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PSD2 – Update and new developments
| 17-8-2017 | François de Witte |
LIST OF ABBREVIATIONS USED IN THIS ARTICLE
2FA: Two-factor authentication
API: Application Programming Interface.
EBA: European Banking Authority
PSP: Payment Service Provider
PSU: Payment Service User
RTS: Regulatory Technical Standards (final draft issued by the EBA on 23/2/2017)
SCA: Strong Customer Authentication
TPP: Third Party Provider
Main updates on the regulatory framework
On 23 February 2017, the EBA published the final draft on the SCA (Strong Customer Authentication) and Secure Communication.
In this final draft, the EBA clarifies the new rules to be followed for customer authentication, applicable both for operations performed in traditional channels and over the new API (Application Programming Interfaces) services. The key clarifications concern the following:
The 2 factor authentication
Following systems would comply:
1. The 2-device-authentication, where the user has two independent devices:
The authentication device generates one-time passwords (OTPs) over transaction data
2. The 2 app authentication:
This approach does rely on two different apps running on the same mobile device.
The dynamic linking
In order to dynamically link the transaction, the draft RTS states the following requirements must be met:
The exemptions from the SCA
The exemptions from the SCA including also:
The draft RTS (not finalized, not approved yet) also states that Screen scraping is no longer allowed. Screen scraping is a method to take over remotely the data on the screen of the user. This creates a lot of opposition in the financial community, in particular the Fintech’s, as this complicates the interaction between the bank, the TPP, and the PSU. On the other hand, the both the EBA and the EBF (European Banking Federation) are against it. There is a power game ongoing.
Main developments
Banks will have to implement interfaces, so they can interact with the AISPs and PISPs. This compliance with PSD2 is mandatory and all banks will have to make changes to their infrastructure deployments.
Although PSD2 does not specifically mention the API (Application Programming Interfaces), most technology and finance professionals assume that APIs will be the technological standard used to allow banks to comply with the regulation.
An API is a set of commands, routines, protocols and tools which can be used to develop interfacing programs. APIs define how different applications communicate with each other, making available certain data from a particular program in a way that enables other applications to use that data. Through an API, a TPP application can make a request with standardized input towards another application and get that second application to perform an operation and deliver a standardized output back to the first application. For example, approved third parties can access your payment account information if mandated by the user and initiate payment transfer directly.
In this framework, the challenge is to create standards for the APIs specifying the nomenclature, access protocols, authentication, etc.”. Banks will have to think about how their new API layers interact with their core banking systems and the data models that are implemented alongside this.
At this stage, following working groups were constituted to further elaborate on these standards:
In the meantime, several providers are developing their services, including in the Benelux Equens Worldine, Capco, Sopra Banking and Isabel.
Along with the arrival of open API banking, there is also clear momentum for providing real-time services such as “instant payments”. This requires banks to shift their entire product and service mindset towards immediate delivery and to make fundamental changes to their legacy systems. While this is a challenge, it also presents opportunities (see also my article in TreasuryXL on this topic: SEPA Instant Payments – a catalyst for new developments in the payments market (https://www.treasuryxl.com/news-articles/francois-de-witte/sepa-instant-payments-catalyst-new-developments-payments-market and https://www.treasuryxl.com/news-articles/francois-de-witte/sepa-instant-payments-a-catalyst-for-new-developments-in-the-payments-market-part-ii/).
The large banks have already started working on being PSD2 compliant and on building for the opening of their banking architecture to the TPPs. However, several small or medium sized banks only started recently on this project. Hence a lot has to be done, and I do expect some shortages in resources in the next coming months.
With regard to the access to TPPs, article 113.4 of PSD2 explicitly states that the member states shall ensure the application of the security measures with the 18 months following the entry in force of the Hence, we might expect that this part of PSD2 needs only to be implemented by mid-2019. Given the strategic importance and the IT act, I recommend starting this exercise much earlier.
Conclusion
The PSD2 creates challenges. Several topics need to be clarified such as the RTS and the market players need also to agree on common standards for the interfaces.
However, there are initiatives, such as the Berlin Group, the UK’s Open Banking Framework and the STET group, which help give further clarity and direction in the absence of specific technical detail.
Consequently, there is no justifiable reason for any bank to delay starting these projects.
The clock is ticking in the PSD race.
If you want further update on this topic, you can join the 1 day training session on this topic, which I will give on 22/11/2017 at Febelfin Academy.
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Please read my earlier articles on PSD2:
PSD 2: A lot of opportunities but also big challenges (Part I)
PSD 2: A lot of opportunities but also big challenges (Part II)
Sepa instant payments – A catalyst for new developments in the payments market (Part I)
Sepa instant payments – A catalyst for new developments in the payments market (Part II)
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Industries are ready for blockchain take off
| 16-8-2017 | Carlo de Meijer |
The study and its main finding
The survey’s main finding is that almost 40% of all interviewed (almost 370 executives, managers and IT profs) including 56% of the largest companies were either “considering” or “were in the process of employing blockchain solutions”.
This indicates that a majority of companies nowadays have a much greater understanding of blockchain and distributed ledger technology. They are recognizing that blockchain has the ” potential to be deployed in a variety of use cases”. There is also increased awareness amongst industries to consider deployment to gain competitive advantage.
Other findings
This “dramatic” increase in awareness is shown by the outcome that more than 80% of the surveyed companies have ‘a little’ or ‘a good’ understanding of blockchain
“It is clear that companies across the board have a significantly greater understanding of blockchain technology than was the case 12 months ago,”Juniper report.
More than three quarter of the respondents believe that blockchain could be ‘very useful’ or ‘quite useful’ for their company.
The time of exploring what blockchain is and what corporates can do with it lies largely behind us. It is now more about what blockchain systems to choose and how to integrate it in their legacy systems. Or as the study stated “It’s now much more geared to competing protocols, or the vetting of use cases …”.
Companies anticipating integration of blockchain
The survey also shows that many corporates are actively considering blockchain deployments.
Amongst the largest companies even 54% are in the so-called Proof of Concept (PoC) stage, while a further 16% is already involved in blockchain trials.
And those who already are in the PoC stage, two-thirds expect blockchain will be integrated in their legacy systems by the end of 2018.
While 81% of the smaller companies surveyed expect integration to be completed by the end of 2018, almost 60% of the large companies surveyed say they will reach that stage at that date.
Corporates and disruption
Despite the dramatic increase in blockchain awareness and identified benefits over the past 18 months, however, it is “critically important that companies consider all alternative options before deciding whether or not to deploy blockchain” according to the report.
Juniper mentioned that companies should consider whether blockchain is the necessary solution to their needs, as some companies under-estimate the challenges of deployment. They should seek “systemic change, rather than technological” innovation.
That “might be a better and cheaper solution than blockchain, which could potentially cause significant internal and external disruption.” Juniper report.
One main concern for the surveyed companies is in what way, who and where blockchain might disrupt not only their legacy systems but also their relationships with their clients. This is in part due to their fears around interoperability. Customers’ systems may no longer integrate with (or be compatible with) their upgraded systems.
The survey further shows that:
“Companies may have underestimated the scale of the blockchain challenge. For issues such as interoperability, the proportion of survey respondents expressing concerns progressively increased as companies proceed towards full deployment, while concerns also rose sharply regarding client refusal to embrace blockchain”. Juniper research
Who are the industries with largest blockchain opportunities?
This is a very interesting part of the survey. Jupiner Research conducted a comparative assessment of blockchain’ potential’s across 9 key industry areas. Main conclusion is that “in most cases, the more a vertical (industry) is suited to blockchain deployment, the greater the degree of implementation challenges”.
“Essentially, blockchain offers particular benefits to improve efficiency and corporate transparency; if an enterprise is heavily dependent upon paper-based storage and has high volumes of transactions or transmitted information, it can be especially effective.” says Windsor Holden, blockchain specialist at Juniper
Deployments in verticals such as Utilities and Content Publishing do not pose the scale and variety of challenges involved in Financial Settlement, according to the survey. They however “will not achieve the extent of gains, cost savings, efficiencies and risk reduction as is possible in the financial settlement industry”, according to the Juniper Research survey.
And what industries are (already) fit for blockchain
According to the survey, when challenges are measured against the scale of the opportunity, industries like Automotive, Financial Settlement and Land Registry emerge as particularly interesting prospects for blockchain application. This compared to other segments such as Utilities, Telcos a.o.
This is not that strange as next to the relative successes achieved in blockchain integration especially in the financial sector thus far, blockchain may bring more benefits as it will be a real problem solver for these industries challenges. While the inherent characteristics of these sectors make them more suitable for blockchain technology.
What else is needed?
But that is not the whole storey. Corporates are not isolated entities. To be successful corporates should raise the awareness of blockchain’s capabilities at their customers. And before integrating blockchain in their own systems they should get a greater understanding of the scale of potential hurdles.
Carlo de Meijer
Economist and researcher
Trump’s determination to protect American business
| 14-8-2017 | Rob Beemster |
Many negative issues surround the President of the United States. Approval rating hits new low, surprise on his erratic conduct seems to grow daily. Trump is a unique politician. He is incomparable to any other western political leader. I want to pinpoint his monetary policy in 2017, by looking at the pattern of the dollar so far this year.
The dollar in 2017
Currency pair January 2017 August 2017 Relative decrease USD
EUR/USD 1.05 1.18 12.4%
AUD/USD 0.72 0.80 11.1%
GBP/USD 1.22 1.32 8.2%
USD/JPY 1.18 1.10 6.8%
USD/CNY 6.96 6.70 3.7%
Maybe Mr Trump does have a foreign economic policy.
He sees the results of Chinese manipulation and soft American response as an unfair trade relationship. The President of the US must do something about these unbalances. At least, this is how Trump judges.
Let’s take into account this Potus is a streetfighter. Long bilateral meetings with the Chinese are not options for Trump. Fast and furious, that it is: Bring the dollar down!!
And this is going on for half a year now. It is going the Trump way. Tough (but efficient)!
How to see the future value of the dollar?
The current outlook for the dollar against its main trading relations is related to some issues:
– Process of QE by ECB, and Euro interest rates
– North Korea
– China’s position in this geopolitical stress
– Economic conditions of the US
– Economic conditions of the main trading partners of the US
These are very important to determine the future value of the dollar. But this is the holistic view, we are all used to. Let’s be flexible and take a different stance. Just conclude as Trump will do. Be his alter ego.Then the most important issues are:
– Pattern of the Euro against the dollar and the bilateral trade balance between US and Germany
– China’s reaction to a lower dollar
– US trade balance
– US corporates repatriation of overseas cash
– US investments to produce within America
– FDI (Foreign Direct Investment) in America
This is a totally different scope. If we want to understand Trump, then we have to use his view on the international arena. The above mentioned bullet points are crucial. All can easily be measured, Trump loves that. I would like to go through these points to be able to clarify the possible outcome of the dollar for the coming time.
Pattern of the Euro against the dollar and the bilateral trade balance between US and Germany
The more than 12% revaluation will have a serious impact on the trade balance between US and Germany. When the correction emerges, Trump might temper his view on Germany. When we notice correction in the trade data, the dollar has gone far enough…
China’s reaction to a lower dollar
So far the yuan has gained some territory but not as much as other major currencies rose against the dollar. How will PBOC and the Chinese Government react on Trump’s wishes to correct the trade balance by a devaluation of the dollar against the yuan? If they take action on Trump’s stated requirements, whatever this may be, then pressure may diminish.
US trade balance
For many years the US faces a deficit on its trade balance. The more than $500 billion yearly shortage is a notable pain point. If a remarkable achievement can be noticed on short term, a more relaxed dollar attitude may be expected.
US corporates repatriation of overseas cash
In history, attempts have been organised by US governments to return overseas cash of US corporations. During President Bush jr Presidency, corporations did repatriate cash. When Trump does decrease the corporate tax tariff to 15% and he rewards the US corps to transfer their money back to the US without any other penalty payments, a large repatriation may get going. Many of these funds will until now be held in local currencies, so a switch to the dollar may occur.
US corps return back to America
Trump has ordered US companies to produce in the US instead of overseas. If he becomes successful by bringing factories back to the US, the trade balance will shift, employment will improve. Also when large repatriation is done, these funds can be invested in local factories.
FDI in America
Many non-US corporations are scared by the threat of the US government that regulations like import tariffs and other taxes may be charged on imports. It will damage the advantage corporations have experienced last couple of years due to the high dollar. If special import tariffs are installed, investments may be done in the US to avoid these special expenditures. Onshore producing on American soil will become an alternative.
How to manage this?
Foreign currency management has always been a hard part of the international business. Currency moves are unpredictable. But since Trump, one has to be aware of non-economic issues as well. Note that all the above mentioned issues can have effect on the value of the dollar. Professional guidance of your flows is becoming more and more important. Barcelona valuta experts helps you to install a decent strategy to counter unpredicted events. We guide you in protecting the cash flow.
Rob Beemster
Owner of Barcelona valuta experts BV