Tag Archive for: banking

Banker to corporate treasury transfer – A topic as relevant as ever

| 27-3-2017 | Pieter de Kiewit | treasuryXL

In July 2016 our expert Pieter de Kiewit wrote an article about bankers who want to make a transfer into corporate treasury. With all the news about major banks laying off huge numbers of staff and the recent news that ABN AMRO asks 30 top managers to leave the bank or accept demotion, we believe that this topic is still very relevant and worthwhile to be published. Pieter de Kiewit wrote his blog based upon his observations working as a treasury recruitment consultant having meetings with many of them.

The transfer has been made many times successfully, even more it appeared to be impossible.

You have to ask yourself: “why do I want this?”. If this is your lifelong dream your application strategy will be different from the situation where your employer asked you to leave. Be honest with yourself, you know the answer. I will describe the consequence of both scenarios.

If your dream is working in a corporate treasury, you have acted upon this. Your studies included the right topics, you visited the relevant events and in your communication with clients you showed a sincere interest what their tasks involve. You projected yourself in these tasks and are able to tell why you would be good at it, why you prefer them over your banking tasks. You already knew there will be a pay cut and that is no problem. Your story is sound and the hiring manager will notice. It will be authentic and most likely you will not apply from unemployment.

If you were made redundant and will try to convince the hiring manager you always wanted to be a corporate treasurer, you will fail. Why didn’t you try before? What did you do to prepare for this step? Can one notice you understand their job?

Just tell it like it is: you studied to be a banker, you loved the job and were great at it. Times have changed and regretfully you have to recalibrate. But there is a silver lining: you have a valuable skill set your potential employer might benefit from. But here is where it gets a bit harder: it is your job to find out what the (potential) problem of you future boss is and why you can solve it. He/she will not take the effort to find out. So ask questions, match them to your skill set and do not use banking lingo. Ask your friends if they think you have an old school banking attitude (“you might receive our funding”). If so, ditch it. You do not have to beg for the job but you might mention you look forward to working together and being successful.

Good luck out there!

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

Treasury Seminars in Antwerp and Montfoort – a short summary of two successful events

| 15-3-2017 | Treasury Services | PowertoPay | sponsored content |

The last two Thursdays, the PowertoPay, SWIFT and TreasuryServices Treasury Seminar was held in Montfoort and Antwerp. We’re happy to say that it was a success! We got a lot of positive feedback during and after the seminars. Both had the same content but were hosted on two different days. The first one was held in Antwerp, Belgium on the 2nd of March in an old monastery (Elzenveld). The second one was held in Montfoort, The Netherlands on the 9th of March in the Heeren of Montfoort. 

During the seminar several treasury topics were highlighted. After a short opening speech by Bas Huisman, co-founder of PowertoPay, we started with a presentation about the importance of bank independency. Arnoud Doornbos from Treasury Services was talking about financial history lessons but also the current financial situation that makes it really important for companies to look into bank independent solutions.
After that Rob Rühl from Next Markets presented his view of the influences of Brexit on the Dutch and Belgian economy.
Next was a presentation by Hans de Vries, PowertoPay consultant, telling about the end of Notional Pooling and Basel III. He also presented the Payment Hub of PowertoPay and how this is beneficial for companies.
After this Jan Vermeer from TreasuryServices talked about bank independent cash pooling through software, something TreasuryServices developed for companies who wish to operate much less dependent on their banks if it comes to cash management.
Last but definitely not least, we had a client case presented by Michel Steenbergen from DIF. He informed everyone about how the two solutions mentioned above come together in practice. DIF uses a combination of PowertoPay’s Payment Hub  and TreasuryMetrics from Treasury Services and created a perfect solution for their complex cash management processes. After both of the seminars we had a drink and some food with the participants.

Our Treasury Seminar was a great opportunity to inform everyone about the current situation of the financial world and how to participate in changes that are occurring. Being bank independent is becoming increasingly important because of the fast development of financial technologies and changing laws. What we see lately is that components of banking products and services are being redeveloped by the FinTech Industry. These FinTech solutions are smarter, faster and better. As a result we now see that different FinTech companies work together. Individual Fintech products often turn out to be complementary to each other. FinTech companies now recognize that collaboration with other FinTech companies leads to high growth and a better product range.

PowertoPay –  Claire van Ingen

Treasury Services BV – Arnoud Doornbos

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Buddy, can you spare a virtual dime?

| 6-3-2017 | Lionel Pavey |

 

In januari 2017 was in Het Financieele Dagblad in een artikel te lezen, dat mobiele telefoonprovider Bharti Airtel India’s eerste betalingsbank had gelanceerd, de Airtel Payments Bank. Dit is een nieuwe banksoort, waarvoor de Indiase centrale bank RBI in 2014 richtlijnen uitgaf. Wij vroegen onze expert Lionel Pavey om uit te leggen wat het verschil is tussen een betalingsbank en een traditionele bank en wat een betalingsbank mogelijk maakt.

Wat is een betalingsbank?

Bij een betalingsbank kan men geld storten en betaalopdrachten verrichten, maar de bank kan geen krediet verstreken. Traditionele banken kunnen vele malen hun eigen vermogen uitlenen onder het huidige systeem – een betalingsbank kan zijn overtollige middelen alleen uitlenen aan de overheid. Zo een bank wordt beschouwd als heel veilig en heeft een zeer solide balans.

Betalingen worden aangeboden via online betaalsystemen gekoppeld aan mobiele telefoons. De bank heeft geen fysiek netwerk van kantoren – hiermee kan  zij haar diensten goedkoper aanbieden dan traditionele banken. Toegang tot een bankrekening is dus makkelijker en daarmee ontstaat concurrentie voor de bestaande banken. Het toetredingsdrempel is lager – hiermee kunnen meer mensen gebruik maken van bankdiensten.
Een betalingsbank (bijvoorbeeld via een telefoon provider) kan uiteindelijk leiden tot een toekomst waar contant geld niet meer zal bestaan.

Cashless betalen

Pinnen is al een vorm van cashless betalen. Sportverenigingen, bedrijfsrestaurants, winkels, horeca en openbaar vervoer zijn instanties du nu al gebruik maken van cashless betalen. Niet alleen via een bankpas, maar ook via een betaalsleutel die gekoppeld is aan een digitale portemonnee. Zulke diensten kunnen ook aangeboden worden door niet bancaire partijen – zoals telecom providers. In 2003 introduceerde Rabo al het product MiniTix – een elektronische portemonnee.

Wat zijn de voordelen?

  • Bescherming tegen criminaliteit – de kans op (winkel) overval wordt sterk verminderd.
  • Omzet verhoging – het gemak zal kunnen leiden tot meer uitgaven. De drempel om uit te geven is lager.
  • Direct ontvangst – door direct overmaken kan de omzet gelijk geboekt worden.
  • Inzicht – betere analyse op omzet en klanten. Producten kunnen meer gericht worden op de klant.
  • Cash is onveilig, duur in onderhoud en vergt een hoop administratieve handelingen
  • Inzicht – alle bonnen worden digitaal opgeslagen in jouw portemonnee na afrekening
  • Zwart geld – dit verdwijnt steeds meer – dit is voordelig voor de fiscus.

Wat zijn de nadelen?

  • Verplichting – iedereen moet mee doen, dus geen vrije keus.
  • Privacy niet meer veilig – het gebruik leidt tot een elektronische spoor. Betalingen zijn traceerbaar.
  • Veiligheid is zeer belangrijk – wie bewaakt alle gegevens, wie heeft toegang, hoe controleer je dit?
  • Kwetsbaar – zoals al gezien met bitcoins, cybercriminelen geven aandacht aan het kaalplukken van elektronische rekeningen.
  • Interventie – de staat zou een negatief rente kunnen invoeren op bankrekeningen. Men zou dan niet hun tegoed kunnen opnemen in contante.

In het dagelijkse leven: mijn dochter

Mijn dochter is 10 en krijgt zakgeld. Het geld gaat in een spaarpot. Als zij iets wil kopen moet het geld uit de spaarpot gehaald worden en geteld. Eenmaal aangekomen bij de winkel treedt de “wet van Pappa” in werking.
Als ik haar aankoop als educatief beschouw, wil ik 50 pro cent van de aankoop-prijs betalen. Maar als iets EUR 20 kost moet mijn dochter wel EUR 20 in haar spaarpot hebben. Zij kan niet komen met EUR 10 in de veronderstelling dat ik de andere EUR 10 ga betalen.
Zo leer ik mijn dochter om te gaan met geld. Zij moet ook zelf afrekenen bij de kassa en, indien nodig, alle relevante vragen aan de verkoper stellen. Op het moment dat zij alles uit haar spaarpot uitgeeft, moet zij beseffen dat zij er niets meer zal overhouden als zij de gewenste aankoop doet – zij gaat terug naar nul en moet weer alles opbouwen. Dit kan een sober effect veroorzaken – een openbaring.

Hoe doet u dit met uw eigen kinderen?
En hoe gaan wij onze kinderen leren omgaan met geld als het niet meer fysiek is?
Dat is pas een uitdaging!

Never spend your money before you have it – Thomas Jefferson

Lionel Pavey

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

 

Blockchain: Accelerated activity in trade finance

| 24-2-2017 | Carlo de Meijer |


Last year August I wrote a LinkedIn blog on blockchain and trade finance. There I described the various pilots and plans for using this technology in the trade space. In that month, the bank-backed R3CEV blockchain consortium revealed that 15 of its member banks had participated in a trial involving trade finance. Since then activity in this area has accelerated. It signals that enterprise banks are increasingly interested in the application of the blockchain to trade finance. The idea is that a distributed database like a blockchain can form the basis for a wholly digitized supply chain.

“Blockchain lends itself easily to the trade finance industry, which heavily rely on the settlement of sensitive information. This technology could be used to digitise sales and other legal contracts (smart contracts), allow the location of goods to be monitored and facilitate payments in close to real time. Potentially, business transactions can be executed directly on the platform itself through the use of “smart contracts” embedded in the platform and the platform could be further connected to payment systems and distribution networks for smoother flow of payments, goods and services.” – I wrote in Blockchain and trade finance: projects and pilots

Moving from the proof-of-concept stage into production

It is also becoming all the more clear that blockchain technology is moving from the proof-of-concept stage into production, especially for cross-border payments and trade finance. Last week seven European banks announced their plans to develop a trade finance platform based on blockchain technology. Let’s have a look – there are more examples.

European banking consortium: cross-border trade platform

Seven of Europe’s biggest banks (Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit) signed a Memorandum of Understanding in Brussels under which they intend to collaborate on the development and commercialisation of a new product called Digital Trade Chain (DTC). A shared cross-border trade finance platform for small and medium-sized using blockchain technology.

The product is based on a prototype trade finance and supply chain solution originated by KBC and tested to ‘Proof of Concept’ stage. The aim of the project is to simplify trade finance processes for SMEs by addressing the challenge of managing, tracking and securing domestic and international trade transactions by connecting all of the parties involved (i.e. buyer, buyer’s bank, seller, seller’s bank and transporter), online and via mobile devices. They thereby hope to accelerate the order-to-settlement process and decrease administrative paperwork significantly. The group plans to initially focus on building critical mass in seven European markets.

S7 Airlines and Alfa-Bank pilot the first Russian blockchain LoC transaction

Two Russian companies, S7 Airlines, and Alfa-Bank, have successfully closed a deal using a smart contract to settle and record a Letter of Credit (LoC) on a blockchain. Deloitte in Russia provided legal support to the project. Only the people with information about the original parameters of the deal can view the status of the letter of credit in the blockchain record. In this transaction, in addition to Alfa-Bank and S7 Airlines, the information is available to a service company that receives money under the letter of credit. Legally, this transaction meets all the requirements for a letter of credit as a form of bank settlement, and demonstrates the potential of smart contract application in the framework of Russian legislation.
“The transaction enabled us to test the capabilities of smart contracts and understand how the technology helps to improve business processes and document flow efficiency. We are planning to continue cooperating with Alfa-Bank in this area.” – Dmitry Kudelkin, Deputy General Director, S7 Group

Barclays enabled first global trade transaction trial

Barclays announced that it had successfully completed the first global trade finance transaction trial using blockchain technology. The test enabled two partners, Ornua, an Irish agriculture co-operative (formerly the Irish Dairy Board), and Seychelles Trading Company, a food product distributor, to successfully transfer trade documentation via a blockchain platform created by its accelerator program graduate, Wave. A blockchain-based letter of credit closed a transaction between Ornua and the Seychelles Trading Company, guaranteeing the export of almost US$100,000 worth of cheese and butter from Ireland to the Seychelles, facilitated by Barclays. Meanwhile, the funds for the transaction were transferred via Swift.
Wave has worked with Barclays in developing new solutions for trade finance. The start-up’s blockchain-based technology connects all members of a supply chain to a decentralised network, allowing them direct exchange of documents. Wave’s blockchain-based system allows all parties to see, transfer titles, and transmit shipping and other trade documentation through their decentralized network. The new platform helps optimise internal processes for banks and reduces the risk of documentary fraud, while speeding up the time it takes to complete a trade transaction – from as many as 20 days, to just a few hours.
“Blockchain is a very good solution to eliminate the pain in international trade, because you have an industry that combines all industries, because all industries are either importers or exporters at some level. You have the carrier, the bank and the customer and it’s hard to find one centralized entity everyone can work with.” – Wave founder Ruschin

IBM promotes Blockchain Trade Finance In India

In India, IBM is hoping to promote mainstream adoption of blockchain by collaborating with multinational company Mahindra, which operates Mahindra Finance. IBM and Mahindra are developing a blockchain-based trade finance solution to offer banks in the country. The cloud-based tool will look to facilitate trade finance transactions between buyers and suppliers, and could overhaul trade finance for SMEs in particular.
The companies have already completed a proof of concept that “represents a significant step forward in blockchain, a more compelling and efficient supply chain solution for Mahindra Finance’s small and mid-sized enterprise loan business”. IBM and Mahindra will explore other use cases for blockchain including applications for Mahindra’s car and tractor manufacturing operations.

Microsoft and BAML to Test Blockchain for Trade Finance

Microsoft and Bank of America Merrill Lynch (BOML) announced a collaboration on blockchain technology to fuel transformation of trade finance transacting. The companies have teamed up to implement blockchain technology in trade finance to facilitate faster, safer, cheaper and more transparent transactions. The main objective of the collaboration is to develop and test blockchain technology and establish best practices for blockchain-powered exchanges between businesses and their customers and banks, before commercializing it. Microsoft’s own cloud-based platform Azure will be utilized to test the project. Microsoft Treasury experts will serve as advisors and initial test clients. Development and testing of the initial application, built to optimize the standby letter of credit process, is currently in progress.

CBA, Wells Fargo and Brighann Cotton pioneered blockchain trade finance transaction

The Commonwealth Bank of Australia (CBA), Wells Fargo and trading firm Brighann Cotton have successfully completed the “first” global trade finance transaction experiment in October between two banks using blockchain, smart contracts and the Internet of Things (IoT).
“The interplay between blockchain, smart contracts and the Internet of Things is a significant development towards revolutionising trade transactions that could deliver considerable benefits throughout the global supply chain.” Michael Eidel, CBA. The trade involved the shipment of 88 bales of cotton worth approximately $35,000 from Texas US to Qingdao, China. The transaction mirrors a letter of credit, executed through a collaborative workflow on a private distributed ledger – Skuchain’s Brackets system – between the seller (Brighann Cotton in the US); the buyer (Brighann Cotton Marketing Australia); as well as their respective banks (Wells Fargo and CBA).
By connecting Brighann Cotton’s container to the internet of things (IoT), both CBA and Wells Fargo have been able to “track a shipment in real time”. It was the geographical location which triggered the smart contract to release the payment for the cotton (which happened via the traditional Swift system, allowing the banks to avoid having to win the approval of prudential regulators for the deal).

Major banks from India and Dubai complete blockchain trade finance transaction.

ICICI, India’s largest private bank, and Emirates NBD,  recently announced successful international transactions for both trade finance and remittance purposes using blockchain technology.
This pilot transaction was executed to showcase confirmation of import of “shredded steel melting scrap” by a Mumbai-based export/import firm from a Dubai-based supplier, and to exchange and authenticate original international trade documents. The blockchain trade application co-created by ICICI Bank “replicates the paper-intensive international trade finance process as an electronic decentralised ledger”.
The information contained in the blockchain transaction included a purchase order, an invoice, shipping and insurance papers. Each participant was able to access and view a single dataset, to authenticate ownership of goods digitally, transmit their trade documents, check the status of their applications, and transfer their titles, while maintaining confidentiality. Further, it allowed each participant to check online the status of the application, transfer of title and transmission of original trade documents through a secure network, while preserving client and commercial confidentiality. The application is designed to work with existing banking systems and processes, allowing banks to “plug in their systems and process.”
“I envision that the emerging technology of blockchain will play a significant role in banking in the coming years by making complex bilateral and multi-lateral banking transactions seamless, quick and more secure.” – Chanda Kochhar, ICICI MD & CEO

CGI rolls out blockchain lab for trade finance

CGI, a leading IT and business service provider, has launched a lab, a digital sandbox dedicated to helping its trade finance and supply chain clients harness the efficiencies of blockchain for new and existing products. The formal launch took place at Sibos, Geneva, and is part of the company’s rapidly increasing use of Ripple’s distributed ledger solutions. But, the lab itself will soon explore the benefits to trade finance more broadly.The Trade Innovation Lab is a three-tiered “sandbox” that begins with platforms that could include Ethereum, BigchainDB, Ripple, Corda and Eris Industries, then works with CGI’s blockchain developers to build messaging workflows via the Intelligent Gateway that can be integrated via APIs to new blockchain applications. As part of the digital sandbox offering, the company will let its clients experiment with how various blockchains interact with its new Digital Intelligent Gateway, which allows for the sending of a wide range of supply chain messages.

UBS and IBM test blockchain for trade finance

Swiss UBS and IBM have collaboratively designed a project that replicates the entire lifecycle of an international trade transaction on Hyperledger`s Fabric blockchain. Aim is to simulate a complete international trade transaction incorporating stages such as trade finance, cargo inspections, bills of lading, customs inspections, release and payment. The trade finance project is in its earliest stages and focuses on just a single aspect of the process, combining payment transactions, foreign exchange payments and more, into one single, elaborate smart contract.
By programming that process into a smart contract on Hyperledger, both parties expect 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.

Consortium rolls out blockchain trade finance app in Singapore

Bank of America Merrill Lynch, HSBC and the Infocomm Development Authority of Singapore (IDA) have jointly developed a prototype solution built on blockchain technology that could change the way businesses around the world trade with each other. The consortium used the Linux Foundation open source Hyperledger Project blockchain fabric, which development was supported by IBM Research and IBM Global Business Services.
The application mirrors a paper-intensive letter of credit (LC) transaction by sharing information between exporters, importers and their respective banks on a private distributed ledger. This then enables them to execute a trade deal automatically through a series of digital smart contracts. Each action in the workflow is captured in a permissioned distributed ledger, giving transparency to authorised participants whilst encrypting confidential data. With this concept, each of the four parties involved in an LC transaction – the exporter, importer and both of their banks – can visualise data in real time on a tablet and see the next action to be performed.
“A letter of credit conducted on blockchain enables greater efficiencies and visibility in trade finance processes, benefitting multiple parties across its value chain,” – Khoong Hock Yun, assistant chief executive of the IDA’s Development Group. The consortium now plans to conduct further testing on the concept’s commercial application with selected partners such as corporates and shippers.

Remaining challenges

As evidenced by the recent announcements of successful international trade finance transactions via blockchain, promising to transform trade finance over the coming decade for business around the globe, streamlining the trade finance process, cutting time and expense from the process, the real-world use of the technology in trade finance will see a growing trend. It however could take a while before the technology will take off in a massive way and will fundamentally transform trade finance.
Going forward, the big challenge for banks wanting to employ blockchain at scale for trade finance will be the interoperability of different blockchain or distributed ledger systems. Another issue that needs to be addressed seriously is integration. How will buyers, sellers, and any required trusted third party/intermediary, interface to the network? Without having to implement an entirely new technology infrastructure, the parties involved in the trade finance process will need flexible tools to map and process documents and payments.

“The introduction of blockchain in your company will require the well needed time. You will have to address the enterprise issues around transaction audibility, visibility and integration into existing business functions. Without this, a profitable integration of the blockchain in the company will prove to be a difficult story” .

 

Carlo de Meijer

Economist and researcher




More articles about blockchain from Carlo de Meijer:

 

 

What’s FinTech and how does it change the financial world?

| 22-2-2017 | Arnoud Doornbos |

FinTech is a term that is becoming popular in the financial world. Only one third of the financial experts know what this means  and understands  what consequences it has for their business. How this innovation is currently changing the ecosystem of money, is still relatively unknown.

FinTech is a contraction of the words financial and technology. In other words: it covers all innovative financial products and services that simplify and accelerates the way we handle money. For traditional banks FinTech is still an uncomfortable concept. Why? Because a large portion of the revolutionary financial concepts are derived from technology driven start-ups. These start-ups change the traditional ecosystem. This is enormously important in a country like the Netherlands where the majority of firms is financed by banks and personal finances of the people are predominantly held by financial institutions  which find it often difficult to modernize.

The emergence of ICT in the financial sector may also have different consequences. Those FinTech companies that focus on a single product or service can erode the business model of banks. At the same time the same technology also offers opportunities for traditional players to improve their service and reduce costs. Also, traditional players have a competitive advantage over new entrants based on their knowledge of regulations and access to information from relationship banking (also called soft information).

FinTech companies have greatly changed the rules of the sector. Today we can pay via our mobile phone, quickly apply for online credit and invest online with one click. The list of innovative ideas is endless and an enrichment for everyone.

FinTech VC investments

The explosive growth of the financial technology industry continued in 2016.

  • 2016 has seen 839 deals globally attracting $15.2bn of investment
  • Global investment is up 27% to Q3 2016 vs the same period in  2015 and has surpassed the 2015 total of $14.9bn
  • Global deal size is slightly ahead of 2015 Q3 levels, with the average increasing from $14.3m to $18.1m, partially attributable to large Chinese investments such as Alipay

 


Source: Pitchbook Innovate/Finance

Most money was invested in start-ups. Projections show that the amount of investment will continue to rise.

The power of this technology-driven financial services lies in the fact that it is fast, efficient, transparent and mobile. You can use these services as long as you have Internet access. Of course, this strongly contrasts with the discontent which experienced customers from traditional banks.

Looking ahead — the FinTech industry could experience even greater growth moving into the coming year. The future remains positive from an investment perspective. We may expect an uptick after relative slow growth in the second half of 2016 due to political risks such as the Brexit and the US elections which fueled great uncertainty across all emerging sectors. Along with increased attention, the industry could see a large number of fresh launches and FinTech could make its way into an even stronger growth pattern in 2017 as investors have become more certain about industry prospects.

The possibilities for FinTech in Netherlands

In the Netherlands, there is also a strong rise of FinTech companies. Companies like Paypal are rapidly gaining market share. The biggest and best-known Dutch company FinTech Adyen. This company was recently valued at more than € 2.3 billion.

The FinTech Top 100 announced in 2016 that there are eight Dutch FinTech startups are part of the leading European companies in the financial technology. The financial infrastructure and the international focus play an important role. In addition, capital and expertise is also necessary for innovation, two factors Netherlands as a European Member State meets. The Netherlands also rise in 2016 from the 5th to the 4th place in the ranking of most competitive economies in the world.

The infographic shows that, perhaps inspired by Adyen, payment providers constitute a large share of the pie. Also data startups and alternative financing (crowdfunding example) are well represented in the Netherlands.

Dutch FinTech awards 2017

FinTech startups are disrupting the financial sector. Innovative companies are eager to please millions of frustrated banking customers. Investors are fascinated by the phenomenal profits made by banks struggling with outdated technology. Today, more and more money is being invested in FinTech. The Uber of the banking sector has not yet emerged, but this is only a matter of time. On April 21 the Dutch FinTech Awards 2017 will be held in Utrecht at the Rabobank Headquarter. The panel of judges of this years event consists of seasoned investors, academics, marketeers, entrepreneurs with an extensive track record in finance and/ or technology.  (http://www.fintech.nl).  The author of this article is one of the judges

Future

What we see in practice is that components of banking products and services are being redeveloped by the FinTech Industry.
These FinTech solutions are smarter, faster and better.
As a result we now see that different FinTech companies will work together. The individual Fintech products often turn out to be complementary to each other.
FinTech companies now recognize that collaboration with other FinTech companies leads to high growth and a better product range.

The Uber of the banking sector

 

The Uber of the banking sector has not yet emerged, but this is only a matter of time.

 

 

Arnoud Doornbos

Associate Partner

 

 

 

 

Uniform Herstelkader Rentederivaten MKB

| 21-2-2017 | Simon Knappstein |

 

Op 19 december van vorig jaar is het definitieve herstelkader rentederivaten gepubliceerd door de Derivatencommissie. Dit is een update van de versie die al in juli van 2016 werd gepubliceerd. De update is inhoudelijk onveranderd maar bevat een aantal toelichtingen en bijlagen om de werking van het herstelkader te verduidelijken.
De opdracht om dit herstelkader op te stellen is door de Minister van Financiën in maart 2016 gegeven. Alle Nederlandse banken hebben zich aan dit herstelkader gecommitteerd.

Tegelijk met deze publicatie heeft de Derivatencommissie ook een informatieve brochure uitgegeven.  Banken zullen deze gaan opnemen in hun brieven die ze naar klanten met renteswaps gaan sturen. Hierin wordt op hoofdlijnen de werking van de compensatieregeling uitgelegd.
Eerst wordt het toepassingsbereik geschetst, voor wie geldt dit herstelkader?
Dit herstelkader is van toepassing op niet-professionele partijen die niet aan deskundigheids-eisen voldoen. Dat betekent in de praktijk dat het met name gaat om MKB-ondernemingen en particulieren. Verder gelden er voorwaarden met betrekking tot de looptijd van de rentederivaten. (Een interessante ontwikkeling is dat het gerechtshof in Den Haag gisteren geoordeeld heeft dat een groot bedrijf toch recht heeft op schadevergoeding voor renteswaps die de bank heeft verkocht, als vooraf duidelijk was dat het bedrijf geen speciale kennis had over dit soort financiële instrumenten.)

Vier stappen

Vervolgens zijn er vier stappen gedefinieerd om de hoogte van de compensatie te bepalen.

In stap 1 worden gestructureerde, complexe derivaten door de banken aangepast naar een renteswap, een rentecap of een rentecollar. Het verschil in netto cashflows wordt in deze stap gecompenseerd.

In stap 2 worden alle verschillen tussen het derivaat en de onderliggende financiering aangepast. Denk hierbij aan een overhedge in omvang, een overhedge in looptijd of afwijkingen in referentierente. Ook hier worden de verschillen in netto cashflows gecompenseerd.

In stap 3 bieden de banken een coulancevergoeding aan. Deze vergoeding bedraagt maximaal 20% van de rente die per saldo onder een renteswap dan wel rentecollar aan de bank is betaald en naar verwachting nog zal worden betaald. Deze vergoeding is gemaximeerd op €100.000,-. Mijn ervaring is dat met een looptijd van 10 jaar en een hoofdsom van €2,0 mio a €2,5 mio dat maximum wel bereikt wordt.

In stap 4 vergoeden banken onverwachte verhogingen van renteopslagen op financiering(en) die door een renteswap worden afgedekt.
De banken verwachten dat zij in de loop van 2017 hun klanten kunnen informeren met concrete compensatievoorstellen. De exacte timing zal per bank verschillen. Als de bank een voorstel heeft gedaan, kan de klant beslissen of hij van het voorstel gebruik maakt. Bij acceptatie van het voorstel, verleent hij finale kwijting aan de bank.

Toezichthouder AFM gaat er op toezien dat de banken en de externe beoordelaars dit proces zorgvuldig en volledig uitvoeren.

Als u meer wilt weten over dit herstelkader kunt u mij mailen op [email protected]

Simon Knappstein - editor treasuryXL

 

Simon Knappstein

Owner of FX Prospect

 

The Five Cash Management Initiatives Treasurers Should Consider

|8-2-2017 | Jan Meulendijks | iTreasurer |

 

In October 2014 iTreasurer published an article ‘The Five Cash Management Initiatives Treasurers Should Consider‘ about how treasurers keep focus on ways to keep cash management in their organisation efficient and cost effective.  As this is always an important issue and also relevant in 2017, we asked our expert Jan Meulendijks to comment on the article.

Five initiatives

iTreasurer stated in their article that treasurers should spend their time on five initiatives and that they should be part of a treasurers’ overall budget and resource planning process.

Going beyond SEPA

iTreasurer stated: ‘Initially rolled out as an approach for risk mitigation for commercial payment transactions in Euro, SEPA adopters have found that SEPA, or the Single Euro Payments Area, provides a more efficient way to transfer and collect funds across borders without managing all the different legal payment frameworks of each country. But despite the many bright spots of SEPA, “reconciliation in 2014/2015 was still a challenge,”

According to Jan Meulendijks the development of reconciliation tools has now become an issue for ERP/General ledger software developers and that the banks do not need to focus on it any more. Processing digital account information/account statements are a well established feature of financial software programs and also include the processing of open accounts receivables.

Global Account Rationalization

‘The SEPA initiative has acted as the catalyst for other global projects, with high priority placed on account rationalization. By reducing accounts across Europe, many large US multinational corporations are realizing significant savings in both hard- and soft-dollar costs. “In the SEPA environment, all corporates needed was one account for payments and one account for receivables across the SEPA landscape,’ said Mr. Brieske, Regional Head of Trade Finance and Cash Management Corporates Global Solutions Americas, Global Transaction Banking, Deutsche Bank in the article. At that time keeping every bank happy was  a tough job, if not impossible. Being able to spread the wallet across fewer banks was one of the positive by-products of a bank consolidation.

‘Nowadays it is remarkable to see that “wallet sizing” has turned around completely,’ says Jan Meulendijks. ‘Today it is the companies that determine how much of their wallet will be handled by which bank and the banks no longer have influence on the amount of transactions with a company.’
In-House Bank Structures

Treasurers had  continued to find ways to alleviate the growing cash balances that had become strategically more important to their organizations. Structures like in-house banks (IHBs) were becoming more commonplace as organizations took the next step to further enhance their global liquidity models. The practical considerations for the evolution of the IHB could be directly attributed to global expansion and increased revenue mix overseas in addition to complexities related to time zones, language, growth of regional shared services and decision execution.

The Five Cash Management Initiatives Treasurers Should Consider

Jan Meulendijks states that in the chart of the article the first three steps of “in-house bank progression” are no real in-house bank developments, but treasury-related measures, that now also take place in medium-sized organisations. ‘Only if companies have a real ‘payment factory’, I call it a in-house bank.’
RMB Internationalization

As a result of the ongoing RMB regulatory changes, there had been a significant improvement in the ease of making cross-border RMB payments via China. The RMB was a fairly new currency on the international scene then. The RMB internationalization project had begun to pick up steam over the second half of 2014, with many global MNCs looking to launch new cash management strategies in Asia. New structures were thought to be able to unlock China’s previously “trapped cash” challenge, and optimize their cash held in this part of the world where many opportunities lie for them.

Jan sees a tendency today that the more the deregulation of the RMB progresses the more one can treat it as any other currency. However, this is not achieved yet and Asia will continue to be an region where ‘trapped cash’ occurs on a regular basis.

 Maximizing Excess Cash
According to Martin Runow, Head of Cash Management Corporates Americas, Global Transaction Banking, Deutsche Bank most MNCs then were still very risk-averse and focused on principal preservation. ‘The dilemma is corporates are looking for yield but there is little appetite to go into risky assets,’ he said in 2014. With the continuation of low yields, cash portfolio asset allocations were heavily weighted toward money market funds, US Treasuries and agency debt, corporate bonds above the single-A threshold and corporate commercial paper and certificates of deposit. Treasurers were thought to be well served to consider implementing an IHB so that their growing levels of excess cash could work harder around the globe versus sitting in a very low-yielding investment asset.
Now in 2017 Jan Meulendijks states that this is what treasury is all about: companies should not aspire  the role of banker, but submit their cash into the company’s operating cycle as working capital. In fact they should fall back on effective cash management: receive in an effective way and pay with as little cost as possible.
There is a lot to win for SMEs, too.
Jan Meulendijks


Jan Meulendijks
Cash management, transaction banking and trade professional







 Source: iTreasurer

 

 

Blockchain and Central banks: a Tour de Table (Part II)

| 2-2-2017 | Carlo de Meijer | treasuryXL |

We found this article of our expert Carlo de Meijer and wanted to share it with you. This is the second part of this article, after Part I,  and a slightly shorter version than the original.
A year ago central banks were looking at the blockchain technology, mostly because they wanted to understand what private banks were talking about. The central banks are now embracing the blockchain technology to revamp their own infrastructures. Major central banks worldwide have spent the past year organising their own working groups dedicated to exploring blockchain technology and digital currencies. They thereby try to work out answers to the big questions: how would turning its cash digital affect the economy and financial stability? And determine whether the technology would be robust enough to stand up to hackers.

Central banks and blockchain experiments

Central banks are now even experimenting with digital currencies. A growing number  have made public their efforts in the digital currency and blockchain spaces. Several – and really the most enthusiastic – central banks, including the Bank of England, the Banque de France, the People’s Bank of China, the Bank of Canada, the Central bank of Russia, the Dutch central bank, and the Federal Reserve in the US, are exploring the concept of issuing their own blockchain-based digital currency. Countries like Barbados,  Senegal and Tunisia even introduced their block-chain-based digital currency. Other central banks have expressed stated their intent to develop interbank payment systems based on a blockchain. The European Central Bank recently announced a new research undertaking in partnership with the Bank of Japan. And last month the US Federal Reserve released its first major research paper on blockchain.

Tour de Table

What are all those various central banks doing. In an alphabetical order we will investigate the various initiatives.

Argentina
The Argentinian government and Central Bank authorities are focusing on finding innovative solutions. They have asked the blockchain community to join efforts to “eradicate financial exclusion, transfer the financial industry, promote financial opportunities and reduce inflation”.

The Central Bank of Argentina in narrow cooperation with the Ministry of Production and the Innovative Ministry organised the “Financial Innovation Hackathon” in November last year. On the first day of the hackathon, central bank vice president, Lucas Llach, talked about how blockchain could be a source of innovation in the financial industry. Though Mr. Llach said that its focus now is to work on improving new payment methods, he however added:

Australia
The blockchain issue is also on the radar of the Reserve Bank of Australia. Its head of payments, Tony Richards, said in February last year the RBA “has not reached a stage where it is actively considering this but in the more distant future it is even possible that we may see a digital version of the Australian dollar”. In a recently published paper the RBA however expressed a reserved view on the role blockchain and distributed ledger technology may play in the equity market in the short and medium term. The RBA paper highlights challenges associated with the transition to a new market blockchain-based structure including risks and technical challenges.

Barbados
In a sense, money issue on a blockchain is already happening on the island of Barbados. Early last year tech startup Bitt launched a blockchain-backed Barbadian Dollar, with the support of the country’s Central Bank. The Barbados central bank approved issuance of digital representations of the Barbadian dollar, each equalling a dollar issued by the Central Bank of Barbados, using blockchain. The approved platform, operated by tech startup Bitt, allows users to transact with each other. The ultimate goal is to digitize all the different fiat currencies of the Caribbean region in the hopes of providing the citizens a service that enables them to instantly send money anywhere.

Canada
The Central Bank of Canada last year teamed up with the country’s five largest banks and the R3CEV banking-backed consortium for the “Project Jasper” to create a blockchain enabled currency. In a simulation run last summer, the central bank issued so-called CAD-Coins on to a Ethereum blockchain platform. The banks used the CAD-Coins to exchange (fictional) money in the same way they normally do at the end of each day to settle their master accounts. A great deal of testing however is still necessary before the Bank of Canada can decide whether distributed ledger technology is “ready for the real world”.

China
China’s central bank is looking to recruit blockchain experts to study the technical architecture of digital currencies. The central bank has been working to create and issue a digital currency for years in order to replace cash, the bank’s governor, Zhou Xiaochuan, has said previously. Blockchain technology is among the systems it has examined, such as a series of other digital ledgers that can be reconciled efficiently. The central bank would still retain control over the country’s money supply. A timetable for the launch of China’s sovereign digital currency has not been announced, as of yet.

Denmark
The central bank of Denmark plans to issue blockchain-based E-krone as its reserve currency. The central bank says “blockchain technology, or a variety of that, for example” would be an obvious model to use for virtual currency. Governor Lars Rohde says pros include lower transaction costs. Using such a virtual currency would also make crime harder and improve financial oversight. But when it comes to the societal implications of switching to such a model, Rohde says the Danish central bank still has “more questions than answers.”

Europe
The European Central Bank and Bank of Japan agreed to launch a joint research project to study potential use cases of blockchain technology for market infrastructure. This initiative comes after the ECB revealed that “it is open to taking a closer look at exploring the potential for blockchain technology as a means to further innovation among central banks around Europe”. The bank is “toying with the idea” of tapping distributed ledger technology, among other options, for its renovation of the Target2 real-time gross settlement system and Target2-Securities platform. If this is to happen, more research into the technology is needed, prompting a collaboration with the Bank of Japan which will see findings released next year.

Finland
Also the Bank of Finland joined the growing list of worldwide central banks interested in blockchain technology. Finland’s central bank, collaborating with the Ministry of Finance, held a seminar in November, aimed to discuss “blockchain technology’s risk and rewards in order to forward innovation in the country’s economy”. They thereby  gathered together with the country’s leading researchers from universities, think-tanks, and various industries, to discuss the possibilities offered by distributed ledgers.

 

France
The Banque de France, the country’s central bank, has revealed details about a blockchain experiment for the identification process within the Single Euro Payments Area (SEPA). As well as security reinforcement, this experiment aims at exploring possible consequences of decentralised ledger management functions of SEPA Credit Identifier. The first testing was carried out in July last year in cooperation with the IT-startup Labo Blockchain, a group of French banks, and Deposits and Consignment Fund (Caisse des Dépôts et Consignations). For the experiment, the bank provided the participants with necessary software elements to be installed in external clouds or in their trial IT systems. The central bank stated that a “comprehensive assessment” will be carried out in the coming months to understand the results of the experiment. During January 2017, more details of the experiment will be revealed at a conference organized by the French Payments Committee in Paris.

Germany
The Bundesbank, jointly with Deutsche Börse, is testing the functional prototype of a blockchain-based system for the trading and settlement of securities. Designed to provide the technical functionality for the settlement of securities in delivery-versus-payment mode for centrally-issued digital coins and the pure transfer of either digital coins or digital securities alone, the two institutions plan to develop the prototype further over the next months so that they can analyze the technical performance and the scalability of this kind of Blockchain-based application.
Some of the features of the prototype presented include its capability to be used for blockchain-based payments and securities transfers and the settlement of securities transactions against both instant and delayed payment; and its ability to maintain confidentiality/access rights in blockchain-based concepts on the basis of a flexible and adaptable rights framework. It can also enable the general observance of existing regulatory requirements; identify potential to simplify reconciliation processes and regulatory reporting; and implement a concept based on a blockchain from the Hyperledger Project. It is also capable of settling basic corporate actions such as coupon payments on securities and the redemption of maturing securities.

Hong Kong
Hong Kong’s de-facto central bank, the Hong Kong Monetary Authority (HKMA) intends to launch an innovation hub that will test blockchain and distributed ledger solutions. The HKMA has begun work on the initiative with the Hong Kong Applied Science and Technology Research Institute (ASTRI), an initiative founded by the government to enhance its competitiveness in technology.

The Hong Kong Monetary Authority (HKMA) recently has published a new white paper on distributed ledger tech. The HKMA produced the paper in partnership with ASTRI. The white paper release is only the first step in a wider process, HKMA chief executive Norman Chan said the government is planning further research. And ASTRI is looking to publish a follow-up paper sometime in the middle of next year, building on its past findings and exploring “whether some of this work can be put into action”.

India
The Institute for Development and Research in Banking Technology (IDRBT) established by the Reserve Bank of India – India’s central bank – recently explored blockchain applicability to the Indian banking and financial industry by conducting a workshop with bankers, academicians, regulators and technology partners. The participants produced a White Paper detailing the areas of adoption in the financial sector in India. The Institute also attempted a proof-of-concept on applying blockchain technology to trade finance with the participation of banks, National Payments Corporation of India and a solution provider.

Japan
The Bank of Japan – the county’s central bank – is showing increased interest in blockchain and distributed ledger technology. Accordingly, the staff in the Payment and Settlement Systems Department of the Bank are deepening their understanding of new technologies by test-driving distributed ledgers. These trails by the bank’s staff simply aim to understand the mechanics of DLT, rather than (already) applying it to the Bank’s own liabilities or its payment and settlement systems. Considering the Japanese government and the central bank’s optimism towards the blockchain technology, it is highly likely that they will lead various projects to help banks integrate blockchain platforms in their existing systems.

Netherlands
The Dutch Central Bank (DNB) is exploring blockchain technology as a way to create a permanent digital replacement of cash. The DNB set up a successful three-months trial to run an experimental virtual currency derived from blockchain software, DNBCoin, but nick-named Dukatons (after a 17th century silver coin used in the Netherlands). This DNBCoin could end up being the digital currency issued by the Dutch central bank. Most of the details regarding this project however remain still unknown for the time being.
The Dutch Central Bank has also revealed plans to prepare an experiment aimed at assessing if an entire financial market infrastructure (FMI) can be built on a blockchain, that is much more difficult to hack. The experiment envisions how an FMI’s internal operations could be distributed among participating nodes. To hack and disturb the market infrastructure an attacker would need to gain more than half the computing power running the nodes.

Nigeria
Concerned about the rapid growth of blockchain experiments all over the world, Nigeria’s Deputy Governor of the Central Bank of Nigeria has “sounded the alarm” for relevant agencies to begin to take the disruptive technology more seriously. Speaking at an event organized by the Nigeria Electronic Fraud Forum (NeFF), Deputy Governor Adebayo Adelabu described the “blockchain revolution as a “swim or sink” situation. He noted the need for regulators and operators in the Nigerian financial system to be well informed and not left out in the blockchain technology.
For that reason the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) have instituted a joint committee to look into the effects of the crypto currency and other blockchain technology and its effect on the Nigerian economy.

Russia
In February last year the Bank of Russia – the Russian central bank – established a ‘working group’ to study blockchain technology, in an effort to understand and look for the viability of its real-world applications in the Russian financial market. By April, a report revealed that the Central Bank was considering allowing banks to record and store data of all their transactions on a blockchain. And in July 2016, the Bank of Russia set up a consortium of banks that counted as Russia’s first blockchain consortium.
The Bank of Russia has developed and tested on an Ethereum-based blockchain prototype called ‘Masterchain’ for financial messaging, to be used by banks in Russia.A number of country’s largest banks and financial institutions took part in developing the Masterchain prototype, including Sberbank, Alfa Bank, Bank Otkritie, Tinkoff Bank, and Qiwi. The ‘Masterchain’, as explained by the central bank, is ‘a networking tool’ for participating members using blockchain technology. The platform enables for “prompt confirmation of data actuality” to a transacting customer. The innovation also makes instant communication possible between counterparties among the platform, while assuring confidence in financial transactions.

Senegal
Senegal has recently become the third country in the world (next to Barbados and Tunisia) to introduce a digital currency based on blockchain technology. Named eCFA, the digital currency will be legal tender and is to circulate alongside the current fiat currency, CFA Franc, is. Senegal’s eCFA comes from a partnership by Banque Régionale de Marchés (BRM) and eCurrency Mint Limited, where BRM will issue the digital tender currency, the eCFA, in compliance with e-money regulations of the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), the Central Bank of the West African Economic and Monetary Union (WAEMU). While the eCFA will use the blockchain to keep track of transactions, it will be issued and regulated solely by the central bank, but confer the benefits of transparency and cryptography to prevent counterfeiting and fake transactions. After Senegal, WAEMU will introduce the eCFA in Cote d’Ivoire, Benin, Burkina Faso, Mali, Niger, Togo and Guinea-Bissau.

Singapore
The Monetary Authority of Singapore (MAS), the country’s central bank, and the Singapore stock exchange are to launch a pilot project called Utility Settlement Coin with eight local and foreign banks to test the use of blockchain technology for interbank payments. Singapore’s DBS Group, HSBC, Bank of America, JPMorgan, Credit Suisse, and Bank of Tokyo-Mitsubishi UFJ are all working with MAS on the program with support from the global banking consortium R3CEV. R3 blockchain research lab and BCS Information Systems will support the project.

Under the pilot system participating banks will be able to pay each other directly with this digital currency instead of first sending payment instructions through MAS, and banks will be able to later redeem the digital currency for cash. Banks will thereby deposit cash as collateral with the MAS in exchange for digital currency issued by the central bank.
Eventually, the project could result in a payment system for participants to transact in different global markets round-the-clock that are today limited by time zone differences and office hours. Participating banks The next phase of the project will involve transactions in foreign currency, possibly with the support of another central bank.

South Africa
The central bank of South Africa is also looking into the applicability of the blockchain technology in the industry of finance. The Reserve Bank of South Africa’s governor, Lesteja Kganyago, publicly expressed the organization’s “openness” towards blockchain technologies and their intent to help startups come up with innovative solutions using the technology.
The central bank is particularly concerned with the technological and security-related issues blockchain platforms may present. Both the government and central bank of South Africa agree that the blockchain technology and cryptocurrencies need further guidance and assessment from the government before it can be offered to organizations in the public sector.

South Korea
The Bank of Korea has published a report titled “Present Status and Key Issues of Distributed Ledger Technology” detailing policy issues which could hinder the growth of distributed ledgers and also estimates the cost-cutting effect of the application of the blockchain technology. The report mentions that blockchain implementation could save the bank about KRW 107.7 billion (16% of its total costs).
The Bank of Korea is considering implementing a supernode to help mitigate privacy concerns, should it seek to adopt distributed ledger technology. Furthermore, the report recommends implementing the technology for major settlement services such as the BoK wire+ (Bank of Korea settlement system). Addressing privacy issues, according to the report, would require PKI based Key Exchange, Supernode (Central Manager) – who will have access to transaction information along with the trading partner, and Confidential Transactions which will be applicable to distributed systems and maintain anonymity and make deals with parties to access deal information.

Sweden
Riksbanken, Sweden’s central bank, is also thinking about using the blockchain to issue digital money.
The plans to issue an “eKrona”, a blockchain-based digital version of the Swedish Krona, was recently disclosed by the deputy governor of the Riksbank Mrs. Cecilia Skingsley. It is however still in discussions whether digital currencies should complement notes and coins, or replace them. The Riksbank currently is “in the early stages of exploring the idea and is launching a project to explore various possibilities.” Right now it is too early to hope for a quick introduction of the eKrona. Several issues – like traceability, interest, and delivery – have to be examined. Also, the Riksbank does not know which technology it will use to build the eKrona at present. The blockchain is one of the several technologies the Riksbank will look at.

Switzerland
At the kick off at the SIBOS conference last October in Geneva, the president and chairman of the board of Switzerland’s central bank Mr. Jordan described a financial system “turned on its head” by blockchain and distributed ledgers.
“Such systems could render the reconciliation of transactions and balance data between banks and the third-party system obsolete. The paradigm seems to have been turned on its head. Decentralization, not centralization, now appears to promise the greatest efficiency gains.” Jordan said the Swiss National Bank is now in discussions with market participants, regulators and other central banks about what to do next.

Tunisia
Tunisia is one of the early adopters of a blockchain-based digital currency. Late 2015, Tunisia had over half a million people using its digital currency, eDinar. The country’s post office, La Poste Tunisienne, then announced it would partner with Monetas and DigitUs to integrate the country’s digital currency with blockchain technology. This digital currency is issued solely by the Tunisian central bank.

Ukraine
Ukraine is now also exploring the potentials of an electronic money concept. As part of the nation’s Cashless Economy project, the National Bank of Ukraine (NBU) is to issue a blockchain-based digital version of the Hryvnia by next year. At first the currency will circulate alongside its physical version.

United Kingdom
Within the Bank of England, a team is already considering what a central bank-issued digital currency could mean. They have worked with PwC’s blockchain team in Belfast to help them develop a Proof of Concept and explore blockchain.
The Bank of England has released a significant Blockchain paper “Macroeconomics of central bank issued digital currencies,” which discusses the macro-economic consequences of a central bank making a digital form of cash available to the general public. In the model, digital cash is created only when the central bank purchases bonds from households or investors. This central bank digital currency, implemented via distributed ledgers, would compete with bank deposits as medium of exchange. However, banks would still be able to create money.
The model suggests that the introduction of digital cash would have some key benefits: it could boost GDP by around 3%, due to “reductions in real interest rates, in distortionary tax rates, and in monetary transaction costs”, it could give the central bank (via countercyclical CBDC price or quantitative rules) a second monetary policy tool to stabilise the economy; and, it could improve financial stability.

United States
The Federal Reserve is also taking a much closer interest in blockchain and what it can offer to the financial sector. The Federal Reserve released a report on Distributed Ledger Technology (DLT) or blockchain early December last year. The document reviews the potential and challenges for the new technology to disrupt and benefit financial services.

The Fed believes utilisation of DLT will become clearer as the technology matures. They further state:
“The driving force behind efforts to develop and deploy DLT … is an expectation that the technology could reduce or even eliminate operational and financial inefficiencies, or other frictions, that exist for current methods of storing, recording, and transferring digital assets throughout financial markets.”
Without making any grand predictions the authors believe DLT adoption will require future research to better understand the impact to the financial industry. Challenges to mass adoption include a list of risk, business and technical hurdles.

If you would like to see the full article please click here.

 

 

Carlo de Meijer

Economist and researcher

 

PSD 2 : The implementation of PSD 2: a lot of opportunities but also big challenges – Part II

| 1-2-2017 |  François de Witte |

After having examined the detailed measures of the PSD2 in my first article, in the 2nd part we will examine the impact of PSD 2 on the market. In order to help you read the text we will once more start with a list of abbreviations.

 

LIST OF ABBREVIATIONS USED IN THIS ARTICLE

2FA    :   Two-factor authentication
AISP  :    Account Information Service Provider
API :       Application Programming Interface
ASPSP : Account Servicing Payment Service Provider
EBA :     European Banking Authority
PISP :    Payment Initiation Service Provider
PSD1:    Payment Services Directive 2007/64/EC
PSD2  :  Revised Payment Services Directive (EU) 2015/2366
PSP :     Payment Service Provider
PSU:      Payment Service User
RTS :     Regulatory Technical Standards (to be issued by the EBA)
SCA :     Strong Customer Authentication
TPP :     Third Party Provider

Impact on the market

A major implementation journey:

The ASPSP (mostly banks) will have to make large investments in order to comply with the PSD2, in the following fields:

  • Implementing  the infrastructure enabling the application of the PSD2 scheme to the currency transaction in the EU/EEA area, and to the one leg transactions.
  • Ensuring that they can respond to requests for payment initiation and account information from authorized and registered TPPs (third party providers), who have received the explicit consent of their customer for to this. They will have to develop interfaces that enable third party developers to build applications and services around a bank. Internal banking IT systems might need to be able to cope with huge volumes of requests for information and transactions, more than they were originally designed for.
  • Ensuring their security meets the requirements of the SCA (strong customer authentication). This will be a big challenge both for the banks and for the other payment service providers).

PSD2 will make significant demands on the IT infrastructures of banks. On the one hand the IT infrastructure has to be able to be interact with applications developed by the TPPs (PISP and AISP). On the other hand, banks have to develop their systems in such a way that they don’t have to do this from scratch every time a TPP approaches them. This will require a very flexible IT architecture. The banks have to have a middleware that can be used by their internal systems, but also by the applications of the PSP’s.

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

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

In this framework, the real challenge is to create standards for the APIs specifying the  nomenclature, access protocols and authentication, etc.”. Banks will have to think about how their new API layers interact with their core banking systems and the data models that are implemented alongside this. The EBA (European Banking Authority) will develop RTS (Regulatory Technical Standard) with more detailed requirements regarding the interface between ASPSPs and TPPs. While these are expected to be published early 2017, based on the EBA’s recent draft RTS, the question is whether they will define the interface’s technical specifications.

Emergence of new players and business models

By integrating the role of new third party payment service providers (TPPs) such as the PISP and the AISP, the PSD2 creates a level playing field in the market. Several market experts expect that this will foster innovation and creating new services. For this reason PSD2 should increase competition.

This might lead to a unique open race between traditional players, such as the banks and newcomers for new services and a possible disintermediation of banking services, as illustrated in the figure down below:

Source: Catalyst or threat? The strategic implications of PSD2 for Europe’s banks, by Jörg Sandrock, Alexandra Firnges – http://www.strategyand.pwc.com/reports/catalyst-or-threat

PSD2 is likely to give a boost to the ongoing innovation boom and bring customers more user-friendly services through digital integration. One can expect that the automation, efficiency and competition will also keep the service pricing reasonable. PSD2 will foster improved service offerings to all customer types, especially those operating in the e-commerce area for payment collection. It will enable a simpler management of accounts and transactions. New offerings may also provide deeper integration of ERP functions with financial services, including of their multibank account details under a single portal, and smart dashboards.

PSD2 also enables a simplified processing chain in which the card network can be  disintermediated. The payment can be initiated by the PISP directly from the customer’s bank account through an interface with the ASPSP. In  this scheme, all interchange fees and acquirer fees as well as all the fees received by the processor and card network could be avoided. The market expects that new PISPs will be able to replace partly the transactions of the classic card schemes. A large internet retailer could for example ask permission to the consumers permitting direct account access for payment. They could propose incentive to encourage customers do so. Once permission is granted then the third-parties could bypass existing card schemes and push payments directly to their own accounts.

On the reporting side, the AISP can aggregate consumer financial data and provide consumers with direct money management services. They can be used as multi-bank online electronic banking channel. One can easily imagine that these services will be able to disintermediate existing financial services providers to identify consumer requirements and directly offer them additional products, such as loans and mortgages.

The PSD2 is for banks a compliance subject, but also an opportunity to develop their next generation digital strategy. New TPPs can provide their innovative service offerings and agility to adopt new technologies, enabling to create winning payments propositions for the customer. In turn, traditional players like banks can bring their large customer bases, their reach and credibility. Banks have also broad and deep proven data handling and holding capabilities. This can create winning payments propositions for the customer, the bank and the TPP.

Banks will have to decide whether to merely stick to a compliance approach, or to leverage on the PSD2 to develop these new services. The second approach will require to leave behind the rigid legacy structures and to change their mindset to ensure  quicker adaption to the dynamic customer and market conditions. A first mover strategy can prove to be beneficial.  Consumers and businesses will be confronted with the increased complexity linked to the multitude of disparate offerings. There also, the incumbent banks who will develop new services  can bring added value as trusted partners

Essentially, PSD2 drives down the barriers to entry for new competitors in the banking industry and gives new service providers the potential to attack the banks and disintermediate in one of their primary customer contact points. New players backed by strong investors are ready to give incumbents a serious run for their business. This is an important battle that the incumbent banks are not willing to lose.

The biggest potential benefits will be for the customers, who can access new value propositions, services and solutions that result from banks and new entrants combining their individual strengths or from banks becoming more innovative in the face of increased competition. Market experts also foresee an increased use of online shopping and e-procurement.

Several challenges to overcome

The PSD2 will be transposed in the national legal system of all the member countries. The involved market participants will have to examine the local legislation of their country of incorporation, as there might be some country-based deviations.

The authentication procedure is also an important hot topic. PISPs and AISPs can rely on the authentication procedures provided by the ASPSP (e.g. the banks)  to the customer but there are customer protection rules in place. Hence, they must ensure that the personalized security credentials are not shared with other parties. They also may not store sensitive payment data, and they are obliged to identify themselves to the ASPSP each time a payment is initiated or data is exchanged.

ASPSPs are required according to PS2 to treat payment orders and data requests transmitted via a PISP or AISP “without any discrimination other than for objective reasons”. A practical consequence for credit institutions will be that they must carry out risk assessments prior to granting payment institutions access – taking into account settlement risk, operational risk and business risk. One of  the main issue is the handling of the customer’s bank credentials by third party payment service providers. The bank needs to be able to perform strong authentication to ensure that the authorized account user is behind the initiation message

There are concerns about security aspects related to PSD2. An example hereof is the secure authentication. All the PSPs will have to ensure that they can demonstrate compliance with the new security requirements. How it will be achieved and monitored ? How will TPPs  interact with banks, since there is no need for a contract to be signed?

If something does not work correctly, there will also be discussions on the liability side. The PSD2 states that the TPP has to reimburse customers quickly enough that they are not bearing undue risk, but one will have to determine which TPP had the problem and work with them to resolve it. This will require further clarifications from the regulators.

In addition the PISP and the AISP vulnerable for to potential frauds. Web and mobile applications could become easy target for cybercriminals for various reasons, including the inherent vulnerabilities in the APIs that transfer data and communicate with back-end systems. The openness of the web could allow hackers to view source code and data and learn how to attack it. APIs have been compromised in several high-profile attacks that have caused significant losses and embarrassment for well-known players and their customers. The PSD2’s ‘access to account’  increases not only the number of APIs, but adds layers of complexity to the online banking/payments environment, adding to the risk of fraudulent attacks.

The market is waiting for the RTS (Regulatory Technical Standards) to give guidance on how some remaining security issues will be solved. These include:

  • Treatment of PSU’s (payment service user)security credentials
  • Requirements for secure communication between the PSP and banks
  • Full details and definition of strong authentication
  • Safety of the PSU funds and personal data
  • Availability of license registry for real-time identification of the PSP (PISP or AISP)

It is important that the required clarifications are published soon, in order to avoid a time lag between the implementation of PSD 2 in the national legislations and the real move in the market.

Conclusion

The PSD2 creates challenges, such as the huge investments to be made by the banks, compliance issues and protection against fraud and cybercrime. However several topics need to be clarified such as the RTS and the market players need also to agree on common standards for the interfaces. The clock is ticking in the PSD race.

Traditional players such as the banks appear to have a competitive disadvantage vis-à-vis the new emerging third party payment service providers. However, the Directive opens up new forms of a collaborative approach that can overcome this. New players can provide their innovation and resilience, whilst banks can add value thanks to their large customer base, credibility, reach and ability to cope with high volumes.

The biggest potential benefits might be for customers, who will benefit from new value propositions, services and solutions from new entrants, from banks and new entrants combining their individual strengths, or from banks becoming more innovative in the face of increased and agile competition.

François de Witte – Senior Consultant at FDW Consult

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How much are you paying your bank ?

| 30-1-2017 | Patrick Kunz |

Does your bank send you a monthly invoice how much they charge you on banking costs? Some do but some don’t. Even if you receive an overview of these costs – do you look at them? Often organizations don’t and that’s a pity. A bank is as much a services provider as other suppliers of the company. Of course changing banks is not something you do every year but that does not mean you should never do it or never have a look at your banking costs.

Allthough even if another bank proves to be less expensive, it should not always imply to change the bank, as the indirect costs of a bank change should also be taken into account and you always have the option to renegotiate.

The first step when looking at your banking costs is how your payments look like. Is your company doing only national payments or SEPA or are you transferring (or receiving) money from outside the SEPA region and/or transferring non-EUR payments? This matters because a national payment and SEPA payment will cost you around 0,10 EUR per transaction while an international payment can costs on average EUR 6. The potential saving on international payments is much higher.

There are several ways to reduce the transactions costs:

  • Reduce the amount of transactions. This is often easier said then done because you have to pay your bills and your customers pay theirs to you. However, with international companies there is often a number of intercompany transactions. These transactions do not necessarily have to go via the bank account. They could be settled via in house bank or internal current accounts. Often these intercompany transactions are international transfers or non-EUR payments which brings me to the next point
  • Analyse the foreign currency transactions. As said above these transactions costs around EUR 6 per transaction (and I have seen banks charge up to EUR 50 per transaction) so the saving potential is big, if you do a lot of these transactions. You can ask yourself do you need to pay your supplier in foreign currency? Can I receive my invoice in EUR instead of foreign currency? Often complex questions leading to more questions (hedging?). It is not always possible to change transacting in foreign currency so another solution to reduce transactions costs is to move the bank account to the home country of the currency. This way the “foreign” currency becomes domestic and therefore transactions costs move from international (EUR 6) to domestic (EUR 0,10), a big potential. Of course there are some limitations to this.

Have a look at the total return of your bank. Your bank is one of your suppliers so it makes sense to compare the costs of the supplier to their competitors, especially if you have multiple banking partners. As for suppliers you do not always choose the cheapest but also take into account service level and worldwide availability. It does make sense to compare banking costs every 3 years for market conformity. My advice would be to take into account all banking costs (so also FX deals, corporate finance, trade finance, guarantees). Banks often cross sell their products and the total fees are never visible so you have to gather this information yourself. I prefer to calculate the RAROC (Risk adjusted return on capital) for each banking partner. This way you can easily compare the total return per bank. This helps a lot when renegotiating fees or (new) credit lines. RAROC calculation is not easy and it takes often quite some work to gather all information but once implemented it is a nice tool for companies with multiple banking partners to compare (and rank) banks.

Patrick Kunz

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