Tag Archive for: treasury

How to reduce your credit risk

14-10-2019 | Marco Lassche |

It is nice to sell your products at a good price. But what if you have delivered goods to your customer, and he is not able to pay? In this article we give you over 15 options, how to reduce your credit risk.

Although a company that you do business with can look very successful and credit worthy from the outside, there are many examples of unexpected bankruptcies.
Credit risk is the probability that your company incurs a financial loss as your counterparty (customer/supplier), cannot meet its contractual obligations.

In this article we give you guidance, how to control and cover your credit risk. We focus on the sales perspective, however it is also applicable on the purchases side; a prepayment to a supplier causes also credit risk.

Ways to control your credit risk:
  • Make a credit check on your counterparty before onboarding, and make sure to keep doing this during the whole relationship. Credit rating agencies like Creditsafe, Graydon, Dunn & Bradstreet make their business out of running credit checks on companies. They also have good tools (risk alerts), to follow the credit worthiness of your counterparty.
  • Transfer your credit risk and insure your counterparty risk to a credit insurer (Atradius, Euler, Coface). In case you trade with unstable countries, do not forget to insure the political risk. If insurance of your counterparty is not possible, this might be already a warning. However it can also be a just established subsidiary, being part of a bigger credit worthy parent.
  • Bank guarantee: the bank of your customer will ensure the payment if the customer is unable to.
  • Execute the exchange (payment vs. property of goods) with your counterparty at the same time or use a trustable intermediary.
Options with the bank:
–    Direct Collection
–    Letter of Credit (LC)In a direct collection as well as in a LC you handover agreed documents to the bank. The biggest difference between direct collection and Letter of Credit: In a collection the bank pays you only, when the customer paid to the bank. In an LC the bank of the buyer pays you when the agreed documents are delivered by the seller. So for goods that are not easily sold to another counterparty, we would advise to go for a LC.Other options

  • Use an escrow account of the warehouse.
    The warehouse releases the goods to the buyer, when they received the payment, and forward the payment to the seller.
  • In case of transport of the goods by ocean freight you can use the shipper to be the intermediary.
    When your sold goods are transported by sea, you can give the release to the shipper to handover the Bill of Lading (property document) to the buyer. Normally this is done after payment of the buyer.
  • Use factoring. You sell your debtor at a discount to a factoring company. Make sure that you cannot be liable for non-payment (non-recourse basis).
  • Ask for a parent guarantee if the counterparty that you trade with is part of a big parent company. This parent guarantee can also be used to get an insurance at your credit insurer.
  • Diversification. Try to limit credit exposure on one customer, one region (concentration ratio’s). Ensure that a non-payment of one not covered counterparty will not put you in any liquidity squeeze and put your company at stake.
  • Give collection responsibility to the sales team. A trader works mainly for its sales bonus. In my opinion, to be eligible for the bonus, the whole order to cash cycle should be fulfilled. What if you give already bonus to a sale, but the invoice is not paid. So give the trader also the responsibility for collection. In this way he will be more critical with onboarding his customers, agreeing on payment terms and fight for the invoice to get paid.
  • Create your own financial buffer; an umbrella for rainy days.
  • Limit the number of payment terms for your customers, and make sure that you keep them within the Terms & Conditions of insurance company.
  • Determine who within the company has the responsibility for the credit risk management and setting the credit limits. Most of the time this is a collaboration between treasury, sales and controlling team, and final responsibility at CFO.

As said, running a business hardly goes without credit risk, but there are a lot of tools that can help you to limit it to an extent that is acceptable.

Please feel free to contact me if you need any further information or assistance in setting up a framework to control your credit risk.

 

 

Marco Lassche 

Founder and Owner of at Bedrijfskostenexpert
Treasurer and Project Manager at Van Caem Klerks Group
treasuryXL Ambassador

What is Treasury? By Marco Lassche

10-10-2019 | Marco Lassche | Kendra Keydeniers

What is treasury?

Have you ever asked yourself the question, “what is Treasury?”. Many people will think about pirates and big see ships that sank deep into the bottom of the ocean including their ‘treasure’. A mystery treasure map will lead the finder to a treasure worth a lot of money. In some way Treasury and Treasure have definitely similarities, it is about money and other valuables.

Find out what Treasury is……

Treasury

Treasury or Treasury Management is the task to manage the firm’s liquidity and mitigate its financial and operational risk, with the goal to safeguard an organizations’ holdings. Let’s make this more specific. In each organization treasury tasks exist, regardless if the organization is big/small, profit/non-profit, nationally operating/ multinational. Although entrepreneurship is always bearing risk, this should be limited to a certain extent in order not to jeopardize the survival of the company. For each company this is different. For a company like Apple with a net profit margin > 20% losing 4% on its FX exposure has a much smaller impact on profitability, than for a WallMart with a net profit margin of 2-3%. In small organizations treasury is mostly done by the CFO or finance department. Bigger organizations have their own treasury departments, controlled by the CFO. In general, the bigger and more international the organization operates, the bigger and more complicated the tasks of treasury get.

3 main Treasury Categories of Tasks

Treasury management, can be divided in 3 main task categories.

  1. Cash & liquidity management (short term):
    a. This is mostly the day-to-day operations. Make sure that payments that are due are being paid in time to the correct account.
    b. Manage your bank accounts in an effective and efficient way
  2. Corporate finance (long term): How do you want to finance your company? What is the best mix for equity and debt, based on the long term scenarios for a company.
  3. Risk management (short & long term):
  • Liquidity risk: the risk that you cannot pay your bills in time (salaries, suppliers)Market Risk (or price risk) is the risk that changes in market prices (e.g. foreign exchange and interest rates), cause losses to the business;
  • Credit Risk is the risk that a counterparty default causes loss to the business;
  • Operational Risk (cyber & security, internal fraud).

Although the basic tasks for treasury remain the same over time, the content of the tasks evolves over time. Due to external factors like technology, regulations or new financial products, some tasks are less time consuming nowadays then they were in the past.

The future treasurer

A treasurer is someone who manages and oversees the treasury side of financial management of an organization. Tasks like bank selection, reconciling bank statements and managing cash flow are typical for a treasurer.

Payments these days can be automatized to a high extent, a TMS (treasury management system) can help the treasurer. However risks in cyber fraud are increasing. Also increased regulations by banks and/or government take more time of the treasurer. In the past a treasurer only went to his own bank for financing, these days there are many other options for financing or reducing financial risks. It is the task fort the treasurer to keep up-to-date with developments, and to be the consultant for the organization on treasury related subjects.

TreasuryXL.com will help you with this by following the latest trends on all aspects of treasury.

 

 

Marco Lassche 

Founder and Owner of at Bedrijfskostenexpert
Treasurer and Project Manager at Van Caem Klerks Group
treasuryXL Ambassador

Gartner and Blockchain: the Good, the Bad and the…

| 01-10-2019 | Carlo de Meijer | treasuryXL

Last year Gartner, the high-standard research institute, painted a rather realistic scenario for blockchain. In one of its research papers, Gartner stated that its latest technology hype cycle puts blockchain beyond the peak of expectations and is currently sliding down towards the trough of disillusionment stage. They estimated a 5-10 year timescale before it enters the plateau of productivity, or mainstream.

Now a year later, in a recent study Gartner show a more sober picture. They found that most enterprise blockchains have been ‘mistargeted’, and that most of the blockchains in use today will need to be replaced in a couple of years.

This raises a number of questions. According to some commentators, blockchain is having an identity crisis. They state that technology is constrained by assumptions and that technological immaturity is prohibiting efforts from moving beyond the pilot phase. Other say that this is just a normal stage in the development of a new technology?

The bad …..

First the bad news. The report gives a rather sober vision for blockchain technology and its near term development. According to their research that was published last June, Gartner predicts that by 2021, more than 90% of current enterprise blockchain platform implementations will fail or need to be replaced in a 18 months period. This is due to a fragmented blockchain market and ‘unrealistic expectations’ by CIOs.

A May 2019 report by Gartner already predicted that 90% of blockchain-based supply chain initiatives would suffer from ‘blockchain fatigue’ by 2023. Garner’s June research report however has a much broader industry base and should therefore be taken seriously.

Fragmented blockchain market

The blockchain and distributed ledger technology has already become highly fragmented in terms of platforms, standards and offerings. This makes it difficult for companies to push ahead with real-world uses.

Multiple blockchain platforms

The present blockchain platform ecosystem is a very fragmented one. Today CIOs can choose from numerous blockchains available using either private ledger approaches such as R3 Corda, Hyperledger and Digital Asset or public ones such as Ethereum. Each consortium is thereby trying to make their offerings ‘the de facto basis for value exchange and digital asset representation, smart contracts and decentralised applications’. Gartner does not expect that there will be a single dominant platform within the next five years.

Fragmented offerings

The blockchain platform market is composed of fragmented systems and offerings by blockchain providers that often overlap or are being used in a complementary fashion. The blockchain platforms and technologies market is still nascent and there is no industry consensus on key components such as product concept, feature set and core application requirements.

Companies are as a result unable to find an off-the-shelf, complete packaged blockchain solution. Hybrid offerings of conventional blockchain platforms are adding further confusion to justifying a use case. This adds more complexity and confusion, making it that much harder for companies to identify appropriate use cases.

No uniform standards

Blockchain standards esp. for financial services companies are currently fragmented and immature. Standards are critical for corporates esp. in the financial industry, because they are constantly moving assets between clients, partners and other institutions. Fragmented blockchain standards are likely to prevent widespread short term deployment of blockchain and distributed ledger technology in real-world systems. Until consortiums and standards groups come together on several industry standards or de facto standards emerge, the use of blockchain will be limited mostly to proofs of concept and pilot tests.

Implementation issues

No seamlessly integration

To achieve the true potential of blockchain, implementations must be seamlessly integrated with already installed software solutions. However, major software and SaaS providers are not offering blockchain solutions as add-on features to their enterprise solutions. Currently, integrating blockchain platforms with existing systems can cost organizations millions of dollars, which further slows blockchain adoption.

Lack of interoperability

Cross-industry interoperability standards are, and will be critical especially for financial services companies. These blockchain platforms however often use differing implementations, data formats, data interchange and directories, making interoperability among different blockchains difficult across organisations.

Lack of strong use cases

As a result of the above shortcomings there is a lack of strong use cases. Most projects have remained pilot projects, due to a combination of technology immaturity, lack of standards, overly ambitious scope and a misunderstanding of how blockchain could, or should actually help the industry.

Not meeting companies needs

According to Gartner, another major challenge that CIOs and IT decision makers currently face is that blockchain platform vendors often use (marketing) messages that don’t link to a target buyer’s use cases and business benefits. This may add to the confusion around blockchain capabilities and how they augment existing processes. Buyers are still confused as to how these functions are achieved or what benefits blockchain may add compared to their existing processes.

Overestimation by CIOs

 Following from the results of the Gartner 2019 CIO Agenda Survey conducted from April through June amongst more than 3000 CIOs from almost 90 countries and across major industries, there is also a mismatch between expectation and reality about how they perceive blockchain technology.

The survey shows that many CIOs overestimate the capabilities and short-term benefits of blockchain as a technology to help them achieve their business goals, thus creating unrealistic expectations when assessing offerings from blockchain platform vendors and service providers. Even though they are still uncertain of the impact blockchain will have on their business, 60 per cent said that they expected some level of adoption of blockchain technologies in the next three years.

Misunderstandings by CIOs

There are a number confusions about blockchain technology leading to misunderstandings at CIOs. The vast majority of projects focus on recording data seeing it as the main offering of this technology. Many corporates however fail to use major capabilities of blockchain technology, such as decentralized consensus, smart contracts and tokenization.

Another misunderstanding amongst CIOs is their idea that the technology is already mature enough so that it is ready for production use. In fact many platforms however are still in a nascent and immature state far from being ready for large-scale production. Gartner however expects this will change within the next few years. And there is the wrong idea amongst many CIOs that protocols are identical to business applications. A protocol is the underlying technology such as Hyperledger Fabric of R3’s Corda and is invariably applicable to several industries. Applications need to be developed on top of these.

There is also the conviction in may CIOs mind that interoperability between various blockchain platforms is already a fact. Although some platforms talk about interoperability, Gartner finds it ‘challenging to envision interoperability when all the protocols are evolving quickly’.

The good ….

But it is not all bad news we can read in Gartner’s recent research paper. Despite the predicted gloom and the mismatch between expectation and reality, blockchain still has a solid future. Still the underlying technology is attractive and its potential uses cases vary across industries.

Impressive business value added

Although the technology will need constant updating, Gartner also predicts that by 2025, the business value added by blockchain to the industry will exceed $176 billion. More impressive is how this figure may surge to $3.1 trillion by 2030.

More stable applications

The ‘chaos’ in the blockchain solutions market is expected to only be a momentary challenge, ‘one that will pass as the hype-cycle dies down, and leads to more stable, enterprise-wide or rather industry-wide applications’. Within three to five years, many of blockchain’s core technical challenges are likely to be resolved. Given the attractive features of blockchain technology it can really drive interesting projects.

Standards maturity

Though it is very unlikely there will be a single de facto standard at all levels, Gartner expects that fragmentation will collapse and that we are three to five years away until standards mature and settle, resulting into no more than four dominant standards. This may allow for more interoperability among different blockchains.

“It’s unlikely there’ll ever be just one standard, but ultimately [there will be] a couple [of] standards bodies who’ll adjudicate…. Ultimately, there will be one or two standards..,. but no more than four”. Gartner

Blockchain capabilities as an add-on

Software suppliers, meanwhile, will integrate and upgrade their chosen blockchain versions and ensure compatibility with their own new software releases. In the next two to three years, Gartner expects all major ERP and CRM players to offer blockchain capabilities as an add-on feature for their software and SaaS products. These efforts will dramatically reduce the costs of deploying blockchain projects across the financial services organizations and their supply chains.

Transformational business impact

The 2019 Gartner Hype Cycle for Blockchain Business shows that the business impact of blockchain will be transformational across most industries within five to ten years. But these opportunities demand that enterprises adopt complete blockchain ecosystems. Future technology developments and removing remaining obstacles may enable that.

“Making wholesale changes to decades-old enterprise methodologies is hard to achieve in any situation. However, the transformative nature of blockchain works across multiple levels simultaneously (process, operating model, business strategy and industry structure), and depends on coordinated action across multiple companies.” Gartner

More intelligent applications

In the future, more intelligent blockchain applications are expected, in line with Gartner’s predictions. Especially as we move further on the Hype Cycle and past the so-called “Inspired Solutions (phase 2)” by 2022 and get well into “Complete Solutions (phase 3)” form 2025 onwards. And finally reach he Plateau of Productivity – the point at which mainstream adoption takes off.

And the …… way forward for CIOs

Companies working with the ‘myriad’ of blockchains available today should realise it is ‘highly unlikely’ the one they are using now or are planning to use short term will become the industry standard in five years. Corporates therefore need to investigate intensively how to navigate the next blockchain wave best.

Well–founded business plan

Many companies want to be fluent in blockchain before the technology is everywhere. For that they need a well-founded business plan. Those who fail to do sufficient scenario planning, experiment with the technology, and delay consideration of decentralization and tokenization risk significant long-term disintermediation.

Recommendations

Understanding and learning how to leverage the technology to create useful and practical solutions, is of utmost importance. In order to help CIOs in their blockchain journey, Gartner came up with a list of recommendations and valuable advices. CIOs should continue to educate executives and senior leaders about the blockchain opportunities and challenges most critical for business.

CIOs should also be aware of complicated challenges and of a number of impediments when deploying blockchain projects: standards, governance, integration and interoperability. They should therefore pay close attention to these hurdles blockchain projects face. In order to get used to blockchain technology and its applications, it is important for CIOs to continue to develop proofs of concept internally as well as part of market consortiums. By doing this they may learn how to leverage the technology to create useful and practical solutions, to take good decisions.

This Garner Hype Cycle is a very useful tool for corporates to get insight in the scope of blockchain’s transformation, how it impacts various industries as well as may show the current state and evolution of this technology.

 

 

Carlo de Meijer

Economist and researcher

 

To swap, or not to swap that is the question

30-9-2019 | Marco Lassche |

Cash management in different currencies:
The FX swap, a way to optimize your interest result

Years ago, when I made my first baby steps in the world of Treasury at Bank Mendes Gans, my old teachers Jan Loohuis and Aart-Jan Lensvelt, taught me some good lessons. One of them, that I always used in the companies that I have worked for, is this one.

What if you have temporary an overall negative position in one currency (e.g. -/- EUR 10 mio) and an overall positive position in another currency (e.g. +/+ USD 11 mio)?

Basically you have two easy ways to manage this liquidity position and optimize your interest result. Both ways lead to Rome:

  • Keep the balances in your bank account
  • You swap the balances in different currencies temporary by means of a FX-swap

Option 1: Keep the balances in your bank account
This option does not need much clarification.

  • For your debit balance you pay interest (basic interest +/+ margin)
  • For your credit balance you receive credit interest (basic interest -/- margin

Option 2: The FX swap
In a FX swap you do a trade in your FX trade portal, in which you exchange the bank balances at a spot date (at the spot rate) and you reverse it at a future date (at the forward-rate). You do the trade at the same time, so no FX risk is involved.

Forward FX-rates are being calculated directly from the spot FX-rate and are adjusted for the difference in interest rates between the two currencies.

FX swap visualised

Option 1 or option 2?
When the interest rate difference between the two currencies is more attractive in option 1, you keep your bank balances. When the interest rate difference between two currencies is more attractive in option 2, you swap.

Example
I would like to clarify it by an example in which we have a EUR balance of -/- EUR 10 mio and a
USD balance of +/+ USD 11 mio. We will swap the currencies for 1 month (30 days).

Interest results after 30 days

Option 1) Interest result by keeping balances in your bank account

Total interest proceeds in USD: EUR 2,708 * 1.1000 = USD 2,979 + USD 18,563 = USD 21,542.
Interest rate difference between USD and EUR: 2,35% (2.025% -/- 0.325%).

Option 2) Interest result by swapping balances

Interest result FX swap

At the start date we buy EUR 10 mio, and sell USD 11 mio at the spot rate 1.1000.
At the end date, after 30 days, we reverse the trade as we agreed with the bank:
We sell EUR 10 mio, and buy USD 11,025,770 at the agreed forward rate 1.102577

Our total interest rate difference proceeds is USD 11,025,770 – USD 11,000,000 = USD 25,770.

Conclusion:
In this example the FX swap is USD4,200 more attractive than keeping the account balances like it is. Of course, this is not always the case, but a FX swap can be a good alternative in many cases.

* How to calculate the interest rate difference between two currencies in a FX swap
As previously said, the difference in spot and forward rates, can be explained by the interest rate difference between two currencies, We calculate the interest rate differences as follows:

Forward Rate on annual basis / Spot Rate

As interest percentages are always based on 1 year we multiply the 30 days forward points by 12 to get to 1 year forward points (EUR and USD, calculate 360 days in a year, GBP e.g. 365 days).
The forward points for 30 days: 25.77, which means for one year 12 * 25.77 = 309.24
Forward rate on annual basis: 1.130924

Spot rate: 1.1000

1.130924/1.1000 = + 2,81%

Please feel free to contact me if you need any further information.

 

 

 

Marco Lassche 

Founder and Owner of at Bedrijfskostenexpert
Treasurer and Project Manager at Van Caem Klerks Group
treasuryXL Ambassador

 

 

PSD2, Open Banking and their major impact

| 24-9-2019 | François de Witte | treasuryXL |

This training program at the Febelfin Academy prepares participants for 2 major challenges of the upcoming years in banking: PSD2 & Open Banking. This will have a major impact on the financial ecosystem and will create new challenges.

The goal of this training course is to:

  • Make participants aware of the ways PSD2 & Open Banking affect banks and other players in Europe;
  • Understand the impact of the technical requirements with a focus on strong customer authentication;
  • Outline the risks and responsibilities of the involved parties within the new regulatory framework;
  • Understand the impact of Open Banking APIs (Application Programming interfaces;
  • Understand the impacts of the PSD2 & Open Banking the financial ecosystem;
  • Evaluate the risk and opportunities created by PSD2 & Open Banking the banks and the new players;
  • Determine action plan for your company.

Target Group

This training course can be followed by multiple target groups:

  • Managers of a banks/PSP’s/Fintechs involved with the payments and digital strategy
  • Product Development Experts (payments)
  • Service providers involved with Open Banking
  • Corporate Treasurers
  • Compliance officers

Advanced: offers practice-based applications to complement the theoretical knowledge already acquired through the “basic level” courses (in-depth learning).

There is no specific preparation required. For persons who are less acquainted with PSD2 and payments, some pre-course reading material can be made available.”

Program

This training program prepares participants for two key challenges of the upcoming years in banking: PSD2 and Open Banking.

Part I: PSD2 and Open Banking – overview:

  • PSD2: Scope and Basic Principles
  • XS2A (Access the Accounts)
  • New Players: AISP and PISP
  • SCA (Strong Customer Authentication)
  • Consent and SCA
  • Requirements for the Banks and TPPs
  • Timetable
  • Trends in Open Banking

Part II: Open banking architecture: Implications for banks and the New Players

  • XS2A: Risks, Responsibilities and obligations of the related parties
  • XS2A: Availability Requirements
  • Setting up the SCA in Practice
  • SCA: Optimization of the Exemptions
  • Security requirements ensuring consumer protection
  • Addressing the fraud and cyberattack risks
  • Technology: building interfaces – APIs (Application Programming Interfaces)
  • European initiatives to standardize the interfaces
  • Practical aspects – Role of Aggregators
  • Group Exercise

Part 3: PSD2: Potential impact on the market and next steps

  • Global impact on the market – New Players
  • Impact on the Payments Landscape
  • Impact on the Cards and Digital Payment Instruments
  • Impact on the Merchants and the e-commerce
  • Impact on corporates
  • FinTech Companies: ready to disrupt banks?
  • Implication on the Digital Banking Strategy
  • The new role of competition and cooperation
  • Action Plan for Banks and New Players
  • Group Exercise

Practical information

Duration: One day training

Date: October 10, 2019

Hours: 9AM-5PM (6 training hours)

Location: Febelfin Academy, Aarlenstraat/Rue d’Arlon 80, 1040 Brussels

Additional information: This training course will be given in English

 

REGISTER TODAY

 

François de Witte

Founder & Senior Consultant at FDW Consult / Managing Director and CFO at SafeTrade Holding S.A.

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Using Blockchain for Legal Entity Identifiers or LEIs

| 19-09-2019 | Carlo de Meijer | treasuryXL

In one of its reports, GLEIF, the Swiss-based organisation which coordinates the management of the global Legal Identity Identifier (LEI-) system, suggested to use blockchain technology for identifying financial legal entities, as that would not only improve transparency and security but may also lead to broader global acceptance of the LEI.

This however raises a number of questions such as: Why could blockchain be of use for LEI and its users? What role could smart contracts thereby play? What benefits could blockchain bring for the LEI? And what does the most recent blockchain-based projects for the LEI tell us?

What is the LEI?

But first, what is the LEI? According to their website definition, “the Legal Entity Identifier or LEI is a 20-digit, alpha numeric code based on the ISO 17442 standard. It connects to key reference information, allowing clear and unique identification of legal entities participating in financial transactions. Each LEI contains information about an entity’s ownership structure and thus answers the questions of ‘who is who’ and ‘who owns whom’”.

In other words a LEI is a uniform way of keeping track of financial legal entities. They are global and have no borders at all for accurate and trusted identification of companies around the world. Looking in that way, the publicly available LEI data pool can be regarded as a global directory, which may greatly enhance transparency in the global marketplace.

The management of the LEI system is coordinated and supported by the above mentioned Global Legal Entity Identifier Foundation (GLEIF), while registrations are performed by so-called LOUs or Local Operating Units.

GLEIF and Blockchain

In their report on the LEI to the Financial Stability Board (FSB) in 2012, the GLEIF stated that “the design of the global LEI system would be premised on a ‘logically’ centralized (meaning not physically centralized) database that will appear to users to be from a single seamless system”.

GLEIF however recently recognised that the organizationally federated operating model used for the LEI in 2012, could be upgraded to a technically federated operating model: the distributed ledger model (DLT). This upgrade could potentially provide the same DLT platform for both the LEI and the UPI (Unified Payments Interface), of which the GLEIF is supposed to be the natural repository. This distributed design has always been a longer term goal for the global LEI system.

Present challenges for LEI

The LEI provides a global standard for the representation of identity as well as a standard validation rule set. Both elements however are subject of a very detailed compliance program in order to ensure proper issuance and maintenance of LEI and data quality.

Nowadays collection and storage of data is conducted in multiple country or regionally located operating units (LOUs). Each has their own databases (there are more than 30 at present in the LEI system and a large number of separate ones for each trade repository), and send their data daily in batch overnight processes. LEI data is sent to the GLEIF. Trade repositories send their data to multiple regulators and to central collection facilities depending on the jurisdiction. All regulators and trade repositories maintain their own data copies of identifiers for products and counterparties, and for trades.

This method bears in it a number of challenges, in terms of non-optimal transparency, security and risk issues where blockchain could be of help.

Blockchain and Identity Management

When it comes to use cases for blockchain, security is one of the serious items that comes in many minds. Identity management is one sector of industry that is supposed to provide high-level security to those who rely upon it to keep their data safe. But in reality security is not always what they get. The digital age has introduced new challenges in terms of preventing identity fraud and other criminal abuses for private people but increasingly also for corporates.

Nowadays there is an increased need for strong, multi-step security that identity management services should bring. The widespread adoption of blockchain technology to ensure that any number of these centralised databases are ‘not compromised’, should give enough arguments for the identity management industry to embrace this technology.

Some use cases for identity management

There are a number of interesting blockchain use cases in the identity management field. These include issues like identity verification, non-custodial login solutions, self-sovereign identity, secure identities for the decentralised web etc. These use cases have all proved their usefulness in such an environment.

Identity verification

Blockchain’s multi-step, multi-factor identification processes have proven to work and are already implemented by a number of companies. Admittedly, it is hard to imagine why the blockchain authentication model has not (yet) gained more mainstream adoption, especially considering the stakes of stolen identities and credentials.

Non-custodial login solutions

With non-custodial logins based on the blockchain, there is no longer need of a central entity who holds the power over user names, pass words, and the database that controls them. By removing the custodian of these credentials and replacing them with public and private keychains for logins, the former centralised entity can still ensure that ‘those logging in are who they say they are’, without holding a central database that hackers can easily acquire and use as ransom money.

Reduce third parties’ involvement

Blockchains could also help reduce the number of third parties while still maintaining a user’s identity. One solution could be that a user would store their data and identifiers on a blockchain which they could use throughout the internet, instead of granting each site or service their personal data and credential time. A second proposal is built on a similar blockchain containing the user’s data but allow third parties to access the data with their consent.

Smart contracts for Identification services

Using blockchain for the identification services including the LEI would preferably be in the form of so-called smart contracts. These contracts are ‘included and coded’ applications and data representing the life-cycle processes of a trade. It is stored and activated across a networked database – the distributed ledger – which itself is networked across the Internet.

In other words, a smart contract is self-actuating, based on standardized contract terms that is translated into standard trade life-cycle processes imbedded in coded applications. The smart contract acts on standardized data sets, setting its outputs in conformity to each participant’s processing requirements.

A smart contract requires data standards, including the LEI and its reference data for each participant in the supply chain; the UPI (Unified Payments Interface) and its reference data; and the UTI (Unique Transaction Identifier). It also requires process standards for each event in the life-cycle of a trade.

How could smart contracts be used for the LEI?

But how can smart contracts be used for the LEI? The central point of using smart contracts for the LEI is to treat a single record for any entity to be identified by some key as ‘atomic’. This in the sense of being administered as a single unit of data, by the authority that assigns the keys. Then the representation of a single ‘atomic’ record can be considered as a state for a single smart contract.

Each such contract would offer a method for accessing the representation, and a dynamic data structure that holds ‘revisions’ of the representation. That is, when the record changes globally, its new representation would be added to the state of the contract. Such contract can hold many revisions of the representation, bound only by the capabilities of the network’s global storage, called ‘entity contract’. Together with entity contracts, someone can devise one or more ‘master contracts’, that keep track of individual entity contracts and make accessing an easier process.

What approach for the LEI?

The use of permissioned and private blockchains or distributed ledgers for identity management purposes such as the LEI will require mapping between real world entities. This is hosted via cryptographic algorithms creating public/private keys pairs linked to reference data. The owner of the private key can write into the chain.

This however raises a number of major issues: Firstly, are we going to see multiple digital IDs depending on the application or are we going to use one ID to access all applications. And second, what is the appropriate management for all these IDs.

There are a number of possible scenarios:

One could use identity labels i.e. unique keys in the blockchain/DLT application. That means using the LEI in a distributed ledger system for tracking financial instruments. This is de facto the standard approach due to legal and regulatory requirements.

Another scenario is using blockchain/DLT for managing the LEI creation and management itself. This however should be seen as a longer term project. There are still many open questions but this approach bears interesting aspects for the further evolution of the LEI system.

MakoLab LEI.INFO and Graphchain Proof of Concept

An interesting project that should be taken seriously for further development is the MakoLab LEI.INFO system. Polish-based MakoLab, a Digital Solution Agency for the industry, last June announced the deployment of their production grade Blockchain-based LEI system.

This was the result of two Proof of Concepts (PoCs) for a radically new blockchain LEI system, based on the private Hyperledger Indy blockchain, using the innovative GraphChain database that is much more flexible than any standard existing system available today. These PoCs allowed MakoLab to investigate deeply the possibility to construct a system which represents the ‘highest level of both technological and organisational security’ and is completely decentralised.

Hyperledger Indy Framework

Given the vulnerability of the data, the suggested architecture for LEI is that of a so-called consortium type of blockchain that works on Hyperledger Indy. This is a blockchain model where the consensus process is controlled by a pre-selected set of nodes. The network of Hyperledger Indy nodes thereby runs as a private, permissioned blockchain for the Global LEI System.

In this model different nodes are used. User nodes that participate in the global blockchain as passive users. They can see all the data stored in it, but cannot create or edit anything. Registration nodes having all the properties of the User nodes plus the ability to provisionally add new LEIs to the system. However, such newly added LEIs are not visible on the system until the LOU nodes confirm them through the ‘Proof of Authority’ mechanism. And LOU nodes that have all the properties of the Registration nodes plus the capacity to confirm the new or modified LEIs as valid. Application of the blockchain technology with LOUs running their own nodes, would make the LEI system much safer and more reliable.

GraphChain

End June MakoLab announced the full production version of the innovative GraphChain for the LEI.INFO infrastructure. They thereby created a conceptual proposal how the entire LEI system could run on GraphChain. GraphChain should be seen as a new innovation of creating a blockchain compliant distributed database. The main idea behind GraphChain is to use blockchain mechanisms on top of an abstract RDP (Resource Description Framework) graph data model, that is used for data publishing and interchange on the web.

GraphChain is thereby defined as a linked chain of named graphs specified by the GraphChain ontology and an ontology for data graph part of the GraphChain; a set of general mechanism for calculating a digest of the named RDF graphs; and as a set of network mechanisms that are responsible for the distribution of the named RDF graphs among the distributed peers and for achieving the consensus.

The data graph model describes the semantics, or meaning of information and stores these data as a network of objects with materialised links between them, thereby managing highly interconnected data. It thereby uses graph structures with nodes, edges and properties to represent and store data.

LEI.INFO system

The new functionality allows cryptographic verification of the accuracy or usefulness of the underlying LEI data. The LEI.INFO system uses the RDF graph data model to express LEI reference data as semantic data, that can be verified against the network of Hyperledger Indy Blockchain. This LEI.INFO platform allows to get instant access to the database of entities holding LEI’s and as a result to find a reliable supplier, partner or customer.

LEI.INFO offers a wide range of LEI-related services including a new LEI registration process, resolution of the LEI codes for both humans and software agents, Data Analytics Solutions and integration services for KYC and financial information consolidation applications.

What may blockchain bring for the LEI?

From what is said before, it should not be difficult to see how blockchain and a single database that could be updated in real-time, securely maintained through encryption technology, distributed and shared by all of the participants could benefit those organisations who use the LEI. The reconciliation of the various copies of what is intended to be identical data sets could be done in real-time.

Managing LEI on blockchain delivers transparency and ensures the necessary trust and certainty optimal for combatting financial crimes, streamlining various administrative processes like onboarding, and truly knowing corporate customers, partners, and other businesses. This could ‘revolutionise’ the oversight of the financial industry. As a result of this all, it may lead to firmly reduced resources and costs of the validation process required for conducting due diligence about those entities.

McKinsey, the global consultancy estimates that the largest financial institutions alone can each save $1 billion in costs through a simplified portfolio of data repositories. ISDA members, many being the largest of financial institutions, are envisioned as direct beneficiaries of such savings.

Going forward

Blockchain technology could be of great help for the Global LEI system. The MakoLab project is thereby a very interesting one that deserves further investigation.

This LEI.INFO project however is just a first step in their research and development process with this technology. Taking into consideration the growing potential of the solution, MakoLab is “working on further-enhancing the LEI resolver with other top-class solutions – semantics particularly – as well as translating blockchain into other business areas” .

In the end such an architecture of the new LEI system will enable ‘thousands of registration authorities from multiple countries to participate in the new LEI creation’, thereby opening the path for the true global adoption of the system.

 

 

Carlo de Meijer

Economist and researcher

 

 

10 Steps for an effective and efficient credit card policy

16-9-2019 | Marco Lassche |

Corporate credit cards are often used by employees to pay their expenses during business trips.

In this article we explain how you can easily control the use of corporate credit cards.

  • What are the advantages of corporate credit cards, apart from the old-fashioned declaration on paper (including receipts)?
  • How do you set up an effective and efficient credit card policy?
  • How do you use simple tools to ensure that the accounting process of credit card statements runs quick and smooth?
  • How can you ensure that costs are controlled or even reduced with a simple analysis tool?
Advantages of business credit cards

The advantage for the employee is that she does not first have to pre-finance the expenses herself and later declare the costs based on a stack of crumpled receipts.

Advantages of business credit cards for the company are countless:

  • A free short-term credit line.
  • Purchases are often insured, as well as misuse of the card.

By using a number of simple tools, many more benefits are added:

  • Time saving for accounting through automatic processing of credit card statements in the accounting system. Every transaction on a credit card statement contains a cost category code (also called Merchant Category Code). These codes can be easily linked to (sub) ledgers.
  • Analyzing credit card expenses becomes easy because there is direct insight into the business costs incurred by staff. This means you can also manage cost savings. You can use a special tool for these analysis, but a pivot table in Excel works fine as well.
  • Employees scan their receipt via an app on the phone and can then throw the receipt away. No more hassle.
10 Steps to implement a good credit card policy

A good credit card policy is essential for optimizing credit card use within a company. So make sure that it is clear beforehand what the rules of the game. Equally important, maintain them as well. It is also important that the management confirms itself to the credit card policy. Management should be a good role model.

10 Steps:

  1. Determine the credit card company that fits the best to the company. (VISA/MASTER/American Express).
  2. Determine who within the company is eligible for a credit card. Usually this will be the management and the people in the sales team.
  3. Determine who within the company is responsible for the credit card management. Place this with the Treasury department or the accounting department.
  4. Determine the credit card limits. An employee who always travels to cheap countries does not need such a high limit as an employee who always travels to expensive countries.
  5. Determine the costs for which a credit card may be used. Think of restaurant, taxi, hotels. We do not recommend to allow using business credit cards for private expenses, as this causes extra work for accounting.
  6. Determine the rules for matching the credit card statement with the receipts. A simple rule is to require that within 30 days after receipt of the credit card statement, the scanned receipts must be linked to the statement by the employee. This is also important for an audit. Of course it is true that in certain countries, people do not get a receipt e.g. a taxi ride, so flexibility is required in this. But hotels, restaurants etc., should be able to provide a receipt at any time. Also emphasize to employees that a payment confirmation from a payment terminal is not a receipt.
  7. Determine who approves the spending on the credit card statement. It makes sense to place this with the department manager or CFO. This approval process can be setup in the same online tool in which the credit card statements are uploaded.
  8. Determine the consequences for not following the credit card policy. Some employees with a corporate credit card are very careless or feel like a kid in a candy store. So consider consequences for not uploading receipts, abuse etc..
  9. Have employees who receive a credit card review the policy and sign it. Make sure this policy is not too long.
  10. Ensure that employees hand in their credit card immediately upon termination of employment and block the credit card.
Cost savings on credit cards

Easy and quick gains:

  1. Limit cash withdrawals by credit cards in ATM’s. Costs are often 4% of the cash withdrawal, with a minimum of around € 5 per withdrawal.
  2. Always pay in the local currency with your credit card in non-EUR countries. Although the credit card company often charges 2-3% rate surcharge, ATM’s, hotels and restaurants charge much higher surcharges to pay directly in EUR.

Other cost savings:
There are more cost savings to realize. E.g. there are still a lot of companies in which employees can book their flights and hotels on their own preferred website and pay it by the corporate credit card. To get better insight and cost control you can consider the implementation of a corporate travel portal, in which the employee can still book on its own, but you can control costs much better.

Please feel free to contact me if you need any further information or assistance in setting up a framework to control your corporate credit card costs.

 

 

Marco Lassche 

Founder and Owner of at Bedrijfskostenexpert
Treasurer and Project Manager at Van Caem Klerks Group
treasuryXL Ambassador

What is the cloud based system WalletSizing?

13-9-2019 | Vallstein |

What is WalletSizing?

WalletSizing® is a system in the cloud focused on giving full transparency to corporates on their spending and profitability for banks. All their banks globally, regardless of the number of banks and the type of products, varying from Fx, Cash Management, bonds, lending or asset management. Vallstein takes in all data a corporate has available on the products and invoices from the bank in an innovative easy way for the corporate where they do not need to do much with the data. Vallstein translates, maps and upload it into the system after which the corporate has all insight in their banking landscape and can do easy analysis with all the features the system offers.

What distinguishes WalletSizing® from its competitors?

Firstly, WalletSizing® looks at the entire bank relationship, across all product areas, not just transaction services or credit, but everything that is being used from all banks that maintain a relationship with the client concerned. Secondly, Vallstein takes an explicit view through the eyes of the bank on the relationship, taking all relevant Basel III /IV regulation into account. This kind of transparency is absolutely essential to identify the real room to negotiate and ensure terms and conditions that are truly fair for both sides of the table. Thirdly: technology. Vallstein provides analysis for clients maintaining multiple bank relationships across a multitude of countries with many different banking products, which is impossible to build and let alone maintain in spreadsheets.

ROS Calculation 2

 

Who will benefit from using this system?

CFO’s and Treasurers will benefit by having full transparency in the bank relationships and as a result they will have more meaningful bank reviews, RFP’s and Negotiations. Depending on the objectives a corporate has, it will allow them to be fair in their distribution of business towards banks, limit the number of banks used globally or keep banks costs in line with market practice as will be indicated by the system’s benchmarking capabilities. Where cost saving was an objective, corporates saved 26% on their bank costs on average, across the entire relationship, all products.

About Vallstein
Vallstein is the leading provider of Bank Relationship Management (BRM) solutions with a simple mission: no more black box but instead provide the full transparency that enables development of long term sustainable banking relationships.
Founded in 2000, Vallstein has a multinational team of experts dedicated to developing and implementing cutting edge financial technology solutions to help corporations constantly improve their BRM.
Having calculated and analyzed thousands of Wallets over 18 years, Vallstein brings together a unique combination of big data, innovation, analytical capabilities and banking knowledge. This provides the best practice in the optimization of bank relationships.

Do you want to make better decisions through real-time reporting?

| 05-09-2019 | TIS |

BETTER DECISIONS THROUGH REAL-TIME REPORTING:
BUSINESS INTELLIGENCE ABOUT CASH FLOWS & CASH POSITIONS

How do strategic professionals decide on the best path to success for their company? The key is in transparency and real-time reporting across company-wide cashflow and liquidity levels, bank, customer and supplier relations and working capital. When cashflow visibility is the lifeblood of your company, you want full control and knowledge. Direct access to insights on profitability and potential business risks allow users to drive better decisions based on solid business intelligence, accessible anytime and anywhere.

SCENARIO
BETTER DECISIONS: Companies now have the power of the Business Discovery Manager – a business intelligence module within the TIS cloud platform. Supplier, salary and treasury payments can be easily analyzed along with cash flows, liquidity and working capital via easy-to-use dashboards and reports. The tool, enhanced through state-of-the-art BI technology, enables users to access all strategic insights in a single, flexible, web-based and multi-bank, multi-ERP capable platform available 24 hours a day from anywhere in the world.

 

DOWNLOAD THE COMPLETE FACTSHEET HERE

 

About TIS
TIS (Treasury Intelligence Solutions GmbH) is the leading cloud platform for managing corporate payments, liquidity and bank relationships worldwide. The company delivers SMART PAYMENTS to help customers make BETTER DECISIONS.

TIS enables companies to make more efficient, more secure and more cost-effective payment transactions. In addition, TIS enables customers to make better decisions when analysing financial and operational performance based on real-time payment flows. All mission-critical processes related to payment transactions are integrated into a multibank-capable, audit-proof cloud platform. This is a single point of contact for enterprise customers when managing and analysing their payment flows across the organisation. TIS take care of managing various payment formats, communication channels with banks, and ERP-agnostic integration. Offered as Software as a Service (SaaS), the ISO certified TIS solutions are quickly up and running without the complexity and cost of a long IT project.

 

 

Why Steven decided to explore the World of Treasury

| 02-09-2019 | by treasuryXL | Kendra Keydeniers

Steven de Klein decided to take a deeper dive into the world of treasury and started the RT program in 2014. He graduated as Register Treasurer (RT) in 2017. Before moving into treasury, he studied Business Economics in Nijmegen. His first experience in treasury was a good one, “The field of treasury is much greater than most people expect” said Steven.

Steven is Cash & Currency Manager at Royal Boskalis Westminster NV, a Dutch dredging and heavylift company. With its roots in the Netherlands, Boskalis has over 100 years’ experience in hydraulic engineering, coastal protection and land reclamation. The head office is located in Papendrecht and they have an extensive network of branches around the world. They operate in 90 countries and across six continents, with a versatile fleet of more than 900 vessels and floating equipment. Shares in the company have been listed on Euronext Amsterdam since 1971.

We asked Steven 4 questions about the RT program:

  1. What for you was the main reason to start a career in treasury?

    During my final year at the Radboud University in Nijmegen where I studied Business Economics, I started at a small advisory firm specialized in (corporate) financing. That was my first experience in treasury and it suited me well. Soon afterwards I joined a development & construction company that showed me that treasury was more than just financing and before you know it, you are a ‘treasurer’.

  2. Why did you start with the RT program?

    After working within the same company for a few years I noticed that my learning curve was leveling out. I started to investigate what treasury courses and programs where available and found that the RT program is without any doubt the best and most comprehensive treasury course available in The Netherlands.

  3. How did the education help you in your career?

    Not only did I gain a lot of new knowledge about treasury, but also about related topics such as macro-economics, fiscal law and (hedge) accounting. This helps to connect the dots a lot better when you’re back at your daily job. It also brought me a new network of people, good memories and I even think my current job at Royal Boskalis Westminster NV.

  4. Are you still in touch with your peers?

    Absolutely, during the 2-year program you built a strong relationship with your peers, since you do spend almost a full day per week with them. This is also one of the bigger benefits of the RT program in comparison to at-home studies.

We have more RT stories to share with you. Read the RT story of Bouke, Michel, Jarno, Mathieu and Richard and/or read more info about the RT program here.

The post-graduate Executive Treasury Management & Corporate Finance programme combines two finance disciplines: Treasury Management and Corporate Finance. These disciplines largely overlap and are inextricably connected.

After a successful completion of all required modules, the title of Registered Treasurer (RT) is conferred by the Registered Treasurer foundation.

As of last year the Register Treasurer (RT) program at the University of Amsterdam is taught in English. This is an important change as the program used to be in Dutch.

The course started on 1 September 2019.