Tag Archive for: treasury

Treasurer – So what is it that you do exactly?

| 11-10-2017 | Lionel Pavey |

A few weeks ago I took my daughter Charly to the Scouts on a Saturday morning – she goes every week and really enjoys it. I get a couple of hours to myself and normally do the weekend shopping in that time. 2 ½ hours later I went back to pick her up and whilst waiting I got talking to a couple of the parents from the other Scouts, about work, whilst enjoying cups of coffee and hotdogs. They asked me what I did and I explained my vocation as a Treasurer and Cash Manager.

“Yes” one said, “so you are the same as a bookkeeper really. What makes you different? What do you bring that others do not? What makes you special?”

Advantages and benefits of Cash Management

  • Cash is King – profit is an opinion. I can not make you more profit, but I can improve your cash flows and your understanding of them.
  • I can speed up the operations your company uses to administer its cash.
  • I can help you stay solvent.
  • I can address your working capital issues.
  • I can spot fraud.
  • I can estimate your cash position for any time in the future based on your data input.
  • I can obtain better terms and conditions with debtors and creditors.
  • I can warn you when trouble will be ahead if nothing is done.
  • I can analyse the best loan deals for your financing operations.
  • I can make detailed cash flow forecasts that you can show to your banks when negotiating with them for loans or banking facilities.
  • I can reduce costs.
  • I can pay your bills more quickly.
  • I can improve your liquidity.
  • I can reduce your administrative work flows.
  • I can enable you to recycle your cash more quickly.
  • I can reduce your inventory holdings.
  • I can let you know when your future financial commitments have to take place.
  • I can help you maintain good relationships with your creditors.
  • I can optimize your cash at all times.
  • I can reduce your borrowing costs.

You need to generate enough cash from your activities to pay your suppliers, repay shareholders and/or investors and have money left over to invest and grow your business. Be honest, to do all that you need professional support and guidance allowing you to concentrate on growing your business.

They looked at me and said “So you are not really a bookkeeper then.”
I looked at them and smiled – mission accomplished!
“Now you know what a cash specialist can do for you and your company. So, give me a call when you think you need help with any of these issues.”
It is a good feeling when you positively change someone’s perception about what your job actually entails.

I told them what I can do, but did not say how. Are you interested in the how? Go to Rent a Treasurer.

 

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist

 

 

Does your treasury have a digital mindset?

| 25-9-2017 | Patrick Kunz |

 

In an previous article I have talked about the IT changes that make life easier for a treasurer in the future (or now already). In this article I want to talk about the digital mindset of the person using the IT – the treasurer. Treasury is a numbers game. We treasurers use these numbers to optimise the cash or risk of the company. We make money with money. These numbers have to come from somewhere in the organisation and it is usually never treasury itself.

BIG data

Big data is a hot topic in treasury but for treasury it was around longer. The treasurer needs to get their input information for all over the company. Cash inflow from sales, cash outflow from procurement and investment teams, HR etc. All this data needs to be gathered. The digital minded treasurer thinks about optimal ways of gathering this data: automatically. The treasurer starts its day with the actual cash balances and then looks forward. He/She basically needs to predict the future. How great would it be if all this data would be available with the push on a button. An ideal world ? Maybe, but it is possible. Bank statements can be automated to be loaded collectively or in a Treasury Management System. The treasurer starts the day with up to date cash balances, and he has not started working yet as this was automated. He then updates the cash forecast. How? By pushing update in his cash forecasting system. Sounds too easy? True, it took weeks to find out where to find the needed input information and to automate getting this data grouped together and in a structured way. But a digital minded treasurer knows that the data is somewhere in the organisation; it only needs to found and linked to the treasurers information recourses so it is always available. The treasurer only has to check the validity and the quality of the data and see if it needs improvement. In this way the digital minded treasurer can automatically create a cash forecast and continually improve it. A cash forecast should be ready before the second morning coffee. In an ideal world it would be ready with a push on a button. Artificial intelligence makes it possible. The digital minded treasurer is steering it.

Process improvements

The digital treasurer looks at ways to improve its document flows and payments. Not only looking at costs but also looking at how many (manual) interventions are needed. FX deals can be setup to straight through processed (STP) while blockchain would make it possible to improve the speed of payments or document flows globally. Everything is connected, as payments go from a process to straight through and instant it has an immedicate effect on the cash availability and forecasting. While now the bank is the place to go for bank accounts and payments this might not be the case in 10 years. The digital treasury might be able to setup his own bank in the future. By using technology.

The future

The treasurer makes sure that he is on the steering wheel while technology makes it possible for him/her to check his surroundings so he does not crash. A bigger front window makes for a better view forward (forecasting), a higher max speed makes for quicker travel (updating changes in forecasting), adaptive cruise control saves effort on speeds control (automatic updating and AI, STP). The treasurer knows he needs to keep the engine running to keep moving. He also realises that he does not need to be a mechanic to do this; however he needs to be able to tell the mechanics quickly why the car is not moving as the treasurer wants it to be so the mechanic can fix this. Or maybe the digital treasurer might change the car for a plane in the future, or even a rocket?

It is clear that technology and treasury are interconnected. Already now and even more in the future. A treasurer therefore needs a digital mindset to survive and keep up with the information needs of his department and the company as a whole. And it’s not rocket science (yet).

Patrick Kunz 

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

 





 

The IT savvy treasurer

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

How much are you paying your bank?

 

First 100 days of a treasurer

| 11-9-2017 | TIS (Treasury Intelligence Solutions GmbH) – Sponsored content |

When a government official enters into office, the 100 days in the new role are closely observed by all. Similarly, the first impressions left by a new treasurer are often long lasting and critical to success further down the road. In most cases, after the first three months, all stakeholders have formed their opinion.

Sounds familiar? We know that the first 100 days in a new job are known to be crucial in setting the right course. The challenge facing treasurers is to acquire a quick overview, identify company-critical risks, introduce necessary measures at short notice and, at the same time, convince the new boss that they are also able to set the right strategic course.
In our Executive Briefing, our treasury experts share their experiences and provide tips and insights to support you in the first 100 days of your latest position.

TIS (Treasury Intelligence Solutions) GmbH

 

Building a cash flow forecast model

| 5-9-2017 | Lionel Pavey |

 

No company can sort out its funding and investment requirements without having a cash flow forecast. This gives valuable insight into potential bottlenecks where there is a shortage of liquidity that needs to be addressed in order that the company can continue its day-to-day operations whilst optimizing its cash position.

2 methods

There are 2 methods to be a model – indirect and direct.

Indirect uses the balance sheet and, as such, will contain non-cash items like depreciation and bad debts. Direct uses the projected receipts and payments shown at specific moments in time.The indirect method is handy for long term forecasting beyond 1 year as it shows the money required to finance capital intensive investments and projects.

The direct method is essential for short term analysis up to 1 year as it shows the money for operational activities and working capital. As a cash flow forecast is mainly used for the direct needs of a company, it is prudent to use the direct method.

What steps need to be taken to transform a budget into a cash flow forecast via direct method?

  1. Adjust the budget to remove all non-cash items
  2. Analyse historical data to obtain seasonally adjusted cash flows for operational activities
  3. Integrate the standard payment terms for creditors and debtors and adjust the cash date
  4. If there are no clear trends within the month, spread the amount evenly over the month
  5. Where pay dates are hard – wages, taxes etc. input these into those dates
  6. Calculate the operational cash flow
  7. Incorporate expected investments
  8. Incorporate existing financing obligations (principal and interest)
  9. Never forget the BTW (VAT)!
  10. Analyse the forecast for shortfalls or periods of excess liquidity

As this is an exercise that incorporates all departments within a company, it is essential that full support is given by management to the design and implementation of the process. No one person can collect and collate all the data – this requires continuous input by controllers and treasury staff.

How to design the forecast?

  1. Establish clearly defined criteria and processes
  2. Define the role and cooperation required by all parties, whilst highlighting the benefits
  3. Ensure commitment from all parties
  4. 1 data source only – data must be presented in 1 format on agreed dates
  5. Structure – all data is delivered on time to a central point, normally the treasury
  6. Keep it simple – do not over design the model
  7. Give constant feedback to all stakeholders so that they can see how their contributions matter
  8. Question the validity of the data – is it created by a bottom-up approach or has a simple top-down approach been taken without looking at the individual components that make up the forecast
  9. Stress test the data – build simple scenarios (best and worse) whilst making simple assumptions such as debtors extending payment times, fall in sales, increase in demand etc.
  10. Never sit back and think that your task is done. This is a living model that needs to be constantly monitored and adjusted where necessary
  11. Do not punish – many people are reluctant to provide forecasts out of fear that they will be wrong. Use the model to educate and focus stakeholders onto the reality of their cash positions as opposed to their bookkeeping positions. It is all about timing
  12. Remember – if you do not have it, you can not use it. There is nothing more harmful for a company than running out of cash, regardless of what the company accounts are telling you!

If you want to know more about this topic you are welcome to contact me.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist

 

 

 

Introduction of a new initiative: Treasurer Development

| 1-9-2017 | treasuryXL |

Already over a year treasuryXL facilitates information exchange about corporate treasury. Contributions are, amongst others, about the development of the treasurer as a person. Due to the improved economy we notice a rising interest in this topic. Education, competence development and labour market are the most obvious examples. This is why we start the Treasurer Development  initiative.

Treasury education

In treasury education we see a rising interest from universities (also of applied science) which results in young graduates with treasury expertise. Both courses with certifications, like RT, ACT or CTP, are discussed as well as compact, result oriented trainings. Especially quick knowledge about FX and risk is in demand. The number of on-line trainings is quickly rising.

The ambition of many treasurers to have a bigger business impact results in a higher demand for training and coaching. Skills you do not learn in class. Questions like “what communication style works with an average and my CFO” or “how do I convince colleagues in an operating company to change their working methods” deserve a tailor made approach.

The labour market is tilting, the number of vacancies is rising. The way employers and employees find each other has changed over the last decade. Social media have a huge impact. Candidates do not only think about the next step but also about their career as a whole and the place their job has in life.

Treasurer Development Initiative

From this perspective a small group of professionals with relevant expertise came together to start the Treasurer Development Initiative. Questions like “how can we raise the professional level of corporate treasury and increase its impact” and “how can we introduce treasury in places where it has an added value”  will be considered from the perspective of the professional.

In our next blog we will introduce the group and inform you about first plans. If you want to contribute, please let us know.

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What are hot topics in corporate treasury? Let us know!

 | 28-8-2017 | TreasuryXL |
 The treasury community knows us from ‘fresh’ content on a daily basis. A growing number of treasury professionals, our experts, send in articles and blogs and it is our goal to present  interesting content that matters to our readers.
In order to be able to do so, it is important to stay on top of developments and trends and know what keeps you busy. At the moment we are exploring what the hottest topics in corporate treasury are and we would like to ask your help with this!

In cooperation with Treasurer Search we are making a list of the hottest topics. We are curious what subjects you, as a treasury professional, are dealing with on a daily basis.

Please answer the one-question survey (It only takes 1 minute of your time)

Based upon your input we will know what is relevant for you and we will be able to manage our content better.

Thank you for completing the survey.

Annette Gillhart – Community Manager treasuryXL

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

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

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

 

How did Facturis originate from the Rabobank?

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

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

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

Fin Tech initiatives – what changes?

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

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

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

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

What was the biggest success in Facturis?

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

What is your biggest challenge within Facturis?

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

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

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

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

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

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

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

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

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

PowertoPay – Unified Post

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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

 

 

Minor Treasury Management at Hogeschool Utrecht increasingly successful

| 15-8-2017 | Pieter de Kiewit | treasuryXL |

In July 2017 our expert Pieter de Kiewit wrote an interesting article about the minor treasury managment of Hogeschool Utrecht (University of Applied Sciences).
Hogeschool Utrecht started with this program three years ago and Pieter had been asked by Frans Boumans, lecturer and researcher at Hogeschool Utrecht,  to contribute to create the curriculum. Pieter also assisted in finding both guest lecturers and companies providing internships. He will give a presentation to students about labour market opportunities for treasury experts on September 20th, 2017. In his article Pieter continues:

Programs like these do exist at universities in Europe and other countries. The university of Chicago has a strong reputation and we recruited two candidates from France with an extensive academic treasury curriculum. In the Netherlands the Register Treasurers post graduate program is the obvious academic way to go for a treasurer. You can only enter with experience and a degree. Graduating at master level in treasury in the Netherlands is not (yet?) organised.

By now, the Hogeschool Utrecht program has more applicants than seats. Students, not only from Utrecht, but also from other cities enroll. Their backgrounds vary from accounting, audit to business control. They find positions in SMEs, bigger corporates and the financial services industry. Recently Treasurer Search found a permanent position for a graduate with a treasury minor (again). Before we did not recruit graduates as our focus did not match the Dutch educational system. Graduates with treasury expertise were hardly available.

As from September we will continue our cooperation. Together with the people of treasuryXL we will create a brief survey in order to find out what is “hot in corporate treasury”. The results of this survey will be used to have student write papers. Interesting stuff! If you want to contribute or know more about this program you can contact Frans directly ([email protected]) or through Treasurer Search. The structure is set but for good input there is always room.

I hope all this is the preparation for an academic treasury track in The Netherlands. Time will tell.

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

 

More articles of this author:

Fintech recruitment considerations

Consider a treasury intern

If you are not a treasurer with the ambition of a dentist

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

 

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

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