Tag Archive for: instant payment

The IT Savvy Treasurer

| 9-5-2017 | Patrick Kunz |

 

We cannot switch on the news without hearing about technological advancements which, supposedly, make our lives easier, better or smarter. We all embrace these, get used to them and cannot do without them anymore. Sometimes we think back to the time before these advancements and cannot image how we lived without them. The same applies to treasury.

 

 

I am 35 years old; my experience in treasury was always linked to IT. I sometimes hear stories from older treasurer who worked without computers, later tabulating/punch cards and still managed to do a good job in their field. Of course times have changed; information is faster than in these days and also the need to process it. We all had to embrace the new technology. In this blog I will try to analyse the link between IT and treasury and try to make predictions about the future or at least where I wish the future would go (in treasury terms).

Payments

In the old days payments were a manual process with people entering them in the banking system or sending them to the bank via fax. Nowadays, we link our ERP system with the banking system and have a batch file automatically added to the bank. With bulk payments a payment hub can be used which will make the whole process bank independent, fast and cheap. If wanted and needed the whole process can be made straight-through by automating it from creating a payment to approving it.

The future will make payments even faster (instant payments should be possible in the sepa region from November onwards), cheaper and more bank independent (PSD2 regulation allows non banks to link with your bank and provide (payment) services). Maybe we will be using our facebook account for payments sooner or later. Bitcoin could be an alternative payment currency and/or be used to hedge non deliverable currencies (to achieve this the volumes need to increase significantly).

Risk management

An important part of the treasurers work is risk management. Hedging FX, interest rate, commodity prices are daily business for a treasurer. Doing the deal is easy, doing the right deal is more difficult. A treasurer can only hedge correctly if he knows what he is hedging: the exposure. To know the exposure information of the business is key. The reason for the exposure originates in sales (FX) or procurement (FX and Commodity). These departments need to be aware that the actions they take might have consequences for the treasurer and therefore the treasurer needs to have some information. I have been at companies where sales was daily generating a lot of USD exposure at a EUR company. They were supposed to let finance know about positions. Often this was done at day’s end or forgotten and done a day later. Result: an exposure on USD without the treasurer knowing it; a risky position. IT helped to fix this. Sales entered a deal in a program and the relevant FX exposure was automatically shared with the treasurer via an API to the Treasury Management System. The treasurer could  decide directly whether he needed to hedge or not and even aggregated deals to get better rates at the bank. For small deals a link was set up with a FX trading platform to STP them at the best rate.

The future in risk management will be even more automation within the company (internal) but also with connections to banks and risk solution providers. Prices are becoming more transparent due to the fact that bank independent solutions are available which compare prices, in real time. Risk management sales is becoming less a bank business. Brokers are having less hurdles to enter the market, due to IT platforms in the cloud.  Why pick up the phone and call your bank for a EUR/USD quote when you can compare prices via an online platform and directly trade it? Often you don’t even have to settle via your own bank accounts but you can have it directly sent to your customer or supplier.

For Trade Finance blockchain will become the new standard. The financing and shipping of commodities is a rather paper based process which is inefficient and slow. Blockchain could automate and improve the speed massively. The challenge to achieve this is big as there are many parties involved,  but initiatives have started so the future is beginning now.

Information

As above examples show information is key to a treasurer. Even more so, as treasury is often a small team and most of the information comes from other departments. To get this information the treasurer can use several nice IT solutions. The ERP systems helps, but the treasury needs to know where to find the information. A treasury management system is often used to sort all treasury related information. TMS can link with ERP systems or other systems to gather information. The TMS will sort this information so that the treasurer is well informed and can make decisions.  When I started in treasury 10 years ago the market for TMS was small; systems were expensive and limited in use (payments only, fx only etc). Nowadays a TMS does not have to be expensive anymore. A SME (Small medium enterprise) could use it to upgrade their treasury information. Most TMS can be used for all aspects of treasury (cash Management, risk management, corporate finance, guarantees etc). This will give the tech savvy treasurer an edge. The treasurer with most information can make the best decision. In treasury taking decisions while being well-informed often means either costs saving (e.g. better cash position, lower working capital) or lower risk. The IT savvy treasurer contributes to an optimally functioning company; he/she should be considered a business partner; he knows your cash position, your risk position and your balance sheet, hopefully in real time at all times.

 

Patrick Kunz

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

 

 

 

Other articles of this author:

Flex Treasurer: The life of an interim treasurer

How much are you paying your bank?

 

Instant payments for treasurers

| 31-03-2017 | Alessandro Longoni |

Building on the ideas shared in a previous article about Cash Conversion Cycle on treasuryXL, this piece focuses on the developments that new European laws will bring in the areas of Instant Payments and how this will affect Treasury.

As part of further standardization within the union, European regulators mandated the industry to develop an “instant payments” product aimed to making the funds available on the receiving side “within a maximum execution time of ten seconds”. The SCT Inst scheme has been developed to allow for consumer payments (C2C, C2B) in Euro for the SEPA and will be an optional scheme – meaning that PSPs and Banks are not obliged to join.

Practical Use Cases

From a cash management perspective, Instant Payments open an array of new possibilities for merchants, especially for those operating eCommerce operations. Currently if a customer places an order on a friday late afternoon, the funds are made available (earliest) on monday evening, while the order is most likely processed and delivered by Saturday afternoon. With SCT Inst, if the order is placed on friday at 21:00, the funds will be received (maximum) at 21:00:10 and already available to pay suppliers if needed.

From a treasury perspective, Instant Payments will also allow for more transparency on transactions and easier reconciliation, but time needs to be devoted to update the current tools to facilitate for this. As Instant Payments will gain customer adoption, the incoming payments cash account will be filled with hundreds or thousands of transactions per day, as opposed to one per day coming from your Payment Service Provider. Having direct access and insight in each single transaction will make it easier to reconcile it with the relative order, check the amount and book it in the general ledger, but the sheer number of lines in the system requires current tools to be updated to cope with the increased volume and speed.

Pros and Cons

There are several benefits this new payment method brings to the table, including a strong reduction of working capital trapped to fund operations, however, in order to extract all the benefits, ERP systems need to be updated to check the status of transactions in real-time instead of intervals. Without investing in developing the current tools further, companies risk missing out on the new opportunities to deliver better customer service and create additional efficiencies in cash management.

 

Alessandro Longoni 

Managing Consultant at Proferus

 

 

Instant Payments: major innovation ahead! How fast is “the new normal”?

| 07-09-2016 | Boudewijn Schenkels |

Imagine it will be possible to transfer money within several seconds from any bank account to another bank account. 24 hours a day, 7 days a week. It will open large business opportunities enabling many innovative payments use cases.

After the introduction of SEPA the market is ready for further innovation. New payment laws (PSD2) make the payment market more competitive and new payment providing parties are anxious to participate. The continuous development of the ‘always on’ economy drives the need for faster and 24/7 payment execution.

According to the European Retail Payment Board (ERPB), an instant or immediate payment is an electronic (retail) payment solution, available 24/7/365 and resulting in immediate interbank clearing of the transaction and crediting of the payee’s account with confirmation to the payer within seconds of payment initiation, irrespective of the underlying payment instrument used and arrangements for clearing. Basically: sending and receiving payments 24/7 within seconds. National instant payment solutions have already been successfully launched in a number of European countries, such as Denmark, Poland, Sweden and the UK.

The SEPA Instant Payment, based on the SEPA Credit Transfer, can be offered in SEPA by November 2017; with the Rulebooks for this so called SCT Inst scheme becoming available in November this year. Some communities will offer Instant Payments from the start, others will follow later, but not offering Instant Payments doesn’t seem to be an option. Various other countries, including The Netherlands, Belgium, Spain and Italy, are running programmes to deliver Instant Payments to their communities in the coming years. The major Dutch banks have committed themselves to deliver Instant Payments, or what they call: “the new normal”, by May 2019.

Instant Payments in itself will offer new interesting payments use cases, but it will certainly serve as a platform to support many new innovative payments services.

Impact for Treasurers and Cash managers

For treasurers and cash managers there will be large changes as well as opportunities. For a long time banks have provided cash pooling solutions to their customers, but Instant Payments will allow to sweep accounts at any time to enable efficient cash pooling and distribution eventually throughout Europe.

Another few examples of these “future” use cases are:

  • Pay upon delivery (car purchase, market place transactions) every hour of the day
  • Enabling of cash transactions replacement
  • Instant Pay-out of Insurance payments: in case of a calamity an immediate pay-out and availability of funds can be very beneficial for consumers;
  • Instant lending: propositions where loans can be granted in near real time the pay-out can be done instantly providing the customer with access to the funds immediately
  • Notary payments: immediate transfer of funds also in the weekend
  • Request for Instant Payment: request a payment and get payed immediately when authorised
  • Time critical or “just in time” business payments: the greater transparency in a SEPA Instant Payment (within seconds it is either successful or not) will enable businesses to pay and be paid on delivery (e.g. shipping, delivery of goods, etc.), or to settle fees such as tax, port fees etc. associated with a cargo to enable its release
  • It can replace some urgent payments services
  • Late cut-off times for SEPA batch payments by re-using Instant Payments: if a service is introduced that converts batch SEPA Credit Transfer payments into Instant Payments businesses can profit from the 24/7 instant character of Instant Payments without major changes to their payments environment; depending on the size of the batch and the capacity of the instant payment infrastructure batch payments can be executed in minutes or in a few hours and out of business hours; it allows business to pay later, pay on a specific day of the month and increase liquidity
  • Instant Direct Debit: an Instant Direct Debit would combine the advantage for businesses of having instant clarity of the payment succeeding and receiving funds, for instance last minute lottery ticket

You will say, “too good to be true”, but they are all in scope for “the new normal”. I would like to say: be aware of all the changes and business opportunities for your organization and prepare yourself!

boudewijnschenkels150x150

 

Boudewijn Schenkels

Senior Consultant Payments @ Payments Advisory Group