Global Treasury Briefing December 2016

GTB

EXPERT INSIGHT ON GLOBAL TREASURY AND FINANCE

G L O B A L T R E A S U RY B R I E F I N G

DECEMBER 2016

PAYMENTS: THE NEED FOR SPEED PRESIDENT TRUMP

DO TRUMPONOMICS ADD UP? IN THRALL TO THE DONALD WHAT DOES IT MEAN FOR GLOBAL CORPORATES? ALSO IN THIS ISSUE WHY INDIA’S BANKING INNOVATION SHOULD EXCITE THE WORLD

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C O NT E NT S

G L O B A L T R E A S U RY B R I EFI NG

GLOB AL TREASURY BRIEFING

CONTENTS

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EDITOR’S LETTER

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DO TRUMPONOMICS ADD UP?

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IN THRALL TO THE DONALD

11 WHAT DOES IT MEAN FOR GLOBAL CORPORATES? 12 STARTING FROM SCRATCH: BUILDING A TREASURY TEAM AT ISAGENIX 14 A LOOK INSIDE THE CRYSTAL BALL

CEO Sandeep Saujani sandeep.saujani@contentive.com EDITOR Graham Buck graham@gtnews.com EDITORIAL CONTRIBUTORS Peter Williams John Hintze Rebecca Brace

15 INSTANT PAYMENTS: A SIMPLE CONCEPT, BUT A COMPLEX CHALLENGE

SUB EDITOR Leonie Mercedes

17 LESS HASTE, LESS SPEED

ADVERTISING Carolina Quintana carolina@gtnews.com | +44(0)20 8080 9168

20 GETTING BANKS ON BOARD WITH PAYMENT INNOVATION 22 ON THE EVE OF A NEW ERA IN CROSS-BORDER PAYMENTS 24 A WAVE OF UNCERTAINTY 26 FLYING BLIND: CORPORATE SANCTIONS SCREENING 28 INDIA’S BANKING INNOVATION SHOULD EXCITE THE WORLD 30 FOR YOUR DIARY

DESIGN & PRODUCTION Alex Panichi - Accelerate Digital www.acceleratedigital.com Copyright © 2016 gtnews. Copying and redistributing prohibited without permission of the publisher. This information is provided with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. If legal or other expert assistance is required, the services of a competent professional person should be sought.

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E D IT O R ’S L E T T E R

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EDITOR’S LETTER D

ear GTNews subscriber, With the second political earthquake in little more than four months sending reverberations around the world, the temptation was to hastily jettison our planned cover story for this issue and replace it with one on the US under President Trump.

Not that we are shirking this duty; two of our intrepid contributors look forward to what four years of the Donald is likely to bring for business. However, given the president-elect’s predilection for both making up policy ‘on the hoof ’ and executing 180-degree turns, possibly a deeper analysis awaits once he is installed in the White House next month.

In the meantime, with the US finally playing catch-up with the rest of the world and introducing real-time payments this autumn, our main focus entitled ‘Payments: the need for speed’ is timely.

With around 14,000 financial institutions across the country and a market that’s more fragmented than many others, hitching the world’s largest economy to the faster payments trend was never going to be an easy task. Its accomplishment is therefore a major boost, even if the evidence at this year’s Association for Financial Professionals’ (AFP) conference was that some US corporates see no compelling reason for jumping aboard. This month also marks the first anniversary of SWIFT’s global payments innovation (GPI) initiative and our feature looks back on the first year’s progress.

Of course, amid all the talk of faster payments initiatives and the technology advances that make them possible there is an inconvenient fact: many of the world’s largest corporates use their muscle to deliberately sit on payments due to suppliers.

As we report, organisations such as the UK’s Federation of Small Businesses are lobbying to improve the situation. However, campaigns to persuade big business to adhere to prompt payment guidelines could make only limited headway if global economic growth remains sluggish in the years ahead.

Elsewhere in this edition, Steve Harris of the global insurance and risk management group Marsh examines the repercussions of one of the year’s biggest corporate casualties. The bankruptcy last August of South Korea’s Hanjin shipping line – the world’s seventh-largest container shipper – continues to have an effect on businesses around the globe. Additionally, it reflects the economic woes afflicting many other operators across the industry, which is ripe for merger and consolidation.

We hope that you enjoy the other features in this issue, the third since Global Treasury Briefing’s relaunch last summer. My thanks our talented design team who have transformed the magazine’s appearance, particularly to colleague Alex Panichi who is adept at transforming my very basic concepts for the front cover into an arresting image. We have an ambitious schedule for 2017 and - as always – feedback from readers on topics that you’d like GTB to cover are always welcome. We’ll be back in early March, when the 45th president of the US will have taken up residence and the Trump era will be well underway.

Best wishes, Graham Buck GTNews editor

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P R ES I DEN T TR U M P

DO TRUMPONOMICS ADD UP? T

he new US president elect, Donald J. Trump, will take office and full command of the US economy on 20 January 2017. His victory in November not only surprised the majority of Americans - and many others around the world – it also sent shockwaves across the New York stock exchange causing stocks to plummet.

This regularly occurs with a change from one political party to the other since investors expect, indeed prefer, the stability and sureness of policy continuity. Although the market soon rallied, investors and business leaders are watching closely for signs of what a Trump presidency will have on the US economy and abroad. If the new president’s national economic policy causes instability and turmoil on the US exchanges, the effects will likely ripple through global economies.

One concern weighing heavily on the minds of Americans and local economists is Trump’s plans for the Affordable Care Act (ACA), Obama’s monumental piece of legislation. Campaign promises for repealing the ACA, if enacted, would push 20m citizens off health insurance with DECEMBER 2016

substantial negative impacts on household incomes and purchasing power.

Trump’s tax plan, released in October, raises other concerns. He proposes more trickle-down tax breaks for corporations and the wealthiest 2% of the population, but no funding mechanisms. Tax rates for corporations are slated to drop from 35% to 15%. Middle-class tax brackets can expect to see a slight reduction to 25% and lower incomes can actually expect an increase to 12% from their effective 10% tax rate.

Analysis by the Congressional Budgeting Office (CBO) suggests the move will add around US$137bn to the deficit. Add to this the absence from Trump’s budget plan of any federal spending reductions and the net result jumps to US$9.7 trillion in national debt over 10 years. Any economic benefits from the proposed plan are expected to be nullified by large increases in interest rates, driven by the rising debt level. The Republican-controlled Congress will likely rely on its favorite fallback position – spending cuts to Federal programmes, so expect to see education, social security and

the Environmental Protection Agency take drastic budget hits. A few new programmes and agencies should be added to the mix, with attempts to severely restrict the Consumer Financial Protection Bureau and privatise Medicare.

Social policies supported by Trump could also have serious ramifications for businesses such as the tech industry. Silicon Valley and North Carolina’s Research Triangle Park are already bracing for potential limitations on sourcing talent from reductions in the non-immigrant H1B visas that enable US corporates to recruit and employ foreign professionals.

Manufacturing may pose an even bigger problem with pressure to repatriate these jobs or levy heavier duties on imports of offshored products, leading to higher prices at market and lower sales.

Much of the US economic outlook depends on who Trump selects for key economic policy advisors, many of which will still require the approval of Congress.

At the time of writing, JP Morgan Chase chief Jamie Dimon had apparently been ruled out as Secretary of the Treasury, so

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IF THE INCOMING PRESIDENT IMPLEMENTS ALL OF HIS ELECTION PLEDGES, THE ECONOMIC COST WILL BE SUBSTANTIAL SAYS JESSAMYN PALME it was uncertain which former Wall Street banking exec would be offered the role and their stance on top economic drivers.

MEXICAN WRESTLING On the global stage, Trump campaigned heavily on returning manufacturing jobs to the US by cancelling or renegotiating trade agreements with any countries incurring his displeasure. What is clear is that if he follows through on his protectionist stance on trade; expect to see disruptions in global supply chains, trouble resulting for corporate profitability and investment potentially stymied.

For America’s closest neighbours, his pledge to pull out of North American Free Trade Agreement (NAFTA) will have the greatest impact on Mexico. According to Jimena Blanco, head of American research at analysis firm Verisk Maplecroft, “Trump’s victory will trigger a period of severe economic uncertainty for Mexico, as was heightened by the collapse of the Mexican peso early on 10 November”.

The president-elect has already confirmed the demise of the Trans-Pacific

Partnership (TTP) trade agreement, which had stalled for some time before he administered the Last Rites. Not a good prospect for Japan, which was anticipating a 2.7% gross domestic product boost over 15 years from the TTP. Bilateral trade agreements with China, the largest exporter to US, are also in the president-elect’s crosshairs, with tariffs of up to 45% threatened for Chinese imports.

Yet this could prove more devastating than helpful to American manufacturing should China take retaliatory action against sales of US imports, such as automobiles, orders for Boeing planes and agricultural products.

This, in turn, could prove good news for Europe, though, if China in is a position to source airplanes, autos and other premium manufactured items on large order readily available in the European Union (EU).

RUSSIA RAPPROCHEMENT A Trump presidency might not be unwelcome to all, though. Throughout his election campaign, Trump took a decidedly gentler attitude towards Moscow. Should he decide to ease trade embargos on

Russia, it is likely the EU will also follow suit. Russian businesses view the prospect of fewer sanctions and a less antagonistic relationship with the US with cautious optimism. At the same time others don’t believe stronger ties between the Kremlin and White House will have much, if any, consequence on the Russian economy.

Like much of his electioneering, the president-elect’s transition period is filled with contradictions, vacillations and unknowns. Nervousness abounds on both sides of the political fence as the country waits and wonders how promises and policies will play out on the national scene.

International economists, investor and leaders are all watching intently for signs of how Trump’s presidency will affect the strength of the dollar, the reliability of the US as a trade partner and the potential domino effect that may ensue.

Jessamyn Palme is global marketing and partnerships strategist for fintech TAS Group.

DECEMBER 2016

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P R ES I DEN T TRU M P

SHOULD PRESIDENT-ELECT TRUMP PURSUE HIS ELECTION CAMPAIGN TRADE THREATS, THERE’S LITTLE TO STOP HIM, SUGGESTS JOHN HINTZE

IN THRALL TO THE DONALD

T

he unexpected has arrived and US president-elect Donald Trump is putting in place the pieces to carry out campaign promises impacting multinational corporations (MNCs). They include protectionist trade measures aimed specifically at China and Mexico that could end up impacting a much broader swathe of trading partners.

The mystery of just what policies Trump will pursue – and when – is still unfolding as he assembles an administration. Those policies could help or hurt MNCs on several fronts in addition to trade, including corporate tax reform and rebuilding US infrastructure. However, trade is highly relevant for MNCs, and it appears that trade-related policies could be among the first the new administration will tackle.

In fact, global trade could be affected soon after the new president takes office on 20 January, given the tools at his disposal.

The impact could have short-mediumand long-term consequences, with mixed results for MNCs and their customers.

The first indication of the extent aTrump administration will impact global trade will be his choices to head up the Office of the US Trade Representative (USTR), the US Department of Commerce (DoC), and the US International Trade Commission (ITC), an independent agency that investigates the effects of other countries trade policies on American industry.

Trump had yet to make trade-related picks as of the time of writing, but Daniel

DECEMBER 2016

R. DiMicco, long-time head of Nucor, the largest US steel company, has been talked about as a strong contender to head up the USTR. He has been an outspoken critic of free trade agreements; as has Wilbur Ross, a billionaire whose name has circulated as a nominee to head of the DoC. Emily Blanchard, associate professor at the Tuck School of Business at Dartmouth College, says such choices “suggest that anti-dumping and related policies might be used more aggressively”.

Anti-dumping duties are targeted at specific exporters, while countervailing duties and safeguards are applied more broadly. The executive branch can pursue such temporary measures unilaterally, without Congressional approval. Blanchard says anti-dumping duties can easily exceed 100% of the transaction value.

“Trump has talked about a 45% hike on Chinese imports across the board, and that’s remarkable for a host of reasons …

But it could happen”, she says.

TARGETING CHINA Steve Becker, partner and leader of the international trade practice at law firm Pillsbury Winthrop Shaw Pittman, says that there are already about 120 antidumping orders against imports of a broad range of products from China, and that domestic industries initiate antidumping investigations, rather than the government.

“US domestic industries have always had a welcoming atmosphere to bring new

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cases at the DoC, and it is unclear what more the incoming administration can do in that regard,” he adds.

Blanchard agrees that the DoC has already played an early and active role in advancing anti-dumping type measures.

However, an activist DoC led by a critic of current trade policies could result in more cases being filed and more duties imposed.

“It’s entirely possible that the US ITC would ultimately toss out many of these duties, but the trade-cooling effect would have already taken place,” she suggests.

Even 100 new anti-dumping orders, however, would be only a drop in the bucket, considering upwards of US$400bn in goods are imported from China, notes Farok Contractor, distinguished professor, management and global business, Rutgers Business School. “That would be an example of calculated pragmatism, where he (Trump) takes symbolic action that doesn’t fundamentally alter things,” he says.

Nevertheless, a sharp increase in such duties would likely prompt trading partners

to engage the World Trade Organisation’s (WTO) dispute settlement process. If the WTO determines those trade policies have been misused, the global organisation could authorise the counterparties to pursue counter tariffs. Blanchard notes that Europe has won dispute settlement cases at the WTO and got the US to back down quickly by publicly targeting specific US exports, such as Florida oranges during mid-term Congressional elections.

Becker notes anti-dumping, countervailing duty and safeguard measures cannot be imposed without going through administrative procedures that take time to complete. He believes imposing trade restrictions on major trading partners without using those procedures would be inconsistent with US obligations under the WTO agreements and would provide a legal basis for other countries to retaliate.

There has been “a lot of rhetoric” around possible protectionist measures “but no indications of a detailed plan” to carry them out, he says.

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He adds that there has been discussion of making US businesses more competitive internationally through tax policy, and that reforming corporate tax rates, which likely would be strongly supported by a Republican Congress, would be an initiative that potentially could be carried out much more quickly.

Blanchard agrees that such tariffs can’t be imposed immediately, but depending on the political appointments they could be pursued quickly, and considering Trump’s rhetoric so far much more aggressively.

“The ball could start rolling overnight, and since the players know the game, the trade war repercussions could start overnight, too. But the tariffs themselves could take a little longer,” she says.

As an example, if a US firm files an antidumping charge, the DoC would proceed to make an initial summary judgment-type ruling, which generally takes a couple of months, at which point tariffs are imposed.

Then, the US ITC would conduct the full-blown investigation to determine the merits of the US companies’ allegations.

“The ultimate ruling by the USITC can take years, but by then the damage is done,” says Blanchard. “Research shows that even an increased possibility of higher tariffs can reduce trade flows. Protectionist proceedings can start immediately, gin up trade policy uncertainty, and thus have large and immediate effects.”

THE ROAD TO TRADE WAR Besides the anti-dumping-type measures, there are several laws enabling the president to impose trade restrictions in times of emergency, powers that are often broadly interpreted. The Trade Act of 1974 empowers the president to impose tariffs of up to 15% for 150 days to deal with balance of payment deficits, as well as retaliate against unfair trade practices.

Trump’s claim that China is intentionally weakening its currency appears aimed at invoking that measure, even though China has actually been buying renminbi in an effort to strengthen it.

Blanchard anticipates that the most effective curb on those types of actions may come from large US MNCs. Some will lobby the government to avoid placing tariffs on certain products, since it’s their multinational affiliates or joint ventures exporting the products to the US. Blanchard’s research has found that global supply chains in general – and US MNCs in particular – already play an important role in expanding and defending market access for the US’s trading partners.

Nevertheless, there are bound to be

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instances when MNCs fail to convince policy-makers of the benefits of freer trade, the government pursues significant measures and trading partners retaliate.

The WTO doesn’t limit retaliatory tariffs to like-products, and as the US and its trading partners seek out each other’s weak points a trading war could escalate.

Trump’s threat to impose a 45% tariff on Chinese goods only would “unquestionably” be a violation of WTO rules, says Chad Bown, a senior fellow at the Peterson Institute for International Economics and formerly a lead economist at The World Bank. He adds that China’s almost assured retaliation would adversely impact US exports to the country, now the world’s second-largest economy.

The Trump team might argue that such tariffs would reduce the US’s long-time trade deficit with respect to China, but trade numbers are measured in gross flow terms, and that can be deceiving.

For example, an iPhone may be recorded as a US$200 import from China, but often its memory card, screen and other components are made in South Korea, Tawain and Japan, while the marketing and sales components are generated in the US and only assembly of the final pieces is done in China.

“While $200 gets credited to China, it is really only putting together the last 5% or 10% of the product,” says Bown. “So, in value added terms it’s only a $10 or $20 Chinese product, and $50 of the product is from the US. If we eliminate iPhones through tariffs, we’re not only reducing the trade deficit with China, but we’re harming ourselves by limiting our ability to export the ideas and innovation that led to the iPhone.”

PROTECTING NAFTA Similar harm to MNCs could come from seeking to renegotiate US bilateral trade agreements, such as the North American Free Trade Agreement (Nafta) and the Trans-Pacific Partnership (TPP). The latter, which both the Trump and Clinton campaigns criticised, appears to be dead in the water. Nafta, however, was signed nearly 23 years ago, and MNCs have structured their businesses around it.

During his campaign, Trump said an unsuccessful renegotiation of Nafta could lead to 35% tariffs across all imports from Mexico, the US’s third-largest trading partner. Bown points out that US MNCs are particularly concerned now about what constitutes a successful “deal” and the shape and extent of the potential tariffs.

“MNCs like Nafta because it allows

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them to develop supply chains across anywhere in North America, to take advantage of different work forces, and inputs such as energy, minerals and other materials,” he says. “If we’re going to say anything that crosses the border will have an additional 35% tax, those supply chains will get thrown out of whack.”

He adds that a clause in Nafta allows a country to withdraw from the treaty after giving notice of six months, although since no country has done this before it’s unclear whether it requires Congressional approval or something else. “If an MNC doesn’t know what its future looks like, it’s unlikely to make investments,” Bown notes.

A further uncertainly around dissolving Nafta is how that would impact trade relations with Canada; also a Nafta signatory and the US’s largest trading partner.

“The US had a prior free trade agreement with Canada, signed in 1987, so [the Trump administration] may seek to return to that agreement,” Bown says. “But that has not been fully articulated.”

Without Nafta, trade relations between the US and Mexico would

revert to existing WTO commitments, which cap tariffs at very low levels. Should Trump’s more remarkable tariff threats against Mexico and China reach fruition, they would almost certainly violate WTO rules. Since the WTO has no enforcement mechanism besides authorising retaliatory trade measures, countries could very well ignore its dispute-settlement mechanism, arguably the most critical component of the WTO, impacting global trade negatively in the long term.

“One outside possibility is that the US might thumb its nose at a WTO ruling in a way that makes all countries question the value of the WTO’s Dispute Settlement Body,” Blanchard says. “Under the WTO, countries have come together and agreed to play by a set of rules. If the biggest player says we’re going to play by a different set of rules now, that could ultimately undermine the WTO and endanger global trade.”

John Hintze is a freelance reporter and editor, writing regularly for GTNews on business and financial topics including capital markets, regulatory and accounting developments and technology.

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TRUMPONOMICS: WHAT DOES IT MEAN FOR GLOBAL CORPORATES? AS THE DUST SETTLES ON ONE OF THE BIGGEST SHOCKS IN US ELECTORAL HISTORY, MARK O’TOOLE ASSESSES THE ECONOMIC IMPLICATIONS A TRUMP PRESIDENCY IS LIKELY TO HAVE ON GLOBAL BUSINESSES

D

onald Trump: “I play Monopoly, my favorite street is Park Avenue.

Jimmy Kimmel: “Is Park Avenue even in Monopoly? Oh no, wait – you play Monopoly in real life don’t you!”

A snippet from a recent interview with the US president-elect on The Tonight Show, only weeks before the 8 November election. It’s an interesting insight into the property mogul’s mind, particularly as – just like Monopoly – there will be some winners and some losers when (and of course if) his policy pledges are implemented.

Take his first roll of the dice: a promised whopping 20% corporation tax cut. If this materialises, it will lead to a massive surge in activity for US companies. However, on the less favourable side, competing multinational corporations will be operating under a higher tax rate. And it is these very companies, with US operations, that will be most affected in the short-, medium- and long-term by Trump’s victory.

Look at one of his early policy proposals which could trigger a massive trade war – high tariffs slapped on international firms selling into the US. Beyond tariffs, Trump has promised to cut red tape, starting with the Dodd-Frank regulation. While initially leading to a jump in banking stocks with the prospect of more capital being freed up, it could also come at a cost. Banks and their corporate clients have spent years realigning business models to meet the regulations, so any removal of the rules would be a major operational headache.

Beyond what Trump has planned,

corporates are facing further deregulatory measures which will have a direct impact on intercompany lending. By February 2017, under Accounting Rule 385, international companies with US-based operations must prove that intercompany lending is a debt, not an equity. The tax implications of this could be, to quote the president-in-waiting, “huge”.

CURRENCY CASUALTIES Of more immediate concern, however, are the continuous wild swings in currency prices, which create fresh accounting and forecasting challenges. In the immediate post-election period, the euro declined by 1.07% against the dollar. While that might be good initial news for European importers, the Trump administration is likely to try to weaken the dollar to offset any high tariffs other countries may impose.

It is by no means just about the mainstream currencies though. The Mexican peso tanked 11% on election night, and while it subsequently staged a modest recovery, Trump’s now infamous pledge to “build a wall” between Mexico and the US border has sent shockwaves through the construction sector. For example, businesses producing cement have already seen their profits increase, but on the flipside, face the prospect of paying more for raw materials.

Any swings in the price of raw materials or commodity-exposed currencies, as seen with the peso, affects those companies that rely on their finance team’s ability to

effectively manage their risk exposure. This is exactly why risk management should be a central focus for corporates right now.

Specifically, firms need to be able to stress test and carry out scenario analysis around their portfolios, in order to see how any of these potential Trump measures can affect their business.

Then there is hedging, and corporates should be weighing up all possible situations. As a case in point, look at the weakening value of sterling post-Brexit against the dollar. There is no telling what level it will be trading at over the coming months. This type of uncertainty is why corporates need to have complete visibility into their exposure at any given time to actively manage any possible scenario.

Trying to work out who the winners and losers will be from a Trump presidency is anyone’s guess at this stage. Only once his policies begin to feed through to legislation will businesses be able to make a more informed judgement on their future plans. Until then, without full insight into the unpredictable macroeconomic conditions that have resulted from the election, companies face an uncertain future. That is why preparing now to handle the impact of the Trump win may just be what’s needed to ensure that businesses are ahead of the game when it comes to managing risk.

Mark O’Toole is vice president of commodities and treasury Solutions at OpenLink.

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I N TER V I EW

BY REBECCA BRACE

STARTING FROM SCRATCH: BUILDING A TREASURY TEAM AT ISAGENIX

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ell me about Isagenix and your role and responsibilities.

I joined the company in August 2013 from my previous role at Starwood Hotels. The role of treasurer didn’t exist at Isagenix before I got here, so to start with my focus was on building out the team. Since then, the company’s annual revenues have grown from US$350m to almost US$1bn – so there’s a much greater need for expanded processes, establishing a treasury team and creating the necessary infrastructure.

My role currently includes typical treasury and finance functions including debt, FX and cash management. As we are an e-commerce company I also oversee merchant services – meaning all global inbound payment methods – as well as revenue recognition, fraud prevention, financial operations and the corporate card programme.

What were your priorities when you started in the role?

When you’re at a company where the treasury is established, you hope to make improvements – but when you go to one where treasury doesn’t exist, it’s a different challenge to create a team from scratch.

I’d been in hospitality for 15 years, so I was moving into a completely different industry. I was also moving from a public company to a private company. Isagenix was growing fast, but we were still doing things in largely the same way as when the company was smaller.

For the first six months I was focused on analysing and figuring out the people, processes and controls that would be needed, so that I could recommend where to start. For me, that meant starting with the people: building up the team, justifying the creation of new positions and hiring the right individuals.

How is your treasury structured now?

We – meaning finance and accounting - are very centralised, but we do have people in nearly every country who are there to help with finance, local audit and regulatory issues, accounting and tax related needs.

Isagenix is an extremely centralised organisation; in that we do a lot from the US. We are actually looking to do more decentralised

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activity and develop a more hybrid approach, particularly as we potentially launch into new markets.

For example, entering payables into the enterprise resource planning (ERP) system is something that can be done locally – it doesn’t have to be sent to the US to be processed. We can still control the cash outflow centrally, while the review of invoices can be done locally. So we’re looking at doing more of that and relying more on local talent.

What are the company’s strategic goals and how do these impact on treasury?

Expanding into new markets is an ongoing goal. We have been expanding in the Americas, Asia Pacific and beyond, which involves a lot of time and effort. We are also looking into launching in Europe, which we are very excited about. One of the reasons for this is to diversify our turnover, so that the company is not so heavily dependent on North America. We do get quite a bit of revenue from Australia and New Zealand as well, but we want to have a better mix between domestic and international sales as we expand and grow.

Treasury plays a strategic role in terms of providing financial operations advice, cash flow planning for both start-up and postopening. Other considerations include which payment methods we accept in different markets – as an e-commerce company, the more payment methods we offer the more we open the door to consumers. On the other hand, there are some methods which are not so popular - it’s about finding the right mix of methods that will generate the most sales while minimising the implementation and transaction costs.

When you’re looking at a new market you don’t know what the volume is going to be, so you’re making a lot of assumptions and guesses. I spend a lot of time with supply chain people to understand how long it will take to get products to the market, what the duty and value added tax implications are and how cash flow is affected. I’ve found that over time, treasury has required a much greater degree of partnering with internal teams – sticking your nose into everything and trying to add value.

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HEADQUARTERED IN GILBERT, ARIZONA, ISAGENIX INTERNATIONAL IS A US PRIVATELY-OWNED GLOBAL HEALTH AND WELLNESS COMPANY WHICH SELLS THROUGH AN INDEPENDENT NETWORK OF ASSOCIATES IN THE AMERICAS AND ASIA PACIFIC. IN THIS INTERVIEW ITS TREASURER, JACK SPITZER, OUTLINES THE REQUIREMENTS OF A BUSINESS STILL LESS THAN 15 YEARS OLD Are you working on any other particular projects right now?

Aside from geographical expansion, we are looking to reduce transactional costs while increasing the data security around each transaction. We are spending time with sales on some initiatives, and with supply chain and logistics to improve cash flow forecasting.

We’re also in the process of publishing our newly-created finance, travel and corporate card policies. As the company has grown and we’ve hired more people, we’ve realised that we need to re-examine the controls we have in place. When the company was smaller, people generally knew what was expected and acceptable – but we’re now trying to create more formality around our controls.

When you are part of a fast-growing company like Isagenix, there are opportunities to have a broader impact and voice into some things perhaps outside the normal scope of duties. The new travel and corporate card policies are a prime example where treasury was able to create and drive something that adds values and help control spending, which helps downstream with cash flow forecasting.

How much of a concern has political uncertainty been this year – particularly in the light of last month’s US elections?

As a company based in the US, with operations across the Americas, Southeast Asia, China, Australia and New Zealand, I have some concern about what will happen with trade agreements – not just the North American Free Trade Agreement, but also the pending Pacific trade deal and how it will impact costs. And of course the Brexit situation is an ongoing interest, as to how it will play out.

Are you facing any other challenges currently?

Resources are an ongoing challenge, especially on the IT side, but I find that to be true with many treasury people I talk to.

There are a lot of improvements that are being worked on from an infrastructure perspective; there’s a lot of effort going into cybersecurity and a lot of good ideas and innovation, not only in treasury but across the organisation.

Like any business leader, there are things I would like to do

now that just cannot be done. For example, some of the countries in which we operate have payment methods unique to those countries that would be nice to offer. I’m not a salesperson, but I can help remove potential barriers to sales by offering the proper payment flexibility in each market.

Which treasury-related innovations are you most interested in?

Mostly fintech. I think the wave of new payment methods and mobile payments is extremely interesting. There are so many startups with so many new ideas. Very few will make it, but the ideas are fascinating.

I enjoy listening to futurists speak in this area, because there is definitely an ongoing shift in what we use to make payments and how we make them. We have to be very aware of what consumers are using and how millennials shop as their purchasing power increases over the next few years.

What are your goals for 2017?

Aside from assisting with opening new geographical markets and continuing my work on policies and controls, I will be looking closely at fraud prevention.

Since Europay, MasterCard and Visa (EMV) was implemented [in the US] in the fourth quarter last year, e-commerce driven businesses have seen a big spike in electronic fraud. We’re working very hard to figure out how to move from responding to the fraud to preventing the fraud.

As such, we are currently formalising a new team around our fraud prevention that will work closely with our merchant services team. They will be working to understand and predict fraud more effectively, as well as identifying how to stop fraudulent orders before they go out. We’re expecting the team will more than pay for itself.

Rebecca Brace is a freelance financial and business journalist, who contributes regularly to GTNews.

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A LOOK INSIDE THE CRYSTAL BALL ALMOST ALL BUSINESS PAYMENTS WILL BE IMMEDIATE BY 2020, PREDICTS ED ADSHEAD-GRANT. HERE ARE THREE REASONS WHY

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ntil quite recently cash was still the benchmark for immediate payments.

The consumer handed over a sum of money for an item and other than the time it took to receive any change, the transaction was complete. The advent of cheques and card-based payments added a level of convenience by eliminating the need to always have cash on hand, but they also introduced the concept that payments took several days; with time needed for reconciliation and clearance between the buyer, the bank and the seller.

After a long period of in which it simply accepted that payments take time to resolve, the industry is back to the notion of immediate payments. Not only is the concept here to stay this time, it’s a near certainty that by 2020 almost all payments – including business payments – will be immediate.

The reasons for this are simple, and they all start with what’s happening in the consumer world.

1. THE REVOLUTION HAS ALREADY BEGUN Consumers have been driving the need for immediate payments for several years now, as is evidenced by the rise of apps such as Venmo and Square Cash. As consumer adoption of peer-to-peer payments grows, the expectation of that functionality will bleed into the business world. Corporates will begin to demand immediate payments

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from their financial institution and they will look elsewhere where it isn’t offered. In very short order, those banks that do not offer faster payments will find themselves irrelevant and uncompetitive.

2. THE CARD INDUSTRY IS FACING AN EXISTENTIAL CRISIS Consumers at the point of sale are increasingly given the option to make account to account push payments instead of a standard card payment. Account to account payments are not only easier for consumers by eliminating the need for debit or credit cards, they’re also far cheaper for the merchant who’s charged a 2% fee on every card purchase. Ultimately, the worlds of automated clearing house (ACH) and card will converge; a transition that’s already underway with MasterCard announcing its purchase of VocaLink in the UK over the summer. More card providers will begin acquiring ACH infrastructures around the world as this consumer shift to P2P payments grows.

3. BANKS ARE LOSING CONTROL OF PAYMENTS As the consumer market evolves to recognise that trade is a contract between a buyer and a seller, the historic assumption that a bank is necessary in the transaction has diminished. This shift in mindset was all the invitation that financial technology companies needed to deliver the endlessly

useful and instantly gratifying immediate payment solutions the market was craving.

This shouldn’t be a surprise. Fintechs aren’t encumbered by any of the baggage that banks have to deal with, such as clunky legacy systems or sunk costs that need to be managed. They can innovate with a free spirit and a clean slate, so the market has responded more than enthusiastically.

This kind of competition is actively being encouraged in Europe, where regulators require banks to open up their system of record to approved technology players.

The latter need access to their data in order to develop payment solutions in an increasingly digital world. As global adoption of immediate payments continues to grow, banks must evolve with the changing times if they want to maintain their relevance alongside the competitive fintechs reinventing the world of payments.

The vast majority of payments will, without a doubt, be immediate by 2020 – indeed it would come as no surprise if it happened even earlier. We are a world of impatient people; we invented microwaves, we fastforward through commercials and we run up and down escalators. The need for faster payments is just the next logical step in our unending desire as a society to always strive for greater efficiency.

Ed Adshead-Grant is general manager of payments for Bottomline Technologies.

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INSTANT PAYMENTS: A SIMPLE CONCEPT, BUT A COMPLEX CHALLENGE EUROPE’S INSTANT PAYMENTS INITIATIVE IS ON TRACK, BUT A SEEMINGLY SIMPLE CONCEPT HIDES SOME COMPLEX CHALLENGES, REPORTS EDITH RIGLER

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nyone reading recent articles about the payments industry must feel that we have entered an era of crisis. We read about the industry being at a “crossroads” and about a “revolution” taking place. The consumer is, we are told, at the “edge of a new frontier”, and “emotionally connecting” with payments.

And of course, “everyone, absolutely everyone” is affected. That does sound serious, doesn´t it?

WHAT’S THIS DRAMA ALL ABOUT? The reality is much less dramatic. Unlike revolutions, the payments industry will not cause social upheaval or overthrow governments. Currently it is introducing a new and faster way to make euro payments.

And this will be available in about a year or two.

Following the implementation of the single euro payments area (SEPA) in August 2014, the European payments industry

embarked upon another mega project instant payments in euros. The objective is to build upon the SEPA achievements and speed up the end-to-end execution time for euro payments even further. This project is already under way and moving full-speed ahead.

Instant Payments are euro payments which will be executed extremely quickly, i.e. in 10 seconds or less. Funds will thus be available in the beneficiary´s account

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almost immediately. Users will be able to take advantage of Instant Payments 24 hours a day, seven days a week, 365 days a year. The initial maximum amount will be €15,000, to be reviewed annually as from 2018. The new payment instrument will be available for domestic payments within individual countries as well as cross-border.

Eventually this will mean the whole panEuropean SEPA area, i.e. 34 countries.

For banks, the scheme is optional not mandatory. However, if a bank decides to participate in the Instant Payments scheme, it must be “reachable” to others. Finally, unlike SEPA, there will be no regulation specifying a mandatory deadline: banks are free to introduce Instant Payments according to their own timetable. We can expect that Instant Payments will appear in the European market from late 2017.

LEARNING FROM PAST EXPERIENCE For the European payments industry, this project builds upon experience gathered during the 12 years it took to implement SEPA. Many of the processes and tools developed during that time can be applied – for example the use of rulebooks and implementation guidelines and some of the same organisations are involved; among them the European Payments Council, the European Central Bank, national central banks, clearing houses and others.

Nevertheless, many new situations arise.

For example, the recently completed public consultation on Instant Payments resulted in 350 comments. These have been analysed and were fed into a Rulebook that was scheduled to be published at the end of last month. It will take effect one year later, in November 2017.

A SERIOUS EXERCISE WITH MANY CHALLENGES While the concept of Instant Payments may sound simple and easy to understand, payment service providers and clearing houses face a serious amount of hard work and many complex challenges: 1.

First, there is the simple fact that despite past harmonisation efforts, the European market is still characterised by heterogeneity and complexity. To develop a highly robust payment system spanning multiple countries requires input and commitment from many stakeholders.

Payment service providers (PSPs) and clearing houses must agree with each other on the rules and standards for handling payment instruments governed by the scheme.

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2. Since SEPA credit transfers (SCTs) are available not only on a domestic but also cross-border level, Instant Payments is also aiming towards that goal. In order to make this happen, interoperability between payment service providers in multiple clearing houses in multiple European countries becomes a necessity. To be able to exchange data fully automatically, same technical standards and procedures must be used. Recently the European Automated Clearing House Association published its interoperability framework, which includes firm rules.

3.

The safe and efficient clearing and settlement of Instant Payments is key.

Unlike SEPA transactions, which are batch transactions where settlement occurs before output – i.e. messages are only forwarded to the beneficiary clearing house once the applicable settlement has been successfully completed by the ordering clearing house – clearing and settlement for Instant Payments transactions are done continuously and within seconds.

The Instant Payments model is based around pre-funded technical accounts at TARGET2, the real-time gross settlement system for the euro.

4. Anti-money laundering (AML) obligations, as well as sanction and antiterrorism validation, checks pose another challenge. The moment when AML checks are executed is different between SEPA countries in the current SEPA payments traffic. They are conducted either during or after processing the SCT transaction.

However, the moment of these checks will influence the processing duration of an Instant Payment transaction within and across SEPA countries.

WHO WILL USE INSTANT PAYMENTS AND WHY? The benefits of Instant Payments are simple to understand: lower cost, guaranteed availability of funds, irrevocability of the payment, positive impact on the cash flow for corporates are just a few of the multiple benefits that have been pointed out. The question of who will indeed use Instant Payments – at least initially – is much harder to address. Proponents of Instant Payments list multiple use cases, from consumer-toconsumer, business-to-consumer, businessto-business, government-to-consumer, etc.

Indeed, “everyone” is expected to benefit.

PROPONENTS OF INSTANT PAYMENTS LIST MULTIPLE USE CASES, FROM CONSUMER-TO-CONSUMER, BUSINESS-TO-CONSUMER, BUSINESS-TO-BUSINESS, GOVERNMENT-TO-CONSUMER, ETC. INDEED, “EVERYONE IS EXPECTED TO BENEFIT”.

GROWTH EXPECTATIONS Once Instant Payments has been implemented, will that be it? Adoption by consumers and business is hard to predict and depends on several variables including consumers’ preference for payment methods, mobile phone penetration, e-commerce usage, banks’ marketing strategies and of course pricing.

In several countries outside the eurozone, such as Sweden, Poland and Denmark, market adoption happened relatively quickly. In the UK, the Sterlingbased Faster Payments service took several years from its launch in 2008 to achieve significant market share. For the SEPA region, adoption and growth is not likely to be uniform: some countries expect substantial migration from SCTs to Instant Payments, while research for other countries shows that appetite for Instant Payments is minimal as consumers are quite satisfied with their current payment methods of cash, card and SCTs. Some countries expect Instant Payments to become the only payment method over time and for all needs. Yet others believe that person-to-person use cases have the highest chance of being adopted near-term.

What is clear already though is that Instant Payments can be a locomotive that can pull additional innovative services to the customer. For example, discussions have started on whether an instant direct debit would or would not make sense. Other suggestions focus on additional account or status information to be provided with the payment instruction, including non-euro currencies and liquidity tools. In short, the final destination for the Instant Payments train ride is not yet in sight.

Edith Rigler is a senior consultant for the Payments Advisory Group, an international business consultancy specialised in the payments domain, working together with all stakeholders, including payment processors, banks, corporates, fintechs, public sector organisations and special interest groups. The group provides advisory and implementation services, interim management and market research.

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LESS HASTE, LESS SPEED TECHNOLOGY IS TRANSFORMING FAST PAYMENT CAPABILITIES, YET MANY COMPANIES ARE INFORMING VENDORS THAT THEY MUST WAIT LONGER FOR THEIR BILLS TO BE PAID, REPORTS PETER WILLIAMS

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he stadiums are silent, the competitors returned home and the crowds departed; but for the Rio Olympics not everything has crossed the finishing line. Nearly three months after the final medal was awarded hundreds of freelance contractors are still waiting to be paid, reports suggest. Officials blamed the delays on late payments from their own sponsors, Rio city hall and the International Olympic Committee (IOC). Add to this Brazil’s month-long bank strike in September, which hasn’t helped in sorting out debts estimated at US$100m.

It’s cold comfort for the Rio creditors that they are by no means alone.

Technology might be able to make payments quicker than ever, but that doesn’t mean that corporates settle bills more promptly. Indeed, in many cases the trend appears to be moving in the opposite direction. Back in July, Chicagobased aviation giant Boeing told suppliers it would be taking longer to settle invoices.

Under the new terms, Boeing takes up to 120 days to make payment rather than 30 days. The aircraft manufacturer made other moves to improve working capital, such as reducing factory inventory and asking suppliers to hold parts.

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Nor was Boeing contrite, justifying the changes in payment and inventory terms by stressing they were necessary to compete when airlines want more capable planes at lower prices. “To align with industry norms we are in the process of adjusting the payment terms of our large suppliers,” said company spokeswoman Jessica Kowal. “In most, if not all cases, our new payment terms are in line with [our vendors’] payment schedules to their own suppliers.”

A giant like Boeing has big suppliers and their reaction to the four-month payment terms soon surfaced. IT and avionics company Rockwell Collins said that it was owed between US$30 and $40m by Boeing, while UK parts manufacturer GKN said it was in discussions with the US plane maker over the switch in policy. Reports quoted GKN’s chief financial officer Adam Walker as saying the changes had already had an impact, although perhaps hold the sympathy as GKN still managed to double free cash flow in the first half of 2016 to US$52m.

Walker’s comments to reporters spoke volumes about the client-supplier relationship: “Clearly if the payment terms will lengthen, then it isn’t helpful to us. The balance of power lies a little bit with them in that discussion.” Walker added that it was up to GKN to manage its working capital, but if the finance boss of a £7.7bn company admits challenges in getting debtors to cough up quicker what hope for a small and medium sized enterprises (SMEs)?

TOO TIGHT A SQUEEZE The answer may indeed be that hope is in short supply, although the line from

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information group Experian is that the speed with which a supplier pays its own suppliers often serves as a good measure of how reliable and financially sound it is.

Yet research from the UK-based Federation of Small Businesses (FSB) suggests that many aren’t too troubled by gaining a reputation as a late payer, despite the UK’s introduction of the prompt payment code eight years ago. The FSB’s recent report looking at the way small firms and the wider economy are affected by poor payment practice found that that existing policy interventions have had no discernible effect on tackling problems around the UK’s poor payment culture in the last five years. Small businesses report that, on average, 30% of payments are typically late compared with 28% in 2011.

The FSB wants prime minister Theresa May to tackle what it calls late payment and supply chain “bullying”.

The report ‘Time to Act: The economic impact of poor payment practice’, made some substantial claims. (see infographic) At the extreme end, late payments and resulting cash flow difficulties have caused businesses to fail. Mike Cherry, the FSB’s national chairman, said: “Uniquely, the UK now risks having a business culture where it is acceptable not to pay SMEs on time.

Based on an imbalance of power between large companies and their small suppliers, this now has a chilling effect right across the economy. “Small businesses have to run a tight ship with their cash flow, and as they struggle with increasing business costs on one hand and an uncertain domestic economy on the other. They should not also have to struggle with the stress, time and money required to chase overdue payments from corporate giants.”

It’s a similar story around the globe, where many countries lack even a prompt payment code similar to the UK’s. Across the Channel in France, following a 2008 law, an invoice must be paid 60 days’ maximum after its issuance. According a payment report by Intrum Justicia, for B2B operations the average is 48 days – and 58 days when the customer belongs to the French public sector. A Banque de France study issued in March 2016 estimates that in all €16bn is missing to French SMEs due to overdue payments.

In Australia, where mining giant Rio Tinto had to back down on plans to extend payment terms from 45 days to 90 days in the face of political pressure, the Council of Small Business Australia wants a similar code to the UK’s introduced.

Last month small business ombudsman Kate Carnell launched an inquiry into late payments. “Here in Australia, more and more small businesses are falling victim to the unscrupulous payment practices of some big businesses – and even some governments – that are, quite frankly, a drag on productivity,” Carnell said.

Of course it is unfair to paint every large corporate with the same brush. Some do appear to be making a conscious effort address the issue. Waitrose is the grocery arm of UK department store chain John Lewis and part of the retail sector, which has become a byword for treating suppliers badly. Both the supermarket and its parent enjoy a strong public reputation; tarnished somewhat back in January when reports suggested that Waitrose sometimes took three times longer to pay suppliers than sector giant Tesco. Six months later, Waitrose announced that it was improving its payment terms for all UK small food

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producers, following an internal review.

The supermarket, with annual sales of about £6bn (US$7.3bn), pledged to pay all small scale suppliers, whose business with the retailer is worth less than £100,000 annually, within seven days of receipt of a valid electronic invoice. More than 600 UK food producers will benefit from the change, which Waitrose called ‘industry leading terms’.

Mark Williamson, Waitrose commercial director, says: “The internal review of how we pay our smallest suppliers was initiated because we wanted to make our good relationships with small suppliers even better by simplifying the payment process.

“We are passionate about supporting and nurturing British producers – and this step will help give smaller scale businesses, including new start-ups, more financial stability by helping with cash flow.”

Waitrose says it sells over 2,500 locally and regionally sourced products from 600 suppliers. Yet no sign so far that the rest of the UK retail sector – already under close scrutiny from supermarket watchdog the Groceries Code Adjudicator – is following suit.

With the sorry tale of late payments, it is easy to forget that under European Union law that when customers pay late, suppliers can claim late payment interest.

Yet making such claims is fraught with both legal and commercial difficulties, mostly around the threat of losing the business for good. To tackle the problem, the UK government plans to appoint a small business commissioner, who will be in charge of resolving the issues around late payments.

The post was suggested after a consultation in 2015 found that the majority of small businesses and the professional bodies representing them regarded it as a step in the right direction. The government has now launched a second consultation to establish how the new commissioner will deal with complaints. The consultation closed 7 December, but even if such a commissioner is ever appointed the impact he or she could have must be doubtful.

Of course there is an alternative.

Companies must ask for the cash more firmly. One finance director at a leading British private investment company focussed on hotels told GTB that companies

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needed systems and processes to stop late payments. “If companies have a very strong credit control process in place then they should not have issue in collections,” she suggests. “We will insist on upfront payment for a function for example, if we don’t wish to give credit. We use standard industry checks and for an international company we’ll do our own credit check of the accounts to establish how creditworthy they are. We don’t wait for two weeks after any invoice is due, we are very proactive.

We will call them and ask for confirmation of when the money will hit out accounts.”

The long and inglorious history of late payments suggests this to be the way forward. It could prove awkward at time but businesses must be better at helping themselves.

Peter Williams, FCA is a chartered accountant and financial journalist. He has contributed to GTNews and has edited and written for leading titles in the treasury, accountancy and finance sector over the years.

POOR PAYMENT PRACTICE

In February 2011, the European Union adopted a directive requiring public agencies to pay for goods and services within 30 days, while private enterprises must pay within 60 days.

Despite this: A third of payments to UK small businesses are late Impact of late payment on small businesses: • 37% have run into cash flow difficulties • 30% have been forced to use an overdraft • 20% cite a slowdown in profit growth

IMPACT OF PAYING SMALL BUSINESSES ON TIME • • • • •

An estimated £2.5bn annual boost to the UK economy 50,000 more businesses kept open £6,412: Average value of each late payment owed to UK small businesses 61% of small businesses are paid late by big businesses 79% of small businesses don’t charge interest for overdue invoices

Source: UK Federation of Small Businesses

Peer-to-peer business lender MarketInvoice found a similar tale in its 2015 analysis; 60% of invoices are paid late; 20% of invoices are paid more than two weeks late; the average invoice is paid six days late.

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INITIATIVES SUCH AS THE UK FASTER PAYMENTS SERVICE HAVE BEEN USED AS A TEMPLATE AROUND THE WORLD, BUT THE BANKING SECTOR COULD BE MORE FULLY ENGAGED, SAYS FIONA HAMILTON

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he payments domain has seen massive change in recent years across the whole of the retail, corporate and wholesale segments.

What for decades was seen as something of a backwater in terms of innovation compared to capital markets trading and derivatives, now dominates the news wires and conference agendas. Broadly speaking, the changes appear to fall into three basic categories: those driven by regulators, those initiated by banks and finally innovation from financial technology (fintech) startups. It sparked some thinking about drivers in each of those areas, so let’s consider a few examples.

The UK’s Faster Payments Service, launched back in May 2008, was brought about by regulation mandating near realtime transfer of value between originator and beneficiary.The aim was to reduce costs and decrease latency for the end consumer, be they a retail customer of a bank or a corporate. Granted, the way that it was implemented meant that from an intrabank perspective it isn’t real time transfer, but at the end of the day the consumer doesn’t care. They see the money in their account, usually within seconds of the payment being initiated. So, eight years

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down the line volumes are growing and pretty much all consumers would agree that FPS has been a massive success with retail customers effectively paying nothing for their transfers. Regulators across the world have either implemented or plan to implement similar infrastructure.

So hurrah, everyone is happy! Well not necessarily it would seem, based on a real world personal example. I run the company’s operations for Europe and Asia from its London office, which has been happily paying staff salaries via Faster Payments since the operation began in 2010. At the start of the year we were setting up auto enrolment pensions, health and dental insurance, which meant interaction with three very large companies.

Imagine the surprise when completing the application documentation to find that the tick boxes for methods of payment were, in all three cases, BACS, CHAPS or cheque. Absolutely no sign of Faster Payments. Contacting all three providers revealed that in each case they hadn’t heard of FPS. After describing Faster Payments, it was escalated to the relevant accounts receivable departments and in each case after several days they responded: “We’ve spoken to our bank and apparently we can accept them.”

This writer is not usually prone to believing in conspiracy theories, but it does seem strange that after eight years of live service many of the biggest providers of these services profess to be unaware that they can use it. Nor is there much evidence of my bank sending communications regarding the service over the years.

Although FPS had to be implemented, nobody said they had to be enthusiastic about it and actively promote it; account switching or PAYM being perhaps other examples. Indeed, why promote a scheme that allows a customer to transfer funds domestically at pretty much no cost when you can charge for say, a CHAPS payment?

So, whilst volumes in Faster Payments are undoubtedly growing strongly, the suspicion is that this might have been more a result of word-of-mouth. Based on many personal conversations over the years with friends and colleagues when introducing them to the service, in that way it more resembles how apps have grown in usage.

Something is innovative, works well and is quicker and cheaper than the alternative.

Undoubtedly, in other jurisdictions where there are many more unbanked people, person-to-person payments apps have found fertile ground, but in countries such as the UK pretty much everyone has a bank account.

LOST OPPORTUNITY So, have banks missed a trick? Instead of trying to protect existing CHAPS and BACS revenue streams should they have embraced it more and gained a bigger share, especially of the millennial consumer marketplace? Very few people in that age bracket view anything to do with banks as “cool” but this is one area that is an exception. It works, it is cheap and unlike many other app services both parties don’t have to be signed up. The “reachability” is great, so it’s unfortunate that the volumes aren’t much greater.

It will be interesting to see if banks take the same approach when real time payments are introduced across the single euro payment area zone and in North America. The same can be said of other initiatives being mandated by payments regulators such as open banking and the Second Payment Services Directive, which all share the same drivers of increased transparency and reduced costs for the end consumer. Will they be seen as an opportunity to create new innovative products for the end customers’ benefit, or just something to minimally comply with but keep quiet about?

That isn’t to say that banks themselves are failing to be innovative. Scarcely a day goes by without an announcement about a bank or a consortium thereof embarking on a blockchain/distributed ledger proof of concept, or opening a fintech innovation lab or sandbox. There is much talk about how these could bring huge reductions in cost, revolutionise process and reduce latency; all of which could well be true.

However, when one look at what they are often addressing they are those aspects from an intra-bank perspective – not from the end client perspective – and driving their costs down to provide increased shareholder return, which is of course a fiduciary duty. It is debatable how much of the reduction in costs would be passed on to the end consumer.

Banks are also investing heavily in artificial intelligence (AI) and concepts such as robot advisors, which again have the potential to drastically reduce costs and increase straight through processing in some cases. These areas undoubtedly have great potential within the organisation, but doubts over the commitment to improving the customer experience arise when they are used as the primary interface to said customer.

Granted, we all encounter the now traditional automated voice telling us that “we are experiencing higher than expected call levels at the moment” every time we

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try to engage with a bank, utility, supplier, or credit card company. One obvious solution is to hire more people to answer the calls and another is to make products and services more reliable. The emphasis on the introduction of AI and robot advisors, however, suggests that this is seen as a third way by many banks.

At some point in the future, no doubt, the technology will be there, but as anyone who has had the unfortunate experience of interacting with them already will attest to, they are hugely frustrating. Invariably one ends up pleading with the code at the other end of the line to talk to a human being, which can’t be done as the code doesn’t understand the concept of frustration! So once again the focus is on cost reduction for the bank and not the end customer. Don’t forget all that time on the phone is a cost in time or money for the customer.

IMPROVING CO-OPERATION So, there does seem to be a trend that the regulators are really forcing the market to implement change that will benefit the end consumer. However, the watchdogs should perhaps also bear in mind the commercial basis of the market and work with it to understand the impact on their cost models.

The banks can then more enthusiastically get on board with initiatives such as FPS and not just see it as an obligation. The combination can thereby actually bring more benefit to the customer.

The banks, in turn, could possibly include the end customer experience more often than they do. Decreasing costs is obviously one way of improving margin, but so is increasing revenue through innovative services that actually improve the customer experience and lower their costs.

Finally, what about the fintechs? They could possibly teach both the regulators and the banks a lesson. The customer is primarily in their minds whilst utilising the latest technology to minimise the costs of providing that customer experience, which is what the banks and the regulators together should be trying to achieve.

Fiona Hamilton is vice president, Europe and Asia, for Volante Technologies and has worked in financial services IT for the past 31 years, all but two of which have been focused on the implementation of message-based projects.

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ON THE EVE OF A NEW ERA IN CROSS-BORDER PAYMENTS

n December 2015, SWIFT launched the SWIFT gpi (for global payments innovation) initiative. Designed for the corporate treasurer, SWIFT’s gpi initiative offers an ambitious roadmap for reinventing corporate cross-border payments as we know them today. With ever-increasing competition from new entrants offering same-day, or even realtime payment facilities, SWIFT is bringing both the banking industry and corporations community together to design a solution best suiting their needs.

A year further down the path, this “initiative” is no longer a mere proposal for change, but has materialised into a new service, ready to go live by beginning of 2017. Wim Raymaekers, global head of the banking market at SWIFT and project lead for SWIFT gpi, offers below an overview of the achievements so far and what members can expect from future developments.

WHAT IS THE GLOBAL PAYMENTS INNOVATION INITIATIVE? The global payments innovation initiative – aka the SWIFT gpi initiative – aims to address several of the key challenges faced by corporate treasurers when it comes to cross-border payments.

In a world where it is easy to track and trace every single movement: from the expedition of a physical package by courier to myriads of smartphone applications using geo-localisation features, it has today become a normal expectation to be able to trace close to nearly everything. Why would that not be the case for a payment?

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has been demanding more traceability and transparency of cross-border payments for a while now.

With the goal of providing a rapid solution for both banks and their corporate clients, SWIFT launched the SWIFT gpi initiative a year ago. It all started with discussions and alignments with both banks and corporates. It then evolved towards a design and scoping phase of a service level agreement, to finally come to a result: a new service, ready to go live, providing an answer to the most pressing business needs in cross-border payments.

Today, when a corporate treasurer sends a request for a cross-border transaction to his bank, he or she typically has no sight on what happens with that demand. Treasurers often liken this to a ‘black hole’, saying they have no view on when a payment finally hits the beneficiary account or the final costs linked to the transaction. This can lead to problems with suppliers or end-customers, not to mention increasing financial risks resulting from payment delays or non-compliance with regulatory requirements.

The new gpi service will address the most pressing needs in cross-border payments, as currently experienced by corporates. As of next year, corporate treasurers will be able to benefit, through their banks, from the following four features: • End-to-end tracking of a payment: the service will offer a payment tracker which will show at what stage the payment is in its journey and - most importantly - the originator of the payment will know when a payment

has hit the beneficiary account. This will make it easy to know when the money is on the beneficiary account and enable business to happen; for example, by launching the delivery of goods or release of a service.

• Corporate treasurers will be able to benefit from the same day use of funds, which will help corporates with their liquidity management.

• Transparency of fees: next to the possibility to trace the payment, there will also be visibility on deducts applied by the different banks in the payment journey; hence providing more transparency on the cross-border payment.

• Remittance information transferred unaltered: this is the guarantee for the corporate treasurer that the information that travels with the payment will be transferred as is along, across the various correspondent banks.

And the story does not end there, as more innovations will follow.

What have been the key highlights of SWIFT gpi’s first year of existence?

The last months were the most exciting.

As soon as we had reached agreement from the member banks on a multilateral service level agreement (SLA) rulebook, we moved at a racing pace to develop the service.

And when we look back, we can clearly see that much has been achieved: over 90 banks, representing 75% of all SWIFT crossborder payments, have joined the initiative before its marked its first anniversary, which demonstrates the commitment

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TWELVE MONTHS ON FROM ITS LAUNCH, SWIFT OFFERS A PROGRESS REPORT ON ITS GLOBAL PAYMENTS INNOVATION INITIATIVE (GPI), WHICH AIMS TO STREAMLINE AND INCREASE TRANSPARENCY OF CROSS-BORDER PAYMENTS from the financial industry to offer better service to corporate treasurers.

On an operational note, a pilot phase of the new service was launched in April and is now close to completion, opening the way for a go-live of the service in early 2017.We can therefore confidently conclude that the initiative found rapid support among the global transactions banks and that the service will start to make a positive impact on the global payments landscape as of next year. We could not dream of a more rapid turnaround!

HOW WAS SWIFT GPI WELCOMED AT SIBOS 2106 IN GENEVA? At Sibos this year, SWIFT gpi was the key talking point in many conversations at the SWIFT stand and during the many sessions organised. The SWIFT sessions on gpi - as well as related industry sessions on payments innovation - were very well attended and more than 300 delegates participated in demos on the Tracker and Observer, two key gpi innovations. Sibos was also the occasion to report on the successful completion of the first phase of the gpi pilot. And, as the cherry on the cake, 10 additional banks joined the initiative around Sibos.

WHAT WILL SWIFT GPI FOCUS ON IN THE YEAR AHEAD? In 2017, the focus will be on further enhancing the cross-border payments experience for the corporate client. We already scoped several additional optional services, such as the possibility to cancel a

payment. This means that in the near future, corporate clients, through their banks, will be able to cancel a payment if, for example, they have paid the same invoice twice or there was some error in the process and they need to urgently stop the payment.

Another key development under exploration is the possibility to have rich remittance information linked to the payment. Today, keeping track of and reconciling outstanding invoices requires manual intervention and numerous email exchanges for corporates. Allowing the transfer of rich remittance information is therefore of great importance for them as it will save them both costs and time. As part of the SWIFT gpi service, structured and comprehensible remittance information would be linked to the payment. This way, corporates will be able to reconcile invoices and keep track of them at the touch of a button.

AND FOR THE FUTURE? SWIFT is working collaboratively with the world’s largest transaction banks to drive the long-term vision on the cross-border payments experience. As a result of those interactions, a strategic roadmap has already been developed.

We also organise specific workshops with corporate treasurers to capture their views on what “a better cross-border payment service” would mean to them.

Tracing a cross-border payment is a key need for them today, but there is more to be added to that as we mentioned before.

We want to keep on addressing today’s challenges, while planning for

tomorrow’s needs. This includes both new functionalities and new technologies, such as distributed ledger technologies, for example. At SWIFT, we believe the outlook for these technologies is encouraging and that they will influence the future of the financial services industry.

However, these technologies are at an early stage of maturity, and there are several challenges and criteria that would have to be met before industrial application in financial markets is realistic. Those may be integrated in SWIFT products and services in the future, but only when they will have proven their maturity, security and reliability to be expanded and applied to the entire global banking community.

Wim Raymaekers is global head of the banking market and project lead for the global payments innovation initiative (gpi) at SWIFT. For more information about the global payments innovation initiative, visit www. swift.com/gpi or download the SWIFT gpi App available on the Apple App store.

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R I S K MA N AG E M E NT : T H E H A NJ IN SAGA

A WAVE OF UNCERTAINTY THE DEMISE OF SOUTH KOREA’S HANJIN SHIPPING LINE THREE MONTHS AGO HAS CREATED VOLATILITY FOR INDUSTRIES FROM SEA FREIGHT TO RETAIL AROUND THE WORLD, REPORTS STEVE HARRIS DECEMBER 2016

R I S K MA NAG E M E NT : T H E H A NJ IN SAGA

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he maritime transport industry has long been the servant of the global economy; as such, the good times and bad times in any industry sector eventually have repercussions for the shipping community.

While the onset of the credit crisis in 2008 saw some immediate effects in the shipping markets around the world, it could be argued that the demise of South Korean operator, Hanjin Shipping, at the start of September this year, was the latest manifestation of the long-running downturn in the industry.

Several factors that led to the demise of Hanjin have also affected others all along the supply chain. As consumer demand wanes, so the need to transport goods around the world is similarly affected. The challenge for vessel operators is having to “second guess” in advance, how the market is going to perform and adjust their fleets accordingly. It can take more than two years for a modern, large new vessel to be delivered; so estimating the need for new ships is largely based on the expectation that the market, in two years’ time, will be able to use that extra new tonnage.

As consumer demand has failed to grow in line with forecasts, many container and dry bulk cargo operators now have surplus tonnage beyond the actual needs of the market. The simple rules of supply and demand have led to intense competition among operators and the inevitable consequence of low freight rates. While this environment may be good news for those wishing to have their goods shipped by sea, for operators it has been very challenging to maintain market share.

A SHRINKING FLEET At the end of August 2016, the creditors of Hanjin Shipping, which was reportedly already more than US$5bn in debt, refused it further lines of credit. The effect on what was then the world’s seventh-largest container ship operator was immediate and severe. Throughout September and October, numerous Hanjin-operated vessels were arrested by creditors, while others were either refused entry to ports – for fear of port and other fees remaining unpaid – or remained at sea for fear of arrest.

Slowly the Hanjin fleet has dissolved, with chartered vessels returning to their owners and owned vessels being sold off and disposed of. Interim attempts to stabilise Hanjin, by offering to reduce its service from a global to a pure inter-Asia operation, did little to stem the demise.

By mid-November, according to the

container ship market news service Alphaliner, Hanjin’s fleet of nearly 100 container ships had been reduced to just 12 owned and two chartered vessels, and the company had lost its place among the global top-20 container ship operators.

The financial consequences to companies around the world that supplied or handled Hanjin business is yet to be fully realised, but the ‘domino effect’ is likely to affect others all along the supply chain and, consequentially, the shipbuilding industry too. In the meantime, optimism within the industry prevails, with the world’s largest container ship operator, Maersk, announcing a new generation of recordbreaking-size containerships, possibly even breaking the 20,000 Twenty Foot Equivalent Units (TEU) barrier.

While the Brexit vote in the UK may not have had a particularly significant effect on the international shipping market, other global events could have implications on a marine transportation industry heavily dependent on global economic growth. For example, opinions are divided, following last month’s US presidential election, as to whether some of the pre-election rhetoric will be followed through into the new administration. Any renegotiation of international trade deals, for example, could potentially have a negative impact on the global shipping sector.

IT CAN TAKE MORE THAN TWO YEARS FOR A MODERN, LARGE NEW VESSEL TO BE DELIVERED; SO ESTIMATING THE NEED FOR NEW SHIPS IS LARGELY BASED ON THE EXPECTATION THAT THE MARKET, IN TWO YEARS’ TIME, WILL BE ABLE TO USE THAT EXTRA NEW TONNAGE. MLC 2006 AHOY If Hanjin has thrown a spotlight on anything, it is the implementation of the Maritime Labour Convention (MLC 2006); the second stage of which is due to come into force in January 2017. MLC 2006 deals with the plight of seafarers caught up in a ship operator’s insolvency, ensuring they are paid their wages – for up to four months after insolvency – and that they can be repatriated, with their medical cover and subsistence costs remaining in place during this time.

To comply with this new MLC 2006 requirement, operators must satisfy their vessel flag states that adequate resources have been ring-fenced, or that adequate and

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acceptable insurance to cover such costs has been arranged. The insurance industry is providing solutions, but the urgency with which these are being requested highlights the extent to which the Hanjin demise has affected the maritime community.

Since 2008, arguably the dry bulk shipping market has suffered more from the global economic downturn than the containership industry. As the demand for raw materials waned – especially from China – the over-supply of vessels has meant freight rates had been at very low levels for ship operators. It should be noted at this point that Hanjin also operated dry bulk cargo vessels and so its challenges came from more than one area of the shipping industry.

The obvious two answers to an oversupplied market have historically been to stop ordering new vessels and to scrap the older, less efficient ones until the market “rights itself ”. Indeed, shipping industry news service TradeWinds last month reported that according to Italian shipbrokers Banchero Costa, in the first 10 months of 2016 no less than 347 dry bulkers, totalling some 27.1m deadweight tons went to the scrapyard. However, in the same 10-month period, 486 new vessels were delivered, totalling some 49.1m deadweight tons, so newbuildings will continue to outstrip demolitions throughout 2016 and probably next year as well.

While the dry bulk freight indices have been enjoying a minor revival in recent months (since their nadir in early March, when the cost of hiring a capesize bulkcarrier on some routes fell to about US$1,000 per day – very different from early 2008 when daily rates of more than US$250,000 were recorded for the same vessels), there is little to suggest that this minor upturn will last.

As a major force in the marine insurance industry, Marsh has sought to help its shipping clients manage the risks associated with the intense financial pressures they currently face. Although marine hull and cargo insurance rates are at historically low levels and there is over-capacity among insurers, nevertheless, the insurance industry needs to be proactive in finding solutions to protect clients in the shipping and transportation industry, buffeted as it is by huge economic uncertainty and increased regulation, as evidenced by the second stage of MLC 2006.

Steve Harris is a senior vice president in the global marine practice at Marsh, a leading insurance broker and risk adviser.

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COMP LI A N CE

LIKE IT OR NOT, REGULATORY COMPLIANCE IS DEMANDING THE ATTENTION OF TREASURY DEPARTMENTS AS BREACHES NO LONGER RESULT IN A MERE SLAP ON THE WRIST SAYS BILL NORTH

FLYING BLIND: CORPORATE SANCTIONS SCREENING

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arge businesses face a potentially explosive problem: a blend of complacency, inadequate infrastructure and a complex regulatory environment.

Those companies without effective procedures in place are effectively flying blind and run a serious risk of incurring punitive financial penalties.

Previously, sanctions compliance has been the domain of banks. However, with a broadening of the scope of regulations – particularly in the US – corporate treasuries and finance operations need to open their eyes and take action.

The potential effects of burying one’s head in the sand can be catastrophic. In the US, we are already seeing fines and forced settlements of millions of dollars being levied against non-compliant companies.

These penalties can, in turn, generate massive negative publicity – as well as less-tangible effects, such as long-term reputational damage and deteriorating relationships with banks.

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COMPLACENCY AND COMPLEX REGULATIONS Around the world, different regulators are ultimately trying to achieve the same goals; but from contrasting standpoints and with diverse targets and objectives. This means that, for enterprise companies operating nationally or internationally, there are multiple rules applying to transactions as they cross borders.

In the US, the scope of today’s regulation on payments extends beyond its own borders to any and all payments denominated in US dollars coming to and from the country, and to all subsidiaries of foreign entities. It is no longer just the bank or the corporation or the customers who made the payment that will be under investigation – instead this now also applies to the customer’s customer, also known as know-your-customer’s-customer (KYCC).

The larger the institution, and more complex its operations, the more difficult compliance becomes. Ultimately, when

dealing with thousands of transactions at any one time, there is scope not only for errors to occur but for vital information to be lost or overlooked.

Strict sanctions compliance structures have been extensively developed in the US, and are gradually making their way through to other geographical markets such as the European Union (EU), as efforts to combat illegal activities continue. This puts even greater pressure on the treasury and finance operations of multinational organisations.

INTERNATIONAL REVERBERATIONS Corporates must take responsibility for the implementation and quality of their own compliance operations. No longer can they passively depend on banks to do it for them.

For large businesses, failure to comply with sanctions can land them in very hot water. Medical products producer Alcon Labs was fined more than US$7m for

C O M PL IA NC E

selling equipment to customers in Iran and Sudan; PayPal was fined US$7.7m for breaking the Weapons of Mass Destruction Proliferators Sanctions Regulations; and even The PanAmerican Seed Company was fined for US$4.3m for selling flower seeds to Iranian distributors.

The heaviest fines have, for now, been levied against banks. For instance, the New York State Department of Financial Services (NYDFS) is continuing to expand sanctions compliance on a global scale, recently fining the New York branch of the Agricultural Bank of China US$215m for money laundering.

These stories represent only the tip of the iceberg when it comes to sanctions violations, and show the lengths to which regulators will go to pursue companies complicit – or simply unaware – of sanction breaches.

US regulators like the NYDFS and the US Treasury’s Office of Foreign Assets Control (OFAC) have made their intentions abundantly clear to both financial institutions and to corporates – it’s time to get your house in order.

RISKY BUSINESS From the banks’ perspective, clients who manage sanctions screening effectively reduce potential violation sanctions on the bank. The benefits are the enhanced quality of the bank’s performance and a reduction in the bank’s overall operational costs. This ability to grow and sustain a company’s commercial activities with banks will be strengthened by the win-win outcome brought through sanctions screening.

Any investigation of a bank’s customers – and by extension their customers’ customers – by auditors and regulators is broad, penetrating and highly disruptive.

Companies that have effective sanctions filtering mechanisms in place will achieve greater credit and business-worthiness status, and improve their liquidity and access to working capital. However, those that do not face decreased payment efficiency and more difficult access to funding.

A number of large companies are now seeking legal agreements with their banks to clarify the blacklisting processes.

This reflects banks’ practices in the continuous evaluation of their pre-existing and prospective customer base, where proactive corporates will have numerous bank relationship benefits.

A NECESSARY COST Sanctions screening is an area that requires urgent action. All businesses face a clear choice – either invest in new systems to better comply with sanctions regulation, or ignore the potential threats and risk the fines from regulators.

Yet against a backdrop of limited budgets, how can corporates introduce new measures that meet all demands, and future-proof their systems against burgeoning compliance developments?

The solution will require a complete overview of the payments system, from on-boarding to transaction management and continuous sanctions filtering; all the while analysing the necessary components for each and every payment, customer, and vendor. It is imperative that this process

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is streamlined. Payment delays can have serious consequences such as payroll failure, strained relationships with suppliers alongside a potential downgrade in creditworthiness.

Automation and integration with existing systems, therefore, is key. By taking this approach, corporates can ensure a smooth operation, getting the best value out of their systems while not affecting the quality or control of the sanctions solution.

TIME TO LISTEN While some corporates are now actively planning, implementing or using effective sanctions screening solutions, many others are still weighing up the related costs – all the while potentially courting a compliance disaster.

How companies handle their data is no longer merely about compliance; it is a competitive differentiator and firms that fail to have a cohesive strategy and programme will struggle to succeed at best – or be a ticking time bomb at worst.

Flying blind is not option. The financial, operational and reputational risk of running with an inadequate or absent sanctions screening process dramatically outweighs the costs of implementing an effective solution.

Bill North is the head of sales at Pelican, a growth fintech that has been driving innovation in payments and compliance for more than 20 years.

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FO CUS ON I N D IA

INDIA’S BANKING INNOVATION SHOULD EXCITE THE WORLD INDIA IS KEEN TO STAKE ITS CLAIM AS ONE OF THE WORLD’S PREMIER BANKING MARKETS, WRITES JOUK PLEITER

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echnological advancements in India have brought digital banking services to the fore and the sector is in position to grow rapidly over the years ahead. While a new generation of Indian consumers is changing banking for the better, with innovation being led by demand, government support is key to the industry’s prospects for realising its true potential.

Recent headlines have focused on the struggle to eradicate so-called ‘black money’ – and the problems caused by

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the government’s demonetisation scheme, since prime minister Narendra Modi’s 8 November announcement that 500 and 1,000 rupee banknotes were being abolished. Nonetheless, outsiders can learn a number of lessons from the Indian banking sector and its role in supporting the major transformations underway in the country’s economy.

In a country of more than 1.3bn people, there are 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks

and 93,550 rural cooperative banks – as well as numerous cooperative credit institutions.

In such a competitive landscape it’s no surprise to see so much innovation, with several major banks experimenting with blockchain, artificial intelligence, biometrics, open application programming interfaces (APIs) and e-wallets. This push to embrace new, digital technologies has been enabled by the setting up of an inter-regulatory working group by the Reserve Bank of India. Testing has been taking place in both

F O C U S O N IND IA

corporate and retail banking and it has enabled a much greater understanding of fintech innovations within the country.

Yet it is hard to talk about the Indian economy without acknowledging the major challenges it faces. More than one in five of the total number of ‘unbanked’ adults in the world is in India – around 233m according to PwC and nearly twice as many as in China. The current cash crisis, caused by the withdrawal of the higher denomination notes from circulation, has seen ATMs run dry and lengthy queues at branches. The knock-on effects for businesses have been drastic, with companies in the retail and manufacturing sectors heavily affected due to their continuing dependence on cash.

However, the Indian government can’t be faulted for its commitment to driving change in the country. The total number of unbanked adults would be significantly higher still were it not for Modi’s campaign to give every household a bank account.

SEIZING THE OPPORTUNITY While the government’s handling of the current crisis might leave much to be desired, there is no doubt that change is necessary for India to take advantage of its opportunity to join the world’s most advanced banking markets. For example, there is an urgent need to reduce the reliance on paper money and introduce cashless transactions to a far greater degree.

Although India is likely to hit the one billion bank account milestone by 2020, the National Payments Corporation of India’s associate vice president of cooperative banks, V Ratnakar, recently warned of the need to continue the cashless push in the country. He claimed that paper money costs at least 12% of India’s gross domestic product and the nation needed to be prepared for the transition.

India’s opportunity to become the shining global example of innovation in the banking sector is clear. There are more internet users in the country than in any other but China, but given that only just over one in three Indian households are currently online, there is potential for huge growth here too.

However, there are a more than 1bn mobile phone subscriptions, with around a quarter using smartphones. The number of smartphones is expected to top the 500m mark within the next four years, with internet users doubling to around 650m, according to calculations by Google India and The Boston Consulting Group. Digital banking services – especially those built around mobile – could see massive growth

to reflect this.

While those reaping the benefit of India’s technological revolution are in a great position to benefit from the increasingly favourable conditions for banking innovation, so are the less fortunate. Both those still unbanked, as well as the poorest people in society, could be helped by the introduction of blockchain technology and its ability to increase the speed and ease with which remittance payments can be made from other territories.

Yet the massive opportunities to help the needier sections of Indian society could prove to be difficult to exploit. While great strides have been made by the government in terms of opening up bank accounts for the majority of Indian households, nearly a quarter of the accounts opened as part of this financial inclusion strategy remain unfunded.

It is likely that it will be the higher end of the market that sees the vast majority of successful innovation, at least for now.

Among the most interesting areas for banking innovation within India currently is biometrics, with the Aadhaar authentication system – introduced seven years ago as a tool for enabling government agencies to make payments – now providing several fintech start-ups with a platform to build payment solutions for consumers.

FINTCH INNOVATION Biometric technology will be key to India’s drive to become a cashless society.

Simpal is one start-up hoping to utilise the Aadhaar system, in providing merchants with an easy-to-use point-of-sale device that uses iris recognition to enable lowvalue payments. With only a fraction of an estimated 40m merchants in India currently using POS systems, it hopes that the Android-based device it is working on can fill the gap. Also compatible with contactless payment cards issued by Visa, MasterCard and Rupay, the devices will go on sale in early 2017.

There are countless more examples of Indian banks planning to introduce innovative new products and systems. For instance, Axis Bank is looking into virtual cards, while HDFC Bank Ltd and Kotak Mahindra Bank plan to introduce chatbotbased technology into customer service.

Indeed, HDFC Bank is currently embracing a new omni-channel strategy that will bring new digital services and a new mobile app to its 37m customers.

Aadhaar’s availability for third parties to use is another area that observers from overseas will closely monitor. The government’s open API programme covers

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several other innovations - electronic knowyour-customer compliance aka e-KYC, e-Sign, the Unified Payments Interface and privacy-protected data sharing – so it will be interesting to see what other start-up innovation emerges in terms of building on these platforms.

Indeed, the situation for fintech startups in India is becoming increasingly positive. For instance, the country’s fifthlargest private sector bank, Yes Bank recently launched an incubator programme to promote start-ups in the country and to foster innovation among SMEs. ICICI Bank plans to begin investing in fintech startups, which in turn will help ICICI enhance its business plans and products. Kotak Mahindra Bank has introduced an account opening process called ‘Kotak Now’, which can be completed within minutes on a mobile device.

A growing digital economy – with plenty of scope for further growth – plus a helpful climate for innovation, with new government policy initiatives and support for interesting ideas in abundance make India an exciting place for banking right now. Yet with so much going on, and so many new technologies coming to market, it’s also an incredibly competitive time.

Banks in the market must continue to think hard about the kind of digital products and services they can introduce to meet consumer demand and expectations.

Competitors might beat them to the punch, but it isn’t necessarily about being the first to market with a new service – it’s about doing it better than others.

For the banks without the ability or infrastructure to innovate, then looking to new fintech players – both in India and abroad – for inspiration is a good call.

Partnerships and acquisitions also make sense for those banks that might not be able to conceive, develop and deploy new services quickly enough. Most importantly, banks should be aware of the different channels that customers will be using – whether physical or digital – and make the experience of using them as cohesive as possible.

While all of the right conditions are in place, it is now up to India’s banks to ensure that the industry becomes the envy of the rest of the world.

Jouk Pleiter is CEO and co-founder of Backbase, a fast growing fintech software provider that empowers financial institutions to accelerate their digital transformation.

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EV EN TS CA L E NDA R 2 0 1 7

FOR YOUR DIARY From this issue, Global Treasury Briefing will carry a regularly updated calendar of major forthcoming international conferences and events for corporate treasurers and financial professionals. Entries for possible inclusion in future issues, which should be kept brief and factual, may be submitted to news@gtnews.com. We reserve the right to edit items submitted: 13-14 FEBRUARY: SME BANKING SUMMIT The effective management of lending to SMEs can contribute significantly to the overall growth and profitability of banks. There has been considerable research and analysis into the methods by which banks assess and monitor business loans, manage business financing risks, and price their products – and how these methods might be further developed and improved. Join us and be a part of conference and be updated from speakers around the world. For further details, see www.arshbi.com/sme-banking-summit-2017/ Venue tba, Rome, Italy 27-28 MARCH: MARKETFORCE THE CARDS & PAYMENTS SUMMIT There has never been a more exciting time to work in the payments industry. With endless numbers of non-FS organisations entering payments, fintechs and regulation on the horizon, the industry is on the brink of a revolution. The 9th annual Summit in May 2016 heard from 25+ expert speakers from Lloyds, Barclays, MasterCard, Visa, WorldPay, Metro Bank and more. For further details, see www.mar ketforce.eu.com/events/financial-ser vices/cardspayments-summit Radisson Blu Portman, London, UK 16-17 MAY: ASSOCIATION OF CORPORATE TREASURERS (ACT) ANNUAL CONFERENCE The most powerful treasury and finance debate returns to Manchester in 2017 when the central theme will be “Redefining Treasury: Opportunity From Uncertainty“. In its new twoday format, the ACT annual conference promises the same level of unrivalled content and networking, but with the added advantage of less time out of the office. For further details, see www.treasurers.org/annualconference Manchester Central Convention Complex, Manchester, UK 26-28 JUNE: MONEY 20/20 EUROPE CONFERENCE The world’s largest fintech event, with a European accent, Money20/20 Europe is critical to realising the vision of disruptive ways in which consumers and businesses manage, spend and borrow money. Our speakers are 400+ global industry leaders defining the future of payments and financial services in the context of ‘anytime, anywhere’ connected commerce. For further details, see www.money2020europe.com Bella Center, Copenhagen, Denmark 12-13 SEPTEMBER: CASH & LIQUIDITY OPTIMISATION USA SUMMIT One great event, which addresses in detail the two major priorities for treasury professionals: how to maximise working capital and cashflow, and where to find the best corporate investment opportunities. For further details, see www.cashandliquidityamericas.com/ New York Marriott Marquis, New York, US

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4-6 OCTOBER: EUROFINANCE INTERNATIONAL TREASURY & CASH MANAGEMENT CONFERENCE Now in its 25th year, this is the world’s leading international treasury event, attracting nearly 2,000 senior level delegates and speakers from around the world to discuss the real issues affecting international treasury. For further details, see www.eurofinance. com/conferences/international-treasury-and-cashmanagement Centre de Convencions Internacional de Barcelona (CCIB), Barcelona, Spain 15-18 OCTOBER: ASSOCIATION FOR FINANCIAL PROFESSIONALS (AFP) ANNUAL CONFERENCE The AFP annual conference programme is created by a select group of your corporate practitioner peers. Their goal is to create an educational agenda that addresses the challenges, trends and innovations in the treasury and finance profession. For further details, see www.afponline.org/ San Diego Convention Center, San Diego, California, US 16-19 OCTOBER: SIBOS 2017 Sibos, the SWIFT International Banking Operations Seminar, is an annual banking and financial conference organised by the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

Sibos is the world’s leading financial services event and in addition to the conference hosts a world-class exhibition, with over 200 financial institutions, application and middleware vendors, systems integrators, consultants, and central clearing systems from around the world. For further details, see www.sibos.com/future-sibos Metro Toronto Convention Centre, Toronto, Canada 22-25 OCTOBER: MONEY20/20 CONFERENCE Money20/20 is the world’s biggest, boldest and best event covering payments and financial services innovation for connected commerce at the intersection of mobile, retail, marketing services, data and technology. Over 10,000 professionals, including more than 1,000 CEOs, from 3,000 companies and 75 countries, attended the 2016 US event. For further details, see www.money2020.com/2017 The Venetian, The Palazzo and Sands Convention Center, The Venetian Hotel & Casino, Las Vegas, US 21-22 NOVEMBER: CASH & LIQUIDITY OPTIMISATION EUROPE SUMMIT Produced in partnership with Treasury Management International, Cash and Liquidity Optimisation Europe is where senior treasurers and finance directors come to maximise their cash and liquidity management strategies. Free to attend for corporate treasurers, the event is split in to two subject-specific days, with day one focusing on best practice approaches to optimising corporate cash and payment structures and day two dedicated to locating a home for short-term liquidity and identifying secure longer-term investments with high yield potential in a low-interest rate environment.

For further details, see cashandliquidityeu.com/agenda/ The Tower Hotel, St Katharine’s Docks, London, UK

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