Tag Archive for: payments

Saving on FX deals? Often neglected but potentially a “pot of gold”

| 21-8-2017 | Patrick Kunz |

 

Doing business internationally often means dealing with foreign currency (FX). This poses a risk as the exchange rate changes daily, basically every second. To mitigate this risk a company can hedge the position via FX deals (discussed in a previous article). But what are the costs of those deals to companies?

 

FX deals

FX is traded on exchanges where only authorized parties have access to. This can be brokers or banks, the so called market makers. They can take your fx position for a give rate and they try to find a counterparty for the deal who is willing to take the opposite trade. For this effort (and risk as they might not be able to directly match the position) they ask a provision. This is the bid-ask spread; the spread between rate for buying and rate for selling the currency. The fx (mid) rate is determined by supply and demand.

The spread depends on several things:

  • Market liquidity; how many people are buying and selling and with what volume
  • Market timing; is the market open for that currency
  • Restrictions: some currencies have restrictions

For a company to trade FX they need an account with a party that has access to fx market makers. This is often a bank. This bank will take another bite out of the spread for their profit (and maybe risk as they might take the position on their books). The spread the bank will charge depends on how many deals and how much volume you will be doing. Sometimes it is an obligation to trade with the bank from a financing arrangement. For the big currencies for big clients the spread can be as low as 2-3 pips (0,0002/0,0003).

Trading FX seems to be without costs as the bank charges no fees. However, those fees are put into the fx rate. When doing spot deals it is easy to calculate them, it’s the difference between the traded rate and the then actual market spot mid rate. When doing forward deals or trading illiquid currencies it is harder to determine the spread. Always try to get to know the spread you are paying. The spread is basically the costs of the fx deal (for forward deals there is an interest component).

It therefore makes sense to always compare your FX rates and get quotes from several banks. Trading with a broker sometimes can be cheaper as one party in the process is eliminated. Savings can be up to 5% per deal (for exotic currencies), for the bigger currencies an average saving of 1% is possible. If you do several million worth on FX deals a year this is a big money saver.

Pecunia Treasury & Finance b.v. has an online fx trading platform backed by one of the biggest worldwide fx broker.

Patrick Kunz

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

 

 

PSD2 – Update and new developments

| 17-8-2017 | François de Witte |

Early 2017, I published a post about PSD2, a lot of opportunities, but also big challenges. Now half a year later, I would like to update you on some developments in this area. PSD2 still needs to be transposed in the national legal system of all the member countries, and according to my knowledge several countries, including Belgium, have not yet released the draft laws. This creates quite some uncertainty in the market, as there will be several country-specific specifications. Hence one can expect that Fintech’s and other TPPs might already have started their certification application in countries that already enacted PSD2 in their local legislation.

LIST OF ABBREVIATIONS USED IN THIS ARTICLE

2FA: Two-factor authentication
API:  Application Programming Interface.
EBA: European Banking Authority
PSP: Payment Service Provider
PSU: Payment Service User
RTS: Regulatory Technical Standards (final draft issued by the EBA on 23/2/2017)
SCA: Strong Customer Authentication
TPP: Third Party Provider

Main updates on the regulatory framework

On 23 February 2017, the EBA published the final draft on the SCA (Strong Customer Authentication) and Secure Communication.
In this final draft, the EBA clarifies the new rules to be followed for customer authentication, applicable both for operations performed in traditional channels and over the new API (Application Programming Interfaces) services. The key clarifications concern the following:

The 2 factor authentication

Following systems would comply:

1. The 2-device-authentication, where the user has two independent devices:

  • one device to access the banking website or app
  • another device to authenticate himself or a payment: the authentication device, usually a hardware authentication token, a combination of a smart card and smart card reader, or a dedicated app on a mobile device.
    The authentication device generates one-time passwords (OTPs) over transaction data

2. The 2 app authentication:

This approach does rely on two different apps running on the same mobile device.

  • Banking app : when a user wants to make a payment, he opens the banking app and enters the transaction data.
  • Authentication app: When the user has submitted the transaction, the banking app opens the authentication app. After verification and confirmation of the transaction data by the user, the authentication app generates an OTP (One Time Password) linked to the transaction data and sends it back to the banking app, which submits it to the banking server for verification

The dynamic linking

In order to dynamically link the transaction, the draft RTS states the following requirements must be met:

  • the payer must be made aware at all times of the amount of the transaction and of the payee;
  • the authentication code must be specific to the amount of the transaction and the payee;
  • the underlying technology must ensure the confidentiality, authenticity and integrity of: (a) the amount of the transaction and of the payee; and (b) information displayed to the payer through all phases of the authentication procedure (the EBA hasn’t specified the nature of this “information”);
  • the authentication code must change with any change to the amount or payee;
  • the channel, device, or mobile application through which the information linking the transaction to a specific amount and payee is displayed must be independent or segregated from the channel, device or mobile application used for initiating the electronic payment transaction.

The exemptions from the SCA

The exemptions from the SCA including also:

  • Transactions between two accounts of the same customer held at the same PSP
  • Low risk transactions: Transfers within the same PSP justified by a transaction risk analysis (taking into account detailed criteria to be defined in the RTS),
  • Low value payments or contactless payments < 50 euro, provided that that the cumulative amount of previous consecutive electronic payment transactions without SCA, since the last application, of the SCA < 150 euro
  • Unattended transport and parking terminals

The draft RTS (not finalized, not approved yet) also states that Screen scraping is no longer allowed. Screen scraping is a method to take over remotely the data on the screen of the user. This creates a lot of opposition in the financial community, in particular the Fintech’s, as this complicates the interaction between the bank, the TPP, and the PSU. On the other hand, the both the EBA and the EBF (European Banking Federation) are against it. There is a power game ongoing.

Main developments

Banks will have to implement interfaces, so they can interact with the AISPs and PISPs. This compliance with PSD2 is mandatory and all banks will have to make changes to their infrastructure deployments.

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 TPP 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 challenge is to create standards for the APIs specifying the nomenclature, access protocols, 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.

At this stage, following working groups were constituted to further elaborate on these standards:

  • UK’s Open Banking Working Group (OBWG). This initiative of UK Treasury aims to deliver a framework for open banking and data sharing via APIs for the UK’s banking industry. The joint industry/government initiative recently released its report on establishing the framework for an Open Banking Standard for the UK alongside a timetable for implementation.
  • The Berlin Group, a-European payments interoperability coalition of banks and payment processors, is pushing for a single standard for API access to bank accounts to comply with new regulations on freeing up customer data under PSD2. The aim is to offer operational rules and implementation guidelines with detailed data definitions, message modelling and information flows based on RESTful API methodology. It will be published for consultation in Q4 2017
  • STET has also released of a RESTFUL API standard which will allow TPPs to access payment accounts. This API has been built with the latest technology standards using REST, OAuth2, JSON and HTTP-signature. It relies on ISO 20022 elements for structuring the data to be exchanged between TPPs and ASPSPs

In the meantime, several providers are developing their services, including in the Benelux Equens Worldine, Capco, Sopra Banking and Isabel.

Along with the arrival of open API banking, there is also clear momentum for providing real-time services such as “instant payments”. This requires banks to shift their entire product and service mindset towards immediate delivery and to make fundamental changes to their legacy systems. While this is a challenge, it also presents opportunities (see also my article in TreasuryXL on this topic: SEPA Instant Payments – a catalyst for new developments in the payments market (https://www.treasuryxl.com/news-articles/francois-de-witte/sepa-instant-payments-catalyst-new-developments-payments-market and https://www.treasuryxl.com/news-articles/francois-de-witte/sepa-instant-payments-a-catalyst-for-new-developments-in-the-payments-market-part-ii/).

The large banks have already started working on being PSD2 compliant and on building for the opening of their banking architecture to the TPPs. However, several small or medium sized banks only started recently on this project. Hence a lot has to be done, and I do expect some shortages in resources in the next coming months.

With regard to the access to TPPs, article 113.4 of PSD2 explicitly states that the member states shall ensure the application of the security measures with the 18 months following the entry in force of the Hence, we might expect that this part of PSD2 needs only to be implemented by mid-2019. Given the strategic importance and the IT act, I recommend starting this exercise much earlier.

Conclusion

The PSD2 creates challenges. Several topics need to be clarified such as the RTS and the market players need also to agree on common standards for the interfaces.
However, there are initiatives, such as the Berlin Group, the UK’s Open Banking Framework and the STET group, which help give further clarity and direction in the absence of specific technical detail.
Consequently, there is no justifiable reason for any bank to delay starting these projects.
The clock is ticking in the PSD race.

If you want  further update on this topic, you can join the 1 day training session on this topic, which I will give on 22/11/2017 at Febelfin Academy.

 

François de Witte – Founder & Senior Consultant at FDW Consult

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Please read my earlier articles on PSD2:

PSD 2: A lot of opportunities but also big challenges (Part I)

PSD 2: A lot of opportunities but also big challenges (Part II)

Sepa instant payments – A catalyst for new developments in the payments market (Part I)

Sepa instant payments – A catalyst for new developments in the payments market (Part II)

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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

 

Trump’s determination to protect American business

| 14-8-2017 | Rob Beemster |

 

Many negative issues surround the President of the United States.  Approval rating hits new low,  surprise on his erratic conduct seems to grow daily. Trump is a unique politician. He is incomparable to any other western political leader. I want to pinpoint his monetary policy in 2017, by looking at the pattern of the dollar so far this year.

The dollar in 2017

Currency pair             January 2017              August 2017               Relative decrease USD

EUR/USD                    1.05                            1.18                            12.4%

AUD/USD                    0.72                            0.80                            11.1%

GBP/USD                    1.22                            1.32                            8.2%

USD/JPY                      1.18                            1.10                            6.8%

USD/CNY                    6.96                            6.70                            3.7%

Maybe Mr Trump does have a foreign economic policy.

He sees the results of Chinese manipulation and soft American response as an unfair trade relationship. The President of the US must do something about these unbalances. At least, this is how Trump judges.

Let’s take into account this Potus is a streetfighter. Long bilateral meetings with the Chinese are not options for Trump. Fast and furious, that it is: Bring the dollar down!!
And this is going on for half a year now. It is going the Trump way. Tough (but efficient)!

How to see the future value of the dollar?

The current outlook for the dollar against its main trading relations is related to some issues:

–          Process of QE by ECB, and  Euro interest rates

–          North Korea

–          China’s position in this geopolitical stress

–          Economic conditions of the US

–          Economic conditions of the main trading partners of the US

These are very important to determine the future value of the dollar. But this is the holistic view, we are all used to. Let’s be flexible and take a different stance. Just conclude as Trump will do. Be his alter ego.Then the most important issues are:

–          Pattern of the Euro against the dollar and the bilateral trade balance between US and Germany

–          China’s reaction to a lower dollar

–          US trade balance

–          US corporates repatriation of overseas cash

–          US investments to produce within America

–          FDI (Foreign Direct Investment) in America

This is a totally different scope. If we want to understand Trump, then we have to use his view on the international arena. The above mentioned bullet points are crucial. All can easily be measured, Trump loves that. I would like to go through these points to be able to clarify the possible outcome of the dollar for the coming time.

Pattern of the Euro against the dollar and the bilateral trade balance between US and Germany

The more than 12% revaluation will have a serious impact on the trade balance between US and Germany. When the correction emerges, Trump might temper his view on Germany. When we notice correction in the trade data, the dollar has gone far enough…

China’s reaction to a lower dollar

So far the yuan has gained some territory but not as much as other major currencies rose against the dollar. How will PBOC and the Chinese Government react on Trump’s wishes to correct the trade balance by a devaluation of the dollar against the yuan? If they take action on Trump’s stated requirements, whatever this may be, then pressure may diminish.

US trade balance

For many years the US  faces a deficit on its trade balance. The more than $500 billion yearly shortage is a notable pain point. If a remarkable achievement can be noticed on short term, a more relaxed dollar attitude may be expected.

US corporates repatriation of overseas cash

In history, attempts have been organised by US governments to return overseas cash of US corporations. During President Bush jr Presidency, corporations did repatriate cash. When Trump does decrease the corporate tax tariff to  15% and he rewards the US corps to transfer their money back to the US without any other penalty payments, a large repatriation may get going. Many of these funds will until now be held in local currencies, so a switch to the dollar may occur.

US corps return back to America

Trump has ordered US companies to produce in the US instead of overseas. If he becomes successful by bringing factories back to the US, the trade balance will shift, employment will improve. Also when large repatriation is done, these funds can be invested in local factories.

FDI in America

Many non-US corporations are scared by the threat of the US government that regulations like import tariffs and other taxes may be charged on imports. It will damage the advantage corporations have experienced last couple of years due to the high dollar. If special import tariffs are installed, investments may be done in the US to avoid these special expenditures. Onshore producing on American soil will become an alternative.

How to manage this?

Foreign currency management has always been a hard part of the international business. Currency moves are unpredictable. But since Trump, one has to be aware of non-economic issues as well. Note that all the above mentioned issues can have effect on the value of the dollar. Professional guidance of your flows is becoming more and more important. Barcelona valuta experts helps you to install a decent strategy to counter unpredicted events. We guide you in protecting the cash flow.

 

Rob Beemster

Owner of Barcelona valuta experts BV

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.

SWIFT Blockchain POC: Enhanced cross-border payments

| 8-8-2017 | Carlo de Meijer |

Early July SWIFT announced that 22 global banks recently joined its Blockchain proof of concept (PoC) initiative introduced in January this year in collaboration with six leading correspondent banks (ANZ, BNP Paribas, BNY Mellon, RBC Royal Bank and Wells Fargo). The PoC is part of SWIFT’s ‘gpi’ (global payments innovation) service, the new standard for cross-border payments, aimed to “re-arm the correspondent banking system for a new age of technological disruption”. 

This Blockchain PoC initiative is designed to explore whether blockchain technology can help banks to improve the reconciliation of their international nostro accounts in real-time, optimising their global liquidity. If so, that would be a break through event for both SWIFT and blockchain.

Present state

Currently, banks cannot monitor their account positions in real-time due to lack of intraday reporting coverage. The present pain points banks currently experience when making cross-border payments center around a lack of visibility into the end-to-end transactions lifecycle. Under the current correspondent banking model, banks need to monitor the funds in their overseas accounts via debit and credit updates and end-of-day statements. The maintenance and operational work involved represents a significant portion of the cost of making cross-border payments.

“Cross border payments are like a black box for us. We don’t know when the funds will be credited, we don’t know what fees will be charged and we also have problems with reconciliation”. states Martin Schlageter, head of Treasury Operations at Swiss healthcare conglomerate Roche.

As such, the POC recognises the need for banks to receive real-time liquidity data in order to manage funds throughout the business day.

SWIFT GPI service

The PoC is being undertaken as part of SWIFT gpi, a new service that “may revolutionise the cross-border payments industry by combining real-time payments tracking with the speed and certainty of same-day settlement for international payments”.

The SWIFT gpi should be seen as SWIFT’s response to the problems they faced after a series of attacks events that showed that “all was not as secure as everyone believed”. SWIFT gpi initiative was first announced at the annual Sibos conference in 2015. The project went into live production in January this year to address core problems related to speed, transparency and traceability of cross border payments.

SWIFT gpi not only delivers a much-needed improvement in the speed of transaction, but also improves overall customer experience by creating predictable settlement times and clear statuses, through additional (unaltered transfer of) information on remittances and transparency around the FX rates and fees applied throughout the payment cycle.

“The ability to deliver enhanced remittance information alongside the payment will help customers make better decisions along the payment chain, while also creating better efficiency opportunities. The decision to make gpi available in the “cloud” is also exciting, and we anticipate this will lead to the development of entirely new services, that combine SWIFT gpi with capabilities provided by banks, clients and vendors.“ says Tom Halpin, Global Head of Payments Product Management, HSBC Global Liquidity and Cash Management

Key features

Key features of the SWIFT gpi service include a secure tracking database in the cloud accessible via APIs, and enhanced business rules.

Cornerstone of SWIFT gpi is the highly innovative new cross-border TRACKER, a special tracking feature that enables international payments to be traced real-time. It allows banks to provide corporate treasurers with a real-time, end-to-end view (visibility) on the status of their payments, including confirmations of the amount credited to the beneficiaries’ account. The Tracker is available via an open API, making it compatible with proprietary banking systems worldwide – helping to ensure maximum impact of gpi benefits at a greater adoption speed.

A second key feature is the OBSERVER, a quality assurance tool that monitors participants’ adherence to the gpi business rules. Gpi’s transparency ensures that remittance information such as invoice references, is transferred unaltered to recipients.

Gpi uptake

Membership is open to any supervised financial institution that agrees to comply with SWIFT’s business rules. But also non-bank organisations can join SWIFT gpi initiative. The SWIFT gpi service has received considerable bank support across the globe. And the number of global transaction banks that are actively using SWIFT’s gpi service is continuously growing. Since its launch the number of banks that are live with SWIFT gpi has risen beyond 100, and hundreds of thousands GPI payments have already been sent across 85 country corridors. This represents more than 75% of all SWIFT cross border payments.

“The increasing number of banks going live on this service addresses the demands of corporate treasurers. Hence, banks cannot afford to not join the initiative and go live as soon as possible. Our expectation is that all of our cross-border payments will be end-to-end Swift gpi payments in the future.” Group of Swiss corporates

SWIFT expects that numerous additional banks will join the gpi initiative in the coming months. The ambition is for all countries to be live by the end of 2017.

Phased approach

Next to the design of the second phase of SWIFT gpi, that is already underway focusing on additional digital capabilities and further enhancements such as ‘a rich payment data service’, for its third gpi phase SWIFT started exploring the potential of new technologies such as Distributed Ledger Technology (DLT), including blockchain, through a Proof of Concept (PoC).

SWIFT Blockchain PoC

Launched in January 2017 with six founding banks the SWIFT Blockchain PoC initiative, designed to validate/explore whether blockchain can be used by banks to improve the reconciliation of their international nostro accounts (these are accounts that a bank holds in a foreign currency in another bank to handle international financial transactions for their customers) (these are accounts that a bank holds in a foreign currency in another bank to handle international financial transactions for their customers) in real –time, optimising their global liquidity. At its core, the PoC builds on SWIFT’s rulebook as part of the intraday liquidity standard gpi.

This SWIFT Blockchain PoC initiative aims to help banks overcome significant challenges in monitoring and managing their international nostro accounts, which are crucial to the facilitation of cross border payments.

“Whilst existing DLTs are not currently mature enough for cross-border payments, this technology, bolstered by some additional features from SWIFT, may be interesting for the associated account reconciliation,” “This PoC gives us the opportunity to test DLT and determine if it can be applied to this particular use case.” Wim Raymaekers, Head of Banking Market and SWIFT gpi at SWIFT

Characteristics

In developing the POC, SWIFT is leveraging the Hyperledger Fabric v1.0 technology, and combining it with key SWIFT assets, to bring it in line with the financial industry’s requirements.

“SWIFT will leverage its strong governance, PKI security scheme, BIC legal identifier framework and liquidity standards expertise to deliver a distinctive DLT PoC platform for the benefit of its community.” Damien Vanderveken, Head of R&D, SWIFTLabs and User Experience at SWIFT 

The PoC application will use a private permissioned blockchain in a closed user group environment, with specific user profiles and strong data controls. User privileges and data access will be strictly governed. This to ensure that all the information related to nostro/vostro accounts is kept private. Only account owners and its correspondent banking partners will see the details.

Collaboration

SWIFT gpi member banks can apply to participate in this Blockchain PoC. Next to the 6 founding banks, another 22 banks have recently joined the SWIFT blockchain PoC. They include include:

ABN AMRO Bank; ABSA Bank; BBVA; Banco Santander; China Construction Bank; China Minsheng Banking; Commerzbank; Deutsche Bank; Erste Group Bank; FirstRand Bank; Intesa Sanpaolo; JPMorgan Chase; Lloyds Bank; Mashreq Bank; Nedbank; Rabobank; Société Générale; Standard Bank of South Africa; Standard Chartered Bank; Sumitomo Mitsui Banking Corporation; UniCredit; Westpac Banking Corporation.

“Collaboration is the cornerstone of innovation,” “This new group of banks allows us to greatly extend the scope of multi-lateral testing of the blockchain application and thus adds considerable weight to the findings. We warmly welcome the new banks and look forward to their insights”  says Wim Raymaekers, head of banking markets and SWIFT gpi at SWIFT.

Process

Moving forward, the SWIFT PoC Blockchain application will undergo testing, with the results scheduled to be published in September and presented at Sibos in Toronto in October. Working independently of the founding banks, the 22 institutions will act as a validation group to test in a deeper way the PoC’s Blockchain application, that is currently under development by SWIFT and the group of six founding banks. They will evaluate how the technology scales and performs.

Benefits

For banks

The potential business benefits ensuing from a successful SWIFT blockchain POC may be significant. If it proves to enable banks reconcile those nostro accounts more efficiently and in real time, that may lower costs and operational risk.

“The potential business benefits ensuing from the PoC are clear,” “If banks could manage their nostro account liquidity in real-time, it would allow them to accurately gauge how much money is required in each account at any given point, ultimately enabling them to free up significant funds for other investments.” Damien Vanderveken, head of R&D, SWIFTLab and UX at SWIFT.

It brings together banks worldwide who want to offer an enhanced cross-border payments experience to their corporate clients. By being part of SWIFT gpi, banks may improve the quality of their correspondent relationships and networks, helping to reduce risks and management costs and improve compliance.

“Transparency is key to a good end-to-end client experience. SWIFT gpi is a significant step in the evolution of correspondent banking, which remains the primary means through which cross-border payments are delivered worldwide. Bank of America Merrill Lynch is pleased to be working with like-minded institutions around the world to better serve each other and our respective customers.” states Greg Murray, head of Global Product Management for High Value Payments and FI/NBFI Products in Global Transaction Services at Bank of America Merrill Lynch.

For corporate treasurers

SWIFT gpi may enable corporates engaged in international trade to get paid for services, or delivery of goods, in a more timely fashion, enabling a faster supply chain process. It also enables a more accurate reconciliation of payments and invoices, optimizes liquidity with improved cash forecasts and reduces exposure to FX risks with same-day processing of funds in the beneficiary’s time zone.

“Being part of SWIFT gpi, and working with our industry counterparts, is giving correspondent banks a platform to examine and refine current processes, and to collaborate and explore different, more efficient ways of doing things. Ultimately, our clients will benefit most from this initiative,” Kent Marais, head of TPS product management at Standard Bank SA.

SWIFT and the banks have designed the gpi services so that banks have flexibility in how they offer the new services. They can deliver the gpi service in very different ways. Services could potentially include enhanced invoice presentment and reconciliation to facilitate financial supply chains, exchange of supply chain documentation to improve global trade, exchange and interactive enquiry of account and processing conditions to improve end-to-end straight through processing, and providing additional party and transaction information to support compliance and sanctions screening of cross-border payments.

Enhanced cross-border payment service

“SWIFT has addressed several of the pain points corporates have had with cross-border payments,” “Changes to existing corporate payments infrastructures should be very limited, if any. So hopefully, corporates won’t need to make any major investments to benefit from smoother cross-border payments.” says Magnus Carlsson, AFP’s manager of treasury and payments

Given the size of the number of banks and corporates participating in SWIFT gpi, the SWIFT Blockchain PoC may face the challenge of scalability. If that could be solved in a successful way it may be another prove of the viability of blockchain and DLT to enhance cross-border payments.

 

Carlo de Meijer

Economist and researcher

 

 

 

More on blockchain from this author:

Blockchain: accelerated activity in trade finance

Blockchain and derivatives: Re-imagining the industry

The digital trade chain: The blockchain train is rolling

Please feel free to visit the treasuryXL/articles page to see more articles.

 

Re-inventing treasury workflows: Smart Treasury

| 3-8-2017 | Nicolas Christiaen | Cashforce | Sponsored Content |

While the role of the treasurer is changing, it becomes increasingly challenging to maintain the current workflows and simultaneously take on new demanding tasks. One of these often manual and time-consuming tasks is risk management. As seen in, among others, this year’s Global Treasury Benchmark Survey of PwC, the registration and management of financial instruments stands among the top 3 challenges on the agenda of the surveyed treasurers. In this article, we take a more in-depth look at possible optimizations in some key treasury workflows.

 

 

 

 

 

 


Example FX management workflow

Hedging your FX exposure risk made easy

A common problem is the lack of visibility on the existing (global/local) FX exposure risk.
In order to calculate the FX transaction risk, transactional data from the TMS & ERP systems need to be consolidated effectively. Typically, this happens to be a (very) painful exercise. With Cashforce, however, using our off-the-shelf connectors (for ERP & TMS) and our full drill-down capabilities, you have all FX exposures at your fingertips.

 


FX Exposure Management – Current positions & exposures

 

But there is more to it. Imagine that linked to your FX exposure, an automated proposal of the most relevant FX deal would be generated to properly hedge this risk. A grin from ear to ear you say?


FX Exposure Management – Suggested hedge

 

And what about forecasting FX exposures? It’s now all within reach!

FX Exposure Management – Future positions & exposures

 

Whether you choose to take on an intercompany loan, a plain vanilla FX forward or another more exotic derivative product, chosen deals could then be automatically passed on to your deal transaction platform, to effectively execute the deal without any hassle. After execution, deals will automatically flow back into the system. Consequently, a useful summary/overview will be generated to effectively manage all your financial instruments.


Workflow integrated cash forecast

Finally, integrated cash management

New financial instruments / deals will generate a set of related cash flows. Ideally, these are directly integrated in your cash flow forecasts. In Cashforce, this data is automatically integrated within the cash flow forecast module, and will be put into a dedicated cash flow category. Learn more one how to set up an effective cash forecast in this article or this webinar.


Cash flow forecast overview

 

The analysis possibilities are now limitless, thanks to the ability to drill down to the very transactional-level details. The real number crunchers strike gold here: the analysis features open doors to unlimited in-depth analysis and comparison of various scenarios (E.g. the simulated effects of various exchange rate movements).


Drill-down to the transaction level

 

Using our big data engine, the delivery of rich and highly flexible reporting is facilitated. It’s fair to say that the typical SQL server (which currently 95% of the TMS systems use) can’t hold a candle to this. Through an advanced ‘self-service’ interface, users can drill down completely into respective amortization tables, historical transactions and effortlessly create customized reports and dashboards. We’ll talk more about why we believe Big Data engines are crucial for any Treasury software in our next blog.

Integration with ERPs & payment platforms

Next to this, Cashforce will automatically generate the accounting entries (in the format of your ERP/accounting system) related to your deals. The appropriate payment files will be generated in a similar fashion.

So…

As might be clear after reading this article, we strongly believe that integrated data flows & a Big Data engine are the foundation of a new type of Treasury Management System that runs like clockwork and can serve effective treasury departments, but also renewed finance/controlling/FP&A departments.

You are curious to hear more about effective treasury management? We’ve recently recorded a webchat on how to set up an efficient cash flow forecast process.

 

Nicolas Christiaen

Managing Partner at Cashforce

 

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

 

 

 

Why Is Bank Independency Important?

|12-7-2017 | Mark van de Griendt | PowertoPay/Unified Post | Sponsored content |

As financial technologies develop, bank independency is something more and more companies adopt. Bank independency not only means that financial streams are dealt with online and require less manual interventions (straight through processing). Mainly not having to rely on the services provided by the bank where the account is held is also an important one when talking about bank independency. A couple of things mentioned below emphasise the importance of being, or becoming, bank independent.

The changing landscape

Since the economic crisis, the banking landscape has become a more dynamic environment. Besides banks going bankrupt we have also seen banks that have withdrawn themselves in certain geographical or business areas. This gave CFO’s in the corporate sector headaches for having to find another bank and to ‘move’ its business. A good example of a (sudden) change of the financial landscape is the Brexit. Not knowing what the Brexit will bring in this perspective, one thing we do know is that the changing banking landscape is here to stay.

Where using bank-independent tools, products or instruments doesn’t solve the problem of finding another bank, it does take away having to start up a time-consuming project changing the applications used in the various financial processes. Bank independency will become more and more common as the banking landscape continues to change.

Formats & Interfaces

Another good reason to use bank independent solutions is not to find yourself in a so called lock-in situation when looking at file-formats and interfaces. Where local formats or proprietary interfaces may have their benefits, formats and interfaces will be subject to change or even may be replaced by the bank offering the service. Recently a bank had decided to phase out a proprietary reporting format. Although this was done with an alternative reporting format and customers had a reasonable period to migrate, many of them were confronted with major changes in their business applications from which many of them being legacy systems.

Again in this case using a bank independent solution will not prevent you from change but a good bank independent solution or tool will offer the flexibility to deal with this type of change outside the corporate IT domain. Still a project but one with less impact on the organisation. When using fully bank independent instruments (for example MT101) the number of changes are limited to a bare minimum and in case of compliance will always be dealt with by the vendor as part of its service.

Cost Savings

Last but not least a bank independent will save costs. Of course there is an investment consideration with regards to a bank independent solution but when looking at the business case the benefits of not having to manage changes due to compliancy or technological developments will in most cases create a break-even point somewhere in year 2.

Recent customer case-studies even showed a significant decrease in costs in year 1 simply by not having to change its output from their applications creating payment instructions when expanding their business to other regions using new local banks. By itself not a bad investment, even when leaving the non-qualified benefits of bank independency aside.

Mark van de Griendt – Cash Management Expert at PowertoPay

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Please also read: 7 reasons why you should do e-invoicing too.