Tag Archive for: FinTech

How can treasurers use cryptocurrencies?

| 7-9-2017 | Carlo de Meijer |

 

Recently I read a blog from Victoria Beckett published in GTNews, titled “How can treasurers use cryptocurrencies”.  Nowadays there are more than thousand different cryptocurrencies in circulation. The dollar value of the 20 biggest cryptocurrencies is around $ 150 billion. While cryptocurrencies soared to unknown levels, also the explosion in Initial Coin Offerings, or ICOs for funding purposes is evidence of their growing attraction. But are these cryptocurrencies suited for corporate treasuries.

Benefits

In her blog Victoria Beckett said that there are several benefits to treasurers using cryptocurrencies. These may bring various benefits including avoiding paying large transactions fees to banks, realising immediate payments and the ability for transactions to be kept open or private. According to her corporate treasury business no longer need to use mainstream financial regulatory frameworks. Cryptocurrencies could provide business with the ability to move assets outside of the normal banking regulatory framework.

She argued that one of the key benefits to making business payments using cryptocurrencies is that it cuts out banks in the transaction completely, avoiding large transaction fees, while “payments can also get transferred immediately anywhere in the world”.

Critics

But there were some critics as “banks have to trade off the operational benefits that the technology may provide against the added cost of needing to buy and sell a cryptocurrency to make a transaction.” “Therefore, the benefits are low when dealing with efficient ‘corridors’ such as US and Europe, but higher when transacting with Zimbabwe” David Putts.

Besides, there are a large number of different cryptocurrencies in circulation with different protocols etc. These are not interoperable/interchangeable.  So when using cryptocurrencies they at some point in time have to be transferred into fiat money. And that also costs money.

I also missed other use cases for corporate treasurers in the article. Just using cryptocurrencies payments would be a very limited use case, given the large number of other activities performed by corporate treasurers.

Risky business

When reading the article I got the impression that the risks of cryptocurrencies were rather  under estimated. Certain features of cryptocurrencies are not backed by any government, have no status as legal tender and rely on network protocols and cryptographic techniques to enable counterparties to transact. This may present various risks.
First of all cryptocurrency exchange platforms normally have no regulation. Thus there is no legal protection. And we have seen the various examples of hacking these exchanges with many people losing their money.
Second, virtual money is normally stored in a digital wallet on a computer. Though these wallets have passwords and key they are still valuable for hacking etc.
Third, there is no protection for funds under EU law when using cryptocurrencies as a means of payment. We still live in a largely fiat-money dominated world. So these cryptocurrencies had to be concerted one day into their own legal currency and that costs money.
Fourth, cryptocurrencies are very volatile. There is no guarantee that the cryptocurrencies will remain stable.  Cryptocurrencies currently lack a derivatives market, which makes them a risky medium for business contracts that last for any amount of timer, especially given their constant value fluctuations. This year for example the exchange rate of the bitcoin climbed from a low of 968 dollar to more than 3000, fell back to 1.800 six weeks ago and climbed to 5.000.
Fifth, due to the untraceable nature of cryptocurrencies, they provide a high degree of anonymity, making them vulnerable to misuse for criminal activities.

Action from regulators across the world

For some, it is a pro that cryptocurrencies in most countries are not regulated, such as for hackers and/or speculators.  That idea is however rapidly changing giving the risks associated. At a global level, there is an urgent need for regulatory clarity given the growth of the market.

All these risks mentioned above are prompting action from a growing number of jurisdictions.

Regulators in China have publicly announced that they will forbid the use of ICOs. And also regulators in other countries like Japan, Singapore, and the US are looking at ways to regulate. The SEC in the US has officially confirmed it was looking into regulation of cryptocurrency ICOs. The SEC is mainly concerned with the risks these ICOs pose. And Singapore will regulate ICO offerings that are deemed to be securities.

But also on a more broader scale Europa there is increased activity by regulators in Europe to reign in the use of crypto currencies. The EU Parliament is expected to pass measures soon to bring certain virtual currency service providers within their AML (anti money laundering) / CTF (counterfeiting) regulation. These measures do not seek to prevent the use of cryptocurrencies, but will require virtual currency service providers to implement customer due diligence measures.

Polish regulators are warning investors and banks to avoid dealing with digital currencies like bitcoin and ether. The regulators clarified that cryptocurrencies are not considered legal tender in Poland.

The Maltese regulatory watchdog (MFSA) also warned traders about the risks associated with the virtual currency. According to them a virtual currency is an unregulated digital instrument and is a form of money that is not equivalent to the national currencies. The MFSA however stressed that It does not (yet) regulate the acceptance of payment of service in regards to the virtual currencies.

Are central banks overcoming their reservations?

Central bankers, from Russia to China, Frankfurt and New York, are increasingly wary of the risks posed by these crypto currencies. I therefore question if central banks worldwide are overcoming their reservations versus cryptocurrencies and really come out in favour of the cryptocurrency.

The recent boom in cryptocurrencies and their underlying technology is becoming too big for central banks to ignore. The risk is that they are reacting too late to both the pitfalls and the opportunities presented by digital coinage.

Bitcoin and its peers pose a threat to the established money system by effectively circumventing it. CBs are well aware of losing control over the money supply, if they don’t react. A solution may be that CBs are issuing digital money themselves to maintain control. Various central banks worldwide are now experimenting with that idea.

Forward thinking

The attraction of virtual currencies is mainly for speculative reasons, rather than for corporates to facilitate treasury. Corporate treasuries are increasingly looking for centralisation of the treasury organisation away from decentralisation. They also are very much focused on reducing the various corporate risks including FX, short term interest rate, cross currency liquidity, etc.

And when it is regulated on a larger scale it is questionable if the described benefits of speed, efficiency or scalability attributed to the use of cryptocurrencies still will meet the costs associated .

The announcement by the Bank of China to put a halt on initial coin offerings or ICOs had a negative impact on the very volatile bitcoin and other cryptocurrencies. In one day it lost almost 15% of its value. The corporate treasurer however does not like volatility!

 

Carlo de Meijer

Economist and researcher

 

Why is e-invoicing not the same as a PDF?

| 6-9-2017 | PowertoPay – Unified Post | Sponsored Content |

When they hear e-invoicing, companies often think that this is sending invoices by e-mail. However, e-invoicing is more than that. Not only sending the invoice is part of this, but also the electronic booking, payment and collection of the money belongs to this process. Electronic invoicing leads to a major save of costs. For the sender, but especially for the receiver. Since e-invoicing is digitalizing invoicing for the sender as well as the receiver, a PDF-invoice is not seen as electronic invoicing.

When receiving a PDF the receiver still has to, with or without the help of OCR software, manually put data into a systems or he has to correct it. In the case of e-invoicing, the receiver gets all the data electronically which can be automated with their accounting systems. Manual input is not necessary anymore and the control of the content of the invoice can be automated.

Automated

When a sender decides to do e-invoicing instead of just sending a PDF, there is a world of benefits for the entrepreneur. First of all, e-invoicing is like registered post but then faster. You always know for sure that the invoice is received and you’re always being informed about that. Since the payment period usually starts at the moment the invoice is registered, the e-invoice can shorten the payment period with a couple of days.  Without intervention of the post or post rooms or other internal departments, the e-invoice lands directly into the financial system of the receiver. Reminders can be sent automatically and payment options can be built into the invoice or reminder. E-invoices can be simply archived digitally which makes them easy to find and this way they’re always accessible within the organization. With e-invoicing you are ready for the future. It’s only a matter of time until receivers don’t want to receive invoices any other way. The (Dutch) government even made e-invoicing (so not PDF’) mandatory as from the 1st of January.

E-invoicing Method

Paper invoices and PDF invoices via e-mail are most of the time directly exchanged between two parties. Of course this is the case with e-invoices. In this so-called two-corner model, two parties make arrangements on the e-invoice format they use and about the technical connection. However, there are a lot of different formats in the electronic invoicing world and that variety has a function. A format (invoice standard), often reflects the specific needs of a sector or collaboration. Every sector has its own order and invoice process, that one format can even be undesirable.

Billing Service Provider

In the three-corner model, a Billing Service Provider (UnifiedPost) takes the burden away for both the sender and the recipient in the invoice process. The sender that uses its own sector standards, the billing service provider makes sure that the invoice gets to the receiver in their correct format. Preferably electronic, but e-mail or post are also optional. Another advantage for the sender is that there is only one technical link that should be realized with the billing service provider. The billing service provider is taking care of different links on the receiver-side. By translating different formats, the billing service provider is making sure that the receiver receives all his invoices electronically the same way and that the authenticity and the integrity of the invoice is determined the right way. Billing service providers have got a large network and make agreements with (large) accounting systems.

Simple with great advantages

By using an billing service provider, companies can easily exchange electronic invoices directly with many providers from different sectors and suppliers. This requires one link (one-time setup) between the accounting system and the platform of the service provider. Small companies can also use a webportal for sending and receiving e-invoices.

If you want to read more about the services of PowertoPay or about e-invoicing please click the following link:

Learn more about e-invoicing with these facts and figures. 

 

PowertoPay – Unified Post

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

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

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

 

How did Facturis originate from the Rabobank?

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

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

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

Fin Tech initiatives – what changes?

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

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

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

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

What was the biggest success in Facturis?

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

What is your biggest challenge within Facturis?

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

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

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

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

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

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

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

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

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

PowertoPay – Unified Post

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Industries are ready for blockchain take off

| 16-8-2017 | Carlo de Meijer |

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

The study and its main finding

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

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

Other findings

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

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

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

Companies anticipating integration of blockchain

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

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

Corporates and disruption

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

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

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

The survey further shows that:

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

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

Who are the industries with largest blockchain opportunities?

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

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

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

And what industries are (already) fit for blockchain

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

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

What else is needed?

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

 

Carlo de Meijer

Economist and researcher

 

PSD2: The Disruption and Innovation of Open Banking

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

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

PSD2: Game changer, opportunity and challenge

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

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

Innovation and Disruption

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

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

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

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

Bitcoins or banks, who is taking care of the business?

| 2-8-2017 | Hans de Vries |

Banks have long been target of wild spread ideas that their role as facilitator in the (inter) national money transaction industry will soon be overtaken by new Fintech initiatives like PayPal, Bitcoin and recently Ethereum. The idea behind these new technologies is that the Trusted Third Party (TTP) role of the conventional banks which is crucial for the operational day to day operations of the economic systems can be overtaken by the new block chain technology. Main advantages are clear: transactions are no longer limited by timing (no dependency on the operational boundaries of clearing houses, cut-off times of banks per currency, immediate processing etc), account opening procedures at the banks, the costs involved in maintaining accounts and transactions themselves etc.

The recent Ransomware attacks, that had an enormous impact on numerous companies and governmental institutions at a global level, showed however a less favorable aspect of this new technology. Due to its lack of control on the specifics of account ownership, Bitcoin proved to be the ideal means to collect the ransom money the victims have to pay to free their systems. This piracy trend will in my view also seriously hamper the future development of these sort of bank independent transaction mechanisms. Even more threatening for the Bitcoin development are the recent crypto robbery cases in which millions of dollars’ worth balances were stolen from the accounts. These incidents show the vital role of the banks as TTP since most banks are obliged to deliver their services according to the rules and regulations of their national and super-national banks. As indicated before, this means that for opening accounts lots of formalities have to be endured (the KYC rules are in some countries stretched to the absolute max). At the same time., due to the international regulations the control on international transactions are very extensive and therefore at the same time very costly for the banks. Every violation of the international code book on transactions to banned countries can have severe financial consequences for the banks involved. An last but not least banks have to maintain an international network of correspondent banks to make sure that the international transactions reach their beneficiaries in a reasonable timeframe and at reasonable costs.

This whole system has of course been developed to gain maximum control on transaction flows locally and worldwide. However it also provides the trust needed to be able to deal with (inter) national trade flows crucial to our economic day to day operations. As long as there are no ways to secure your transactions and balances in a bitcoin like environment as most transaction banks are providing today, Bitcoins remain a very interesting technological experience but will in no way replace the role of banks as TTP shortly.

 

 

Hans de Vries

Treasury/Cash Management Consultant

 

 

More articles of this author: 

Will the European banks strike back?

The Euro from a treasury perspective

New norms in banking: More than 30 new areas emerging. Pick your fights!

Mobile finally makes treasury easier

| 20-7-2017 | Udo Rademakers |

On the 12th of May 2017, in GTnews an article has been placed regarding “Mobile finally makes treasury easier”. The article describes how Citibank is working to replace tokens with mobile phones and testing a multitude of options for finding a more convenient solution.

I am used to work with multiple tokens with a variety of passwords and different kind of banking applications/websites. For some of the banking sites, authorisation of payments via a smart phone was quite difficult and working from the desktop was required. A way of solving the „multiple token issue”, is using a third party provider which (re)connects all payments via (cloud based) multi-bank platforms, however this is not needed for each and every Treasury department.

If banks are working on an easy authorisation method via modern, smart and above all secure technology (like digital fingerprint ), I am confident that the payment control and executions for most Treasurers (and CFO`s) will improve. Especially for the ones who are frequently travelling. If the improved –token free- payment authorisation process could be integrated with the process of obtaining information, input & approval of transactions, viewing of balances including „smart alerts“, corporate banking via mobile technology will reach the next stage in the area of cash management as well.

However, even with the greatest solutions in place, an outage of mobile network or running out of battery remains a risk – now the holiday season started perhaps anyway good to be offline for a while.

 

Udo Rademakers
Independent Treasury Consultant & Interim Manager

 

 

 

The EU and blockchain: taking the lead? (I)

| 3-7-2017 | Carlo de Meijer | treasuryXL |

In his article ‘The EU and blockchain: taking the lead? ‘, our expert Carlo de Meijer writes that the EU, after having a ‘wait and see’ attitude for a long time, seems to be taking steps (may be) to become one of the leading economic blocks in the blockchain race. He believes that it is worthwhile to take a closer look at the EU initiatives. We have made a summary of this article and start with the European Commission.

European Commission

#Blockchain4EU Project

Last week the European Commission’s Joint Research Center (JRC), together with The Directorate-General for Internal Market, Industry, Entrepreneurship, and SMEs, have announced the launching of the #Blockchain4EU Blockchain for Industrial Transformations initiative to develop industrial use cases for blockchain and DLT.
The project, which will run until February 2018, will take a look at how blockchain technology and other distributed ledger technologies (DLTs) can be applied to nonfinancial sectors.

The project’s objective is to identify, discuss and communicate possible uses and impacts of blockchain and other DLT objects, networks and services within EU industrial or business contexts. The project will thereby initially focus exclusively on logistical and validation use cases, such as supply chains, assets monitoring, intellectual property rights, and certification authentication. Outputs from the project will contribute to the risks and opportunities assessment that will ultimately outline the approach that Small to Medium Enterprises (SMEs) will take with blockchain and DLT applications in the future.

Virtual currency legislation

Last year July the European Commission adopted a proposal for legislation to amend the 4th Anti-Money Laundering Directive (4AMLD) that will bring virtual currency exchanges and wallet providers into the EU’s anti-money laundering framework. In this proposal only those engaged in exchanging between virtual and fiat currencies are included. Virtual currency to virtual currency exchanges are not covered (for example, Bitcoin-to-Ether exchanges will not be regulated). And only those wallet providers offering custodial services “of credentials necessary to access virtual currencies” are to be included in the legislation.
The proposal is now under the European Council and the EP. Member states will have to transpose the Directive into national law and that is expected by half 2018.

EC February Statement on blockchain

In February this year the European Commission Vice President Andres Ansip published an official statement in reaction to EP questions, saying that “the Commission is planning to grow its support for blockchain projects”, and that ”the Commission is actively monitoring Blockchain and DLT developments”. This statement went into detail about the efforts the Commission is undertaking, both within and beyond the scope of the task force (see below), highlighting potential technology pilots focused on ‘decentralised innovation ecosystems”.

“The Commission is already supporting [distributed ledger tech]-enabled projects (DECODE, D-Cent, MyHealth MyData). Support activities are going to increase in the coming months (e.g. Decentralised Data Management). A study will be launched to investigate how DLT can help in reshaping public services and preparing for EU specific DLT actions to address relevant EU challenges.” Andres Ansip

The Commission has set up an internal FinTech Task Force, following a report on virtual currencies from European Parliament Member Jakob von Weizsäcker, published in May 2016. This Task Force involves all relevant services working on financial regulation, technology, data and competition to ensure “that our assessment reflects the multi-disciplinary approach that FinTech developments ask for”.

Blockchain Observatory

The European Commission (EC) established/set up a European Union (EU) Blockchain Observatory in April this year in response to a European Parliament mandate to strengthen technical expertise and regulatory capacity. The EU blockchain observatory is being developed under the framework of the European Commission’s Task Force on FinTech. It is expected to deliver its final recommendations in the course of this year.
The observatory task is to create a platform for the European blockchain community and provide up-to-date information on relevant initiatives around the world as well as development of the technology and related opportunities and challenges. Aim is to assist the EC in determining what role – if any – public authorities can play to encourage the creation of such technologies and to develop policy recommendations.

Blockchain proof-of-concept on blockchain

According to a Communication of February this year addressed to EU institutions including the European Parliament and the European Central Bank, the European Commission wants to create a Blockchain proof-of-concept focused on regulation.
A pilot project is aimed at reinforcing the capacity and technical expertise of national regulators with regard to distributed ledger technology. The pilot would center on improving knowledge and awareness of the technology among the EU’s regulatory community. For that purpose the Commission launched a public consultation effort on financial technology more broadly, one that is seeking input on how it can improve market efficiency and accessibility. This consultation focused on three areas: increasing consumer trust and empowerment reduce legal and regulatory obstacles; and, support developments of ‘and innovative digital world’.

As for next steps, the Blockchain Observatory will continue to engage industry representatives to get a feel for where to focus their regulatory efforts.

You can read the full article by clicking on this link. The second part of our summary will be published soon.

 

Carlo de Meijer

Economist and researcher

 

Blockchain technology by 2018: A breakthrough

| 19-6-2017 | Carlo de Meijer |

Last year August I wrote a blog on what to expect for 2017. Now we are halfway 2017, so it is time to look forward to next year: 2018. According to the Gartner Hype Cycle we are now in the “Trough of Despair” stage. That indicates that we have left the overhyped period behind us, and entered a more realistic period with real-world applications. Some see this market as the classic S-curve: periods of little news flow, followed by a significant market-moving announcement, a significant uptick in activity followed by another plateau.

What did I forecast for 2017?

1. We are beyond the hype

2. Focus on blockchain integration

3. Private blockchain networks

4. Use cases will be further broadened to non-financial applications

5. Blockchain technology will become more mature enabling better and more secure application …

6. …… and also directly chained solutions

7. In 2017 we will see real-world applications

8. The year of the smart contracts

9. Growing competition for blockchain platforms

10. Increased discussion about standards

11. Security gets priority

12. Regulators enter the scene

What may we expect for 2018?

A lot is happening in the blockchain arena. And many announcements are being made of new proof of concepts, and initiatives in a large number of areas. But does that mean that 2018 will be the year of the breakthrough of blockchain? Let’s look what the various organisations think. That could give some indications.

Accenture

First of all Dutch-based consultancy Accenture. According to them, the years 2015 and 2016 focused on research and proof of concepts (PoC’s ) in a broad spectrum of blockchain use cases. But for 2017 – 2018 the organisation expects Dutch banks will concentrate on a number of real-world application areas and use cases. Thereby the focus will be on solutions that are ripe for commercialisation. During these years blockchain will develop in the banking world form promise to a valuable solution, Accenture expects.

Banking group: Blockchain to be “widely adopted by 2018“

Another interesting initiative is that of Deutsche Bank, UBS, Santander und BNY Mellon. They have announced a blockchain product cooperation and develop a digital currency of their own, to be market ready by 2018. According to the group, reliable, ready-to-run products across industries will have a positive business case within the next few years. “By that time, we will not even notice that Blockchain is the enabling technology anymore. It will have matured enough to promote itself in widely accepted, evolutional steps rather than in a disruptive, revolutionary manner”.

BTMU plans international fund transfers via blockchain in 2018

Also worthwhile to mention is the cooperation between Bank of Tokyo-Mitsubishi UFJ (BTMU) and six other international banking groups, including Bank of America Merrill Lynch, Standard Chartered Bank of the U.K., Royal Bank of Scotland, Spain’s Banco Santander, Canadian Imperial Bank of Commerce and Australia’s Westpac Banking. They will launch a faster and lower-cost cross-border wiring service that uses blockchain, in 2018. US start-up Ripple will thereby provide blockchain technology. This group will initially offer the global blockchain transfer service to individuals in early 2018, and then slowly expand to corporate clients.

Capco

According to financial service business and technology consultant Capco, 2018 will be the year blockchain technology comes into production. The company names lending, CDS swap trade and post-trade lifecycle, trade finance and business-to-business payments as some of the areas that would first benefit from blockchain technology. This is supported by the many announcements by the industry of “movements from small proof of concepts within innovation centres of financial institutions, to C-level mandated proof of concepts supported by actual business cases and a roadmap into production”.

DTCC to Adopt Blockchain Tech by 2018

Also in the US blockchain developments are challenging. The Depository Trust & Clearing Corporation (DTCC) announced that it plans to go live with its blockchain-powered credit default swaps (CDS) reporting platform in the first quarter of 2018. The project to rebuild its existing credit derivatives clearing platform using distributed ledger technology started in January 2017 with the help of fintech startup Axoni, technology giant IBM and the R3 blockchain banking consortium. It aims to improve its process by revamping its Trade Information Warehouse using distributed ledger technology to increase operational efficiencies. The DTCC’s new CDS reporting solution will launch in shadow mode and run alongside currently existing post-trade infrastructure. It will allow multiple financial institutions to view and update transactions at the same time.

IBM study: 90% of governments plans to invest in blockchain by 2018

According to a recent IBM Blockchain research report titled “Building trust in government – Exploring the potential of Blockchains”, government organizations across the globe are exploring use cases for blockchains that can impact their jurisdictions. The IBM Institute for Business Value surveyed 200 government leaders in 16 countries on their experiences and expectations with Blockchains.

One of the outcomes was that nine in ten government organizations plan to invest in Blockchain for use in financial transaction management, asset management, contract management and regulatory compliance by 2018. And seven in ten government executives predict Blockchain will significantly disrupt the area of contract management, which is often the intersection of the public and private sectors.

Infosys study : one third of banks expect commercial blockchain adoption in 2018

A study by Infosys Finacle, a global leader in technology service & consulting, that polled over 100 business and technology leaders at more than 75 financial institutions across the world revealed that, while 50% of banks are already investing in blockchain or will do so in 2017. These investments not only support blockchain initiatives, but also explore use cases beyond the traditional realm of cross-border remittances, clearing, and settlement. Banks are now moving towards commercial adoption, and one in every three banks expects to see commercial adoption by 2018. While 50% of the surveyed banks expected to see mainstream commercial adoption only by 2020. Cross-border remittances, digital identity management, clearing and settlement, letter of credit processes, and syndication of loans are the most likely candidates for commercial adoption.

McKinsey

McKinsey, the world-wide management consultancy firm, recently submitted a blockchain Technology report to the US Federal Advisory Committee on Insurance. The firm analysed how the technology may disrupt a range of industries, emphasizing banking and insurance, and predicts commercial deployment of blockchain technology at scale by the year 2021. The firm states that more mature businesses using the technology have now entered the market, and over a hundred blockchain solutions have been explored. The firm expects 20 to 30 proof-of-concept use cases for blockchain technology to be tested in 2018, with 10 to 20 successful business cases surviving and deployed commercially by late 2020.

Thailand adoption of blockchain technology by 2018

As the blockchain technology continues to expand and take root and expand, Thailand also stands to see its widespread adoption in the country. According to the Bangkok Post, a number of sectors, including finance will adopt this new technology by the year 2018. Blockchain specialist Bhume said that the country is poised to see the technology take over banking and financial services in the near future.

“The adoption of blockchain technology is expected to be widely seen here by 2018, thanks to its capability of transferring valued assets with trustworthiness, transparency and security.” Bhume Bhumiratana, Bangkok Post.

What do I expect?

We are beyond the hype, a growing number of private blockchains arrived, use cases are further broadened to non-financial applications, and we see the first real-world applications. But still a large number of things have to be realised. We also see some disappointments like Project Jasper in Canada that sees many challenges to overcome before realisation. Bank-based collaboration R3CEV has lost a number of its founding members. That means we have entered the reality stage. But that is also a breakthrough!

 

Carlo de Meijer

Economist and researcher

 

PSD2 is coming soon: Some information about PSD2 summed up

| 14-6-2017 | Mark van de Griendt | PowertoPay |

PSD2 is approaching soon, just a few months left. But do you know what exactly PSD2 is? And more important, what does PSD2 mean for your businesses? PSD2 enables relations of banks, to use (selected) third-party providers to manage their financial data. In the near future, you maybe will use social media to directly pay your bills, while still having your money safely placed in your own bank account(s).

PSD2

With the coming of PSD2, banks are obligated to provide these (selected) third-party providers access to their customers’ accounts through open API’s. This will enable third-parties to create financial services on top of the banks relation data or banks’ infrastructure.

Banks get a different role and since these third-party companies can now be their competition, banks are working together with these FinTech companies. PSD2 will fundamentally change the order to cash value chain, what business models are profitable, and customer expectations. Through the directive, the European Commission aims to improve innovation, reinforce consumer protection and improve the security of internet payments and account access within the EU and EEA.

For banks, PSD2 might possess substantial business challenges. IT costs will increase dramatically due to new security requirements and the opening of API’s. And, as FinTech’s take over the customer interaction, banks may find it increasingly difficult to differentiate themselves in the market for offering loans. The first business cases show us successful new products for renewed loan offerings based on actual data, PSD2 will boost product development, end-users will take advance of new market propositions.

What exactly will PSD2 bring?

  • The introduction and regulation of third-party payment service providers
  • 2 types of providers will be selected, those that offer:
    • Payment Initiation Services Providers – PISP
    • Account Information Service Providers – AISP
  • The unconditional right of refund for direct debits under the SEPA CORE scheme
  • A two-factor authentication check out system
  • Ban on additional costs for card payments
  • Better consumer protection against fraud, capping any potential payments if an unauthorized payment is made up to €50
  • Improved consumer protection for payments made outside of the EU or in non-EU currencies

Sources:

SEPA for corporates
Evry

 
Mark van de Griendt – Cash Management Expert at PowertoPay

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