"Utility Settlement Coin" as a driver of the Banking Transformation.

Dear,
Last year, we discussed about the opportunities of the Blockchain technology.

https://www.linkedin.com/pulse/bitcoin-sap-banking-ferran-frances?trk=mp-reader-card

https://www.linkedin.com/pulse/dynamic-collateral-management-sap-bank-analyzer-ferran-frances?trk=mp-reader-card

Several systemic banks, including UBS,  Deutsche Bank, Santander, BNY Mellon, the market operator ICAP and the technology company Clearmatics have partnered in the development of the new "Utility Settlement Coin".

The "Utility Settlement Coin"  is a digital currency, supported by the Blockchain technology, backed by financial assets deposited in central banks.

The liquidity of the assets backing the USC should help in reducing the volatility and incentive the adoption of the new currency.

Using Blockchain technologies, instead of clearing houses and traditional banking settlement networks, presents two advantages:

- Reduction of settlement time from days to minutes.

- Reduction of settlement costs. Some studies estimate that the adoption of Blockchain technology for banking settlements will produce costs reduction of $20 Billion a Year.

With this incentives, it's obvious that will see soon many other initiatives incentivizing the use of Blockchain distributed ledgers.

But the advantages of the Blockchain will not come by doing the same things cheaper and faster, the advantages of the Blockchain will come by doing new things that we can't do today.

The impact of the Internet in the two legs of the value chain has been unbalanced in the last two decades. While the leg of the supply of goods services from the vendor to the client has experienced revolutionary changes, the leg of the transfer of value and payment from the client to the vendor, is still in the pre-internet era.

Corporates have replaced legacy Information Systems with ERP's (mainly SAP), improving dramatically the transparency, efficiency and traceability of their Supply Chains,

Companies collaborate in integrated Supply Chains, with Subcontracting and Work Order Collaboration or Vendor Managed Inventory scenarios, but they have to clear the payments for this goods and services with Financial Services provided by banks which are still relying in outdated legacy systems, and inefficient clearing and payment networks.

Blockchain technology provides the foundation of the Internet of Value, which is going to drive dramatic changes on the way in which companies, clients, vendors and intermediaries interact in the Value Chain.

Revolutionary Financial Services are going to appear in the new years; Dynamic Collateral Management, Optimized Margin Management supported by smart-contracts in smart distributed ledgers like Ethereum, even new services that we can't imagine today.

But the question remains; is it possible to implement these services on outdated information systems?
I don't think so.

These services will require Simplified Information Systems, collaborating in value networks, with the Information Systems of their counter-parties.

SAP has simplification technologies like HANA, and deep knowledge of the best practices for running Supply Chains, that we will have to integrate with the new Internet of Value.

Considering these assets; does SAP have the opportunity to leader this transformation, as it has leadered the transformation of the Supply Chains?
I'm convinced it does, and I hope we will comment it together in this blog.

Looking forward to read your opinions.
Join the SAP Banking Group at: http://www.linkedin.com/e/gis/92860
K. Regards,
Ferran.

IFRS 15 implications for Banks and the SAP Bank Analyzer sub-ledger.

Dear,
Last February I commented in a blog, that IFRS 15 presented important implications for the Banks Information Systems.

https://www.linkedin.com/pulse/fulfilling-ifrs-9-ifrs-15-sub-ledger-requirements-sap-ferran-frances?trk=mp-reader-card

As a consequence, some colleagues and readers of this blog have come back to me privately reminding me that IFRS 15 does not apply for contracts with leases, that are subject to IFRS 9.

I always appreciate very much this feed-back, I'm sure I make many mistakes that I can fix with your help, and on the other hand; there's no better way of learning, than opening a discussion with other colleagues.

By the way, this is the basis of the Hegelian dialectic “Thesis, Antithesis, Synthesis”

In this particular case, it's true that IFRS 15 does not apply for contracts with leases, but this doesn't mean that Bank's information systems are not impacted by the IFRS 15 regulation, which should be implemented by January 1, 2018.

The reality is that Bank's have always offered non-lending services, Foreign Exchange Services, Locker Services, Debit Cards, Local and International Payment Services, and these services conditions must be specified on contracts, that according to IFRS 15 must be valuated individually.

And keep in mind, that as consequence of the current, historically low interest rates, revenues generated by not-lending services are more important in the operating results of banks, making them more relevant in the analysis of the banks' results.

If you're interested in this topic, I recommend you to read the working paper of the Bank for International Settlements “The influence of monetary policy on bank profitability”, that you can find in the following link.

http://www.bis.org/publ/work514.pdf

Fortunately, SAP Bank Analyzer capabilities, integrated with the cost and revenue recognition functionalities of  other SAP Components (Cost Center Accounting, Activity Based Costing, Controlling Orders, CRM, Profit and Cost Distribution tools of Business Planning and Consolidation, etc), offer powerful functionalities for the tracking and analysis of non-lending profits and costs.

The main competitive advantage of the SAP Business suite is the seamless integration of business process incorporating lending and non-lending business processes.

In some cases, separating the lending and non-lending components of a contract can be very challenging for the Information System of a Bank. For instance, one bank can offer a locker to a client who also has a mortgage loan, and both services payments are cleared in a current account with an overdraft facility.

Integrating the lending and non-lending contracts in Bank Analyzer will have many advantages.

Bank Analyzer supports the tracking of all the revenues and costs amounts, generated by the lending and non-lending services, posted with Business Transactions and Items.
These amounts will be accumulated in the correspondent Posting Key Figures by the multi-accounting logic of the Process and Methods Layer.
Finally, the Processing Categories of the Posting Key Figures will provide us the technical classification of the nature of the Profits and Costs, under the interpretation of the implemented Accounting Principles.

On the other hand, tracking accurately the costs associated to some of the services can be very challenging. In Bank Analyzer we can easily post the Standard Cost associated to a service, but the key point is determining an accurate and valid amount of the Standard Cost.

With decades of successful implementations in manufacturing and services companies, SAP ECC, CRM and Business Planning components have proved to be very useful for determining the actual and planned costs associated to non-lending services. This know-how can be leveraged in the determination of the costs associated to non-lending services of banks.

Finally, the open architecture of the Financial Database will provide the integration layer of the above calculations. Once they've been incorporated as accounting entries of the Results Data Layer, they will be transferred to the General Ledger with the standard capabilities of the General Ledger Connector, fulfilling the reconciliation requirements of IFRS 15.

Join my SAP Banking Group at: http://www.linkedin.com/e/gis/92860

Looking forward to read your opinions.
K. Regards,
Ferran.