Block-what? Are you up to speed on global payments? EuroFinance 2015
There is no shame in not fully understanding blockchain and its potential disruption of the industry. Particularly not for treasurers. This is for the bankers to understand so they can explain the potential benefits to their corporate clients and it is for the developers to explain it to the banks. The main thing is to be open to learning and change. Anna Milne reports from EuroFinance 2015, Copenhagen
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"It is harder to be a treasurer than an entrepreneur," said Alain Falys, co-founder of Yoyo Wallet and a director at ACE Pelican. "Things are not going to get simpler, we will not have a global standard or a global bank; if anything, corporates become more and more international. Some countries being added to the system do not even have an established Real Time Gross Settlement (RTGS) system." However, technology is the enabler here.
Corporates need to remove complexity and introduce centralisation, they need simplification and transparency. As Falys put it, "a single command and control centre where all the operations are made and also all payments are made on behalf of subsidiaries to bring simplification in terms of risks and cost. It is not about going for the simplest channel but about being able to take advantage of domestic payment schemes."
"Treasurers are not expert in the matter of global payments, nor should they be. Companies are not attempting to deal with one global bank so much anymore as it turns out to be quite expensive- multiple regional banks is OK on paper but very hard to manage- another option is to develop an in-house system, over and above the Enterprise Resource Planning (ERP) and the Treasury Management System (TMS)- that has proven very costly."
"It is becoming a boardroom issue because it has significant cost saving and risk. Blockchain technologies will be talked about more and more at EuroFinance. I see there being more B2B payments with a cryptocurrency riding on them, which will affect all of us, eg BitPesa, which enables local companies in Kenya and Tanzania to buy stuff in Europe using blockchain and bitcoin."
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By GlobalDataSpeaking to ex-president of the European Commision, Jose Manuel Barroso after his on-stage debate with Zanny Minton Beddoes of The Economist, EPI tried to broach the subject of blockchain. But he wasn’t having any of it. He was not the only one. There was not much talk about the hottest subject in the retail payments world at all, bar a mention from Patrick Griffin of Ripple Labs and Bottomline Technologies. And yet it can bring enormous benefit to corporates. Corporate treasurers may not need to know as much as PSPs and banks about the potential of this technology, but it wouldn’t hurt if they did. More was revealed during the payments streams:
Patrick Griffin of Ripple Labs
A blockchain-based payments solution can "enable a market place for cash inventory, where non-bank actors can offer up liquidity inside a common system and compete with their liquidity to win retail and commercial payments. The result is a payment flow where an originator can move a transaction across the ledger and fund the payment from a third party (non-bank) market maker’s position, at the beneficiary’s side of the payment. And all of this happens in an open framework- it’s competitive, it’s a pure market place."
What does this mean for corporate treasurers?
These non-bank actors are hedge funds, trading firms, market-making firms: "FIs with, quite frankly, a lower cost of capital than most corporations so even if you look at a fortune 10 company, Shell, it has about an 8.5% cost of capital- Goldman Sachs has around 4% cost of capital." This is how they evaluate that cost of trapped cash laid out all across the world. "There is a midpoint where [Shell and Goldman Sachs] should trade on that cash management position, on the funding of the payment needs. We’re not suggesting that the amount of capital is coming down, we are just suggesting that the source of that capital can be made cheaper from alternative sources."
"You are effectively paying somebody else to tie up capital in local currencies all over the world and make that capital available on demand to meet your payment needs. All this is real time, total visibility, total traceability."
And what about regulation on liquidity?
These technologies can also be used by transaction banks to manage liquidity and provide an efficient processing layer on top. There is the ability to see continuous reporting on their positions, and all other requirements they’re subject to can be met more efficiently.
"Basel 3- outflows and operational cash- a non-bank actor does not qualify as 100% outflows- from a transaction banker’s perspective- there is an opportunity where deposits coming in from a non-bank actor do not have to be matched one for one and the interest carry on those deposits is much more profitable than the nostro vostro relationship deposits that they’re maintaining – so the regulatory requirements can be met and the profitability of the transaction business line can be improved.
You’d use the technology to improve the reporting on your liquidity to access new liquidity. You are suggesting the fragmentation of the provisioning of liquidity, this is what is novel here, across a distributed system."
The internet lowered the marginal cost of delivering content- as close to zero as possible – the internet of value has the opportunity to do something very similar – both from the processing perspective and operational perspective but most importantly from a liquidity perspective."
As marginal costs come down, the supply of overall payments should go up, hence more activity- and an overall GDP growth story.
Call to corporate arms:
In short: The ‘internet of value’ has the potential to lower marginal costs: talk to your bank and ask what it is doing with distributed technology- is it building commercial services that tap into these liquidity pools to enable these benefits for your corporate treasury service.
Marcus Hughes, director of business development, Bottomline Technologies
I believe areas which are expensive and inefficient today will be streamlined with the use of blockchain-based technology. The kind of role we would take, Bottomline Technologies, would be to become a gateway, as we do already for SWIFT and some other networks-a highly secure, highly resilient gateway. We believe we need the same kind of access controls as a gateway to these decentralised ledgers. And the regulators would be involved. Before big banks adopt this, there will have to be regulatory involvement. I think it’s regulatory concerns that are holding banks back.
Costly processes such as securities, capital markets settlements are slow and expensive and require lots of manual intervention to make that visible to all parties concerned. Today it takes days to get end to end processes completed- there would be a tremendous gain by automating it in this way, executed in real time.
