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Ripple Report says Blockchain is reaching critical mass in global payments
| 15-11-2018 | Carlo de Meijer | treasuryXL
Recently Ripple launched its “Blockchain in Payments Report 2018”. Main finding of this Report was that global payments based on this technology is reaching critical mass this year. And on top of that organisations are already ‘looking to incorporate digital assets into payments flows’. I was wondering where these findings were based on, so this blog. But what is even more important, did they also tell the whole storey: i.e. what about the various challenges?
Blockchain and cross border payments
The Ripple report showed, a fast majority of respondents acknowledged that improvements in cross border payments can be made, especially in regards to the pre-funding system and real-time gross settlement (RTGS), and that may help expand business scope and sale.
According to Ripple, the consequence of this is, if they want RTGS for global payments ‘without any incremental costs’, the only way to achieve that is by using blockchain and digital assets to source liquidity.
Blockchain’s potential
Respondents did not only acknowledge that blockchain could bring improvements to cross border payments, they also attribute benefits such as speed and greater geographic access to this blockchain technology. Of these benefits speed ranked first (42%), followed by greater geographic access (40%), cost reduction (38%) and, improved transparency (36%).
Respondents in the financial and broker area show the strongest recognition of blockchain’s potential: 60% were very interested; followed by FinTech (47%); and, banking (46%). Based on the services provided remittance providers showed the strongest recognition of blockchain’s advantages (49%).
Nearing blockchain momentum
The findings in the Ripple Report clearly showed that blockchain is ‘moving from experiments to production’ in 2018. And acceptance of blockchain technology will accelerate in the coming five years.
There are various indicators for that. The activity of the so-called Early Majority, including innovators, early adopters and those that are running blockchain pilots or PoCs (totalling 45% of all respondents) are convincing signals that ‘we are nearing the tipping point for mass adoption of blockchain’, says the Report.
Another interesting finding is that while first movers (mostly large companies), thus those that already have started deploying blockchain technology in production as a way to survive in their markets, ‘ stand to lose most in the face of’ the smaller, more agile mid-market organisations that make of the largest part of Early Majority and Late Majority groups.
Read the full article of our expert Carlo de Meijer on LinkedIn
Carlo de Meijer
Economist and researcher
The purpose of payment transfers
| 13-11-2018 | François de Witte | TreasuryXL |
1. Purpose of payments
The payment is the act of paying money to someone or of being paid. Payment transactions (payables, disbursements) can traditionally be split along the way the way the money is transmitted. The most important transmission means are:
We have also observed in the last years new payment forms coming up, such as the telecom payments, the mobile payments, e-wallets and the cryptocurrency payments,
Bank transfers (and its variances) can traditionally be split in:
In this first article on payments, we will focus on the domestic bank transfers, including the current types payments, their advantages and the attention points, and some other concepts.
2. Domestic Transfers
2.1. Bank or Credit Transfer:
If A needs to pay money to B, then he will send a payment order to his bank (ordering bank), who will in turn debits the account of company A and sends the payment order to bank of the beneficiary (B’s Bank) through the clearing, asking to B’s bank to credit the beneficiary’s account.
The following drawing illustrates the flows:
2.2 Clearing:
Clearing is the system, by which an organization (the clearing house) acts as an intermediary in a transaction, to process reconcile orders between paying and receiving parties. Clearing houses provides smoother and more efficient payment markets as parties can make transfers to the clearing house rather than to each individual party with to whom they pay or from which they receive payments.
Within payments we have the difference between the gross and the net settlement:
Examples: UK cheque clearing, BACS, ACH in USA, EBA Step 2 and STET for SEPA payments
Examples: Fedwire in the USA, CHATS in Hong Kong, TARGET in Europe, CHAPS in the UK, DEBES in Denmark, RIX in Sweden and SIX in Switzerland
Illustration of the RTGS system:
2.3 Standing order (also called “recurrent payment”):
This a preauthorised payment under which an account holder instructs his bank to pay on a regular basis a fixed amount from his account to a defined beneficiary. Standing orders are used typically for recurring, fixed-amount expenses (e.g. rental payments, loan or mortgage instalments). They are cancellable at the accountholder’s request.
2.4 Direct debit: Direct Debit:
This is another type of preauthorised payment under which an account holder authorizes his bank to accept debit instructions on his account towards a defined account of a defined creditor. A direct debit is based upon a mandate which is held either by the bank of the debtor or by the creditor. Circumstances in which the funds are drawn as well as dates and amounts are agreed upon between the payee and payer.
This type of payments is typically used for recurrent payments with fluctuating amounts, such as utilities, phone, insurance, credit cards, etc. The payer can cancel the authorization for a direct debit at any time. In addition, several legislations foresee refund periods, enabling the account holder to ask a refund of the amount debited from his account (in the EU for authorized direct debits 8 weeks and for unauthorized direct debits 13 months).
2.5 Urgent versus non urgent-payments:
Most payments are processed as “non-urgent”, enabling the instructing bank to process the payment in batches through the ACH clearing and to take some float. However, for time critical payments, the instructing party can as to his bank to treat the payment order as “urgent”. Urgent payments are usually cleared through the RTGS clearing. If the ordering party respects the cut-off time of his bank (see down below), for domestic payments, the beneficiary is credited the same day with no float. Banks usually charge a higher payment commission for urgent payments.
2.6 Instant credit transfers:
Are a variance of the urgent bank transfer, whereby the money is made available within seconds on the account of the recipient, 24 hours a day, 365 days a year. In some countries, this is already possible.
Example: SEPA Credit Transfer Instant, Faster Payments Service in the UK, The RTP system which will be launched early 2019 in the US.
3. Some other concepts:
Settlement date is the date on which funds become unavailable for the paying party, or available to the beneficiary party.
Value dating: applying a certain value date on a transaction:
Float: the “Bank Float” is the time that elapses between the moment that the funds are unavailable funds for the payer and the moment that the funds available to the beneficiary.
Cut-off time for payments: the point in time before which electronic payments, such as a RTGS or ACH payment, must be submitted to a processing bank for entry into the interbank clearing system. If the payment order is submitted thereafter, it will be executed the next day. The cut-off time is a function of the cut-off time of the clearing system and of the processing time of the ordering bank. In Europe, most banks foresee cut-off times around 15 p.m. for processing ACH or RTGS orders.
4. Some statistics and concluding remarks:
Each year, Cap Gemini and BNP Paribas publish a survey with interesting statistics about payment methods in the world. In their 2018 survey they point out that whilst credit transfers and direct debits remains important in Europe (46 % of the non-cash payment volumes), we see that card payments are becoming more and more important (50 % of the non-cash payment volumes in 2016).
Source: Cap Gemini and BNP World Payments Report 2018
In my next contribution I will go more in detail in the card payments and on cross border payments.
François de Witte
Founder & Senior Consultant at FDW Consult
Managing Director and CFO at SafeTrade Holding S.A.
Reminder: INFORMATION EVENING TREASURY MANAGEMENT & CORPORATE FINANCE
| 12-11-2018 | Vrije Universiteit Amsterdam |
On Thursday 15 November 2018 the Information Evening for the Postgraduate programs, including the Treasury Management & Corporate Finance program, will take place at the Vrije Universiteit Amsterdam.
Anyone interested in this program is welcome to get an impression and to get to know the people involved.
You are welcome as of 18.00 hours. The program for Treasury Management & Corporate Financestarts at 20.30 hours. Afterwards there will be plenty of opportunity to ask questions.
We herewith kindly request you to inform potential candidates in your office and/or your network, about this meeting.
Program Information Evening 15 November 2018:
18.00 hrs. Walk in with coffee / tea and sandwiches
18.30 hrs. Investment Management
19.30 hrs. Risk Management for Financial Institutions
20.30 hrs. Treasury Management & Corporate Finance
Location
Vrije Universiteit Amsterdam, De Boelelaan 1105, Amsterdam
Room Agora (main building, 3rd floor)
VU Accessibility
Registration and information
Myrthe Scholze
020-598 2171
[email protected]
https://ee.sbe.vu.nl/nl/over-vu-executive-education/voorlichtingsdagen/index.aspx
Sincerely,
Herbert Rijken and Robert Dekker