € 1.532,= € 1.224,=
€ 0,5 mln. – € 1 mln. € 2.495,= € 1.994,=
€ 1 mln. – € 5 mln. € 3.404,= € 2.720,=
€ 5 mln. € 4.369,= € 3.491,=

Rekenvoorbeeld
Onderstaand rekenvoorbeeld laat zien het verschil zien tussen een traditionele betaalinstelling (PSP) met EUR 4.000.000 aan provisie-inkomsten (PI) en AISP:

2019 2020 PSP 2020 AISP
DNB basisbedrag € 2.000,= € 5.000,= € 5.000,=
PI in range
€ 0 – € 1 mln.
€ 65.410,=
(1000 x € 65,41)
€ 101.500,=
(1000 x € 101,50)
PI in range
€ 1 mln. – € 10 mln.
€ 56.910,=
(3000 x € 18,97)
€ 103.800,=
(3000 x € 34,60)
AFM PI in range
€ 1 mln. – € 5 mln.
€ 3.404,= € 2.720,= € 561,=
(o.b.v. € 0,= PI)
Totaal € 127.724,= € 213.020,= € 5.561,=

Deze cijfers laten zien dat de kosten voor de PSP’s fors toenemen, terwijl de kosten voor AISP’s in verhouding beperkt zijn. Interessant is hoe deze verhouding en de absolute kosten zich de komende jaren gaan ontwikkelen.

SOURCE