Metaverse and Capital Optimization with SAP Banking

Dear,

Recent events have made the word metaverse very popular. The massification of new technologies such as Virtual Reality, combined with the changes in purchasing, communication, education, medicine and socialization habits that the COVID-19 pandemic has brought, has opened a new paradigm in the interaction between humans, and between them and physical and digital realities.

Although I see the potential of the technology, I am skeptical of some of its manifestations. In the same way that the early years of the Internet brought multiple search engines and over time Google won the race, due to its ability to integrate the search for internal and external information (relevance) through multiple channels, the determining factor in the success of the metaverse will be the ability to integrate services and interests across multiple channels.

Integration and omnichannel architecture are two SAP strong assets.

Integration between partners is part of the essence of SAP since the foundation of the company

SAP has also been in the development of the omnichannel architecture from the beginning with SAP Customer Relationship Management, SAP Hybris and SAP Customer Activity Repository applications bundle as some of its brightest manifestations.

SAP CRM provides a customer-centric vision of the customer, SAP Hybris an omnichannel interaction with him and SAP CAR manages the materials availability under the different channels considering the constraints of each of them. 

SAP integrated architecture facilitates the holistic analysis of the market, including the actions of potential competitors in multiple channels, collaboration with vendors, clients, distribution channels and service providers.

The client experience can start in an online mobility channel, become deeper in the metaverse and receive the product in the physical channel and return to the metaverse for post-sales services, or any potential combination of them.

Each channel has its own potentialities and limitations; the online channel is faster and more formalized but with a less sensitive experience than the physical one, with the metaverse closing the gap between them.

Delivering the product and service also presents different restrictions, which are also different depending on the client and his situation. A customer with a daily routine picks up the product at his hotel, another at a point of sale in the retail channel and another at his residential address.

SAP SCM is prepared to be deployed in this multi-channel logistics and the integration with the other areas of SAP will support it.

But even more, inI have no doubt that SAP is leading this transformation, even the strongest ecommerce corporations like Amazon, have to integrate their processes with vendors managed with SAP technology, and information sharing will be the basis for a satisfactory client experience and cost reduction.

But I do not see a clear strategy for solvency and liquidity optimization in the current omnichannel proposals.

There are multiple opportunities for capital optimization in an omnichannel architecture, and new developments like Virtual Reality and the metaverse multiply them.

The more interactions we have in any channel, either physical or virtual, the more data we share that can be used to determine our solvency and risk profiles. There are multiple applications of Big Data and Artificial Intelligence supporting this kind of analysis. 

But there are also less known opportunities for capital and liquidity optimization, let’s look at some of them.

For instance, the channel through which we deliver a product or service has different costs (transport, storage, shipping, etc.) and different delivery times. These differences generate different liquidity needs that can be analyzed and optimized, based on the integration of the goods delivery processes, and the financial processes that cover their liquidity needs.

More complex scenarios come with greater capital optimization opportunities. The cost of stock obsolescence depends on its turnover, shelf life, safety stock, etc. These indicators depend on the constraints of each channel and the organization's ability to manage them efficiently. Different channels have different costs and risks, and therefore different balances of generation and consumption of capital and liquidity.

Transferring these different cost and risk structures to the final price are management decisions, but in any case they must be measured, especially in an environment of scarcity of capital, such as the one we are heading for.

Integrating these omnichannel processes for the delivery of products and services with SAP Banking's financing and capitalization processes, opens up the opportunity to adjust financial instruments to the need and surplus of liquidity and capital. 

Even more, accurate measurement of capital and liquidity consumption, thanks to the advantage of sharing information offered by process integration, supports the prioritization of the channels that present a better balance of generation and consumption of capital and liquidity. This can be a physical channel, a virtual one or a mix of them, including the metaverse.

We are working on presenting our system to the market, and looking for business partners and investors, if you are interested do not hesitatBut even more, inBut even more, ine in contacting me at ferran.frances@capitency.com

Looking forward to reading your opinions.

Kindest Regards,

Ferran Frances.

www.capitency.com

Join the SAP Banking Group at: https://www.linkedin.com/groups/92860

Visit my SAP Banking Blog at: http://sapbank.blogspot.com/

Let's connect on Twitter: @FerranFrancesGi

Ferran.frances@capitency.com

Cryptocurrencies, SAP Banking and Capital Optimization

Dear,

In the last few days there has been a significant drop in the value of the main cryptocurrencies.

In my opinion, with some volatility that will make the prices go up and down, this is an unavoidable long-term trend.

Blockchain promises great advantages but also disadvantages, and most of the current cryptocurrency use cases do not seem to come close to addressing them in a satisfactory way.

The basic rule of thumb for determining the sustainability of a service is that the value it provides outweighs the cost it entails.

Do the current and proposed use cases of the current cryptocurrencies fulfill this rule?

Let's look at its use as a payment system; Using bitcoins as a payment tool means acquiring bitcoins (buying or mining). But if we look at the volatility of the currency, the risk of having losses before executing the payment is very high.

On the other hand, confirming a transaction on the blockchain requires the time and computational effort of the consensus mechanism. For example, confirming a payment in bitcoin takes approximately 10 minutes.

Is this a realistic alternative to using centralized payment methods such as paypal, mastercard or visa?

There are alternatives like Lightning Network which significantly improves the time required to register a transaction but it also has other limitations. For instance;  as it is based in bidirectional payment channels between two nodes, there is a possibility of fraud if one of the nodes drops the channel. For fixing this, designers have included the concept of Watchtower, which requires additional computational effort.

In any case, we should not confuse a decentralized technology with a decentralized market. A decentralized market has mechanisms that favor the balance of trading power of economic agents. Currently, the main cryptocurrency exchange platform is bigger than all the others combined, it is a clear example of centralization of market trading power.

I admit that there are other business cases, more complex than a simple-payment transaction where blockchain potentially could add more value, let's look at one of them.

In a mortgage loan, the cash-flow structure can be complex and also includes the relationship with a real estate collateral. In this case, both the value of the transaction and its complexity could justify the computational effort and response time of the blockchain.

What advantages does blockchain have compared to the current model?

With blockchain, the two counterparties have the guarantee that no one will modify the record of what has been agreed.

But it does not improve in any way the solvency analysis of the debtor, the accurate valuation of the collateral, or any of the elements that represent a risk for the creditor. Nor am I able to imagine the relevant advantages for the debtor in using blockchain, but I invite you to propose some in the area of responses to this article.

Some experts have proposed that blockchain meant the deployment of peer to peer lending, as something very disruptive in which blockchain has a lot to contribute.

Peer to Peer lending does not mean that one person lends directly to another, due to the difficulty in matching maturities, amounts and risk. Peer to Peer lending means that multiple people combine their investments to finance the needs of others, similar to the securitization of the loans of a bank.

The fundamental problem in this process is transparency. Currently, the valuations of the loans are based on obsolete technologies, with a very limited capacity of tracking the value of loans and the remuneration of investors.

These processes are supported by legacy technologies, developed individually in each bank, without a comprehensive vision of the processes. Developing these processes on blockchain technology, does not guarantee the integration of processes or the transparency of the information.

On the other hand, SAP Banking has been developed on an integrated architecture, which has been SAP's value proposition in all its products for 50 years. This value proposition assures transparency and reconciliation which is the basis of Capital Optimization.

This transparency is also the driver to match accurately the capital requirements of the borrowers and the investment opportunities of the lenders in Peer to Peer lending, or any other business case.

The challenge is how to migrate the current processes of traditional banks to the integrated systems of SAP Banking. We've been trying for years, but the complexity of business processes, the size, and the technology of traditional banks make it difficult. There have been some successes but less than we all would like, so the transformation of the financial system is still pending.

An alternative are some neobanks built 100% in SAP technology.  These neobanks are capable of redesigning and automating processes, and they also enjoy the integration and traceability provided by SAP banking, giving them a significant competitive advantage.

Additionally, these neobanks can notarize transactions in a distributed ledger like blockchain achieving some level of decentralization.

But the final step in the evolution is a system built in SAP Banking technology capable of evaluating the capital requirements and investment opportunities of its Business Partners, proposing proactively financial instruments for covering them, and with a price adjusted to the risk of transaction.

Of course, the transactions, quotations, prices, amounts, capital consumed, etc can be registered in a blockchain.

We are working on presenting our system to the market, and looking for business partners and investors, if you are interested do not hesitate in contacting me at ferran.frances@capitency.com

Looking forward to reading your opinions.

Kindest Regards,

Ferran Frances.

www.capitency.com

Join the SAP Banking Group at: https://www.linkedin.com/groups/92860

Visit my SAP Banking Blog at: http://sapbank.blogspot.com/

Let's connect on Twitter: @FerranFrancesGi

Ferran.frances@capitency.com

Synchronized Finance and Capital Optimization with SAP Banking.

 Dear,

Global debt and weak economic growth, as a consequence of the depletion of fossil energy sources and other critical resources, will make the new structural environment of capital scarcity visible in a few months.

In an environment of capital scarcity there is no higher priority than optimizing it, and that need to optimize capital will bring about the redesign of banking business processes.

The consumption of capital is a direct consequence of risk (market risk and counterparty risk) and optimizing capital is nothing more than a synonym for reducing risk.

Risk is reduced by sharing and integrating relevant information through business processes. SAP founders understood this, and the ability of SAP systems to do so has made them the market leader over the last 30 years.

For example, the comparative analysis of the sales forecast and the actual sales provides the basic information to determine the Safety Stock, and with an accurate estimation of the Safety Stock level, companies hedge against the risk of losing sales. If the organization improves its forecast using multivariate statistical analysis techniques, with data collected from external sources of information, or by implementing consensus forecast processes with its main customers, it reduces its risk of losing sales.

Technically, these hedging techniques reduce the cost of capital (opportunity cost due to lost sales, reputational cost or obsolescence costs of the inventory), as a non-payment insurance reduces the cost of capital due to credit risk. Furthermore, the cost of implementing and incentivizing the use of these processes is analogous to the cost of the insurance premium. But even more, the risk of suboptimal implementations of these processes is analogous to the risk of wrongly choosing financial instruments and their suppliers.

But the real economy business process improvement, provided by SAP best practices over the past 30 years, has not been accompanied by a similar improvement in the solvency and liquidity allocation processes.

Pressure for cost reduction and service level competition has brought a new paradigm that seeks the synchronization of logistics processes, among the multiple agents of the value chain. Vendors collaborate with manufacturers, retailers, logistics providers, sharing information through the value chain for synchronizing demand and supply times and quantities, considering all the constraints of the value chain.

Banks have remained outside of these collaboration networks, not because of a lack of incentive, but because of their inability. They simply lack the know-how, technology and processes to do it. This is a great weakness but also an opportunity for the players capable to implement the new paradigm in Financial Services as it is a key driver in Capital Optimization.

All business processes consume and generate capital and liquidity, although they do so after a period of maturity of the process. And it is precisely for this reason that they require the financial system to cover capital and liquidity needs in periods of shortage and investment opportunities in periods of surplus.

Capital and Liquidity synchronization requires measuring the capital and liquidity position of the companies at different temporary horizons, and allocating capital and liquidity (financial instruments) according to their distribution in the business processes through different time horizons.

To do this, we must start by expressing the events of the real economy in terms of generation and consumption of solvency and liquidity, so that, when integrating them into business processes, measure the shortage or surplus of capital and liquidity of the process in each time horizon . Adding the capital and liquidity position of all the processes in the different time horizons, we will know the shortage or surplus of capital and liquidity of the organization in each time horizon.

Finally, by adding the processes of other subsidiaries of the group and even partners and suppliers, we will be measuring the shortage or surplus of capital and liquidity of all of them, opening the gate to collaboration scenarios, in which some processes provide capital and liquidity or opportunities for investment to other processes on the same network.

Making an analogy, it is something similar to the Vendor Managed Inventory Collaboration processes (typical of logistics), but exchanging financial instruments (loans, deposits and derivatives) instead of stock replenishments.

We are working on presenting our system to the market, and looking for business partners and investors, if you are interested do not hesitate in contacting me at ferran.frances@capitency.com

Looking forward to reading your opinions.

Kindest Regards,

Ferran Frances.

www.capitency.com

Join the SAP Banking Group at: https://www.linkedin.com/groups/92860

Visit my SAP Banking Blog at: http://sapbank.blogspot.com/

Let's connect on Twitter: @FerranFrancesGi

Ferran.frances@capitency.com