How SAP is building the most successful Metaverse and Capital Optimization with SAP Banking.

Dear,

In the last few months, we have become familiar with Mark Zuckerberg's Metaverse initiative, which promises us a virtual world focused on social connection and facilitated by Virtual and Augmented Reality.

Personally, I have doubts about the short-term potential of the initiative, and the capacity of monetizing it in the short-medium term. Before his corporation loses the competitive edge it gained from the successful launch of Facebook 18 years ago.

Furthermore, and with much less publicity in the mass media, SAP is developing a network that will revolutionize business interaction much sooner than most expect.

The success of an initiative is the result of two forces, market pull and technology push, or in other words what the technology offers and what the market demands.

SAP Business Network for Supply Chain has come at the best time to successfully combine the two forces.

SAP Business Network for Supply Chain is an open logistics network that connects business partners for inter-company collaboration and insights. SAP Logistics Business Network provides a central entry point to manage logistics transactions, exchange documents with key business partners, and gain transparency across the complete value chain.

https://www.youtube.com/watch?v=0Jp46bdOCY4&list=PLmGEBnWFTjqRlZIf5EaqJNUEoJecbJ5WX&index=3

SAP is the Information Technology that manages approximately 70% of the world's GDP and in the last 30 years has standardized business processes, to the point of becoming the language with which organizations interact.

The integration processes between companies managed with SAP such as Purchases, Sales, Logistics Planning, etc. are carried out fundamentally with this Technology, enjoying that compatibility and homogeneity of processes and thereby reducing integration costs and improving coordination between them.

Standardization is not limited to Technology but also to Human-Computer interaction. As a curiosity, you can find how many Logistics Director or Financial Director job offers require knowledge of SAP.

As I heard a colleague say a few weeks ago; "SAP is to today's business community what the Latin language was to the Roman Empire."

Additionally, The global business community has been under severe stress since December 2019. First, the COVID-19 pandemic and the corresponding lockdowns, which reduced economic activity until the summer of 2021. With the economic revival came supply chain disruptions that were increasing during the Autumn of 2021 until they got out of control with the Russian military intervention in Ukraine.

The shortage of energy, raw materials and all kinds of products and services is not going to disappear in the short-medium term, in fact for many experts it is structural.

In this environment, only the coordination of business processes, based on the availability of accurate and real-time information on the status of these processes, can improve the level of service and reduce the waste of resources.

For all of the above, SAP Business Network for Supply Chain is going to have rapid acceptance, much faster than Mark Zuckerberg's Metaverse. It is in a position to offer what the market demands in a time of great need.

But this great initiative has a limitation, among the business partners that participate and collaborate, we will not find Financial Services providers.

The reason is the scant presence of SAP technology in banking and insurance corporations, which isolates them from business reality because they do not speak the same language. And it prevents them from being effectively integrated into the business processes of 70% of the World's GDP.

Our team detected this opportunity 10 years ago and we started working on the solution.

Optimizing solvency and liquidity requires synchronizing flows of consumption and generation of capital and liquidity, with business flows, sharing information that allows synchronization.

To do so, we follow the same logic that SAP has followed in its deployment in the real economy for the last 30 years. First we implement the SAP Banking processes, following the SAP Best Practices.

Second, we modeled the business processes of the real economy, in terms of generation and consumption of capital and liquidity, on SAP Banking systems.

In this way, we have the technology to proactively offer financial instruments, covering the capital and liquidity gaps of the business processes and optimizing the consumption of capital and liquidity of the system. 

Making an analogy, it would be like the Vendor Managed Inventory processes, typical of logistics, but adapted to the reality and constraints of Financial Services.

We are working on presenting our system to the market and looking for business partners and investors. If you are interested, do not hesitate to contact 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

Energy Crisis, Capital Crisis and Capital Optimization with SAP Banking.

 Dear,

As we commented in the previous article, the war in Ukraine has accelerated the process of the energy crisis that has been brewing for years. In fact, when humans extracted the first barrel of oil and built an industrial society on top of it, they were taking the first steps toward the demise of the oil economy.

Capitalism is a system that needs continuous growth to sustain itself, and as industrial growth involves the consumption of limited resources, it is unsustainable on a planet of finite resources.

Unsustainability is intrinsic to the industrial society of the last 200 years. But when a system evolves in an unsustainable way, there comes a time when it becomes unstable, and that is what most of the people will find unexpectedly in the coming months.

The scarcity of resources, fundamentally energy, will weaken economic growth very soon. Weak growth, combined with the largest debt in the history of capitalism, results in an economic environment of capital scarcity.

The price of oil jumped from 60 to 120 USD per barrel in the last 12 months, and some analysts predict that the price could reach 200 USD per barrel in the coming months.

In my opinion, this analysis is incorrect, the price of oil cannot remain above 100 USD per barrel for a long period of time, because a significant part of the demand cannot support these price levels and disappears.  This destruction of demand is nothing more than a destruction of capital. The coupling between energy consumption and economic growth has been amply demonstrated in economic science. And again weak growth, combined with excess debt (the largest in the history of capitalism) makes us enter into a new economic environment of capital scarcity.

For years, economists have taught us that it was necessary to fight against oligopolies and monopolies to facilitate economic growth. This was the case in an economic environment with abundance of natural resources, but this is no longer the case, nor will it be for a long time.

For example, the concentration of GDP and the increase in inequality is nothing more than a consequence of the scarcity of capital.

Thus, we are entering an environment of scarcity of capital and its distribution is concentrated in fewer and fewer economic agents, and this has consequences.

From the perspective of Capital Optimization, the critical success factor is to identify the economic agents and processes best adapted to the new environment. These economic agents will be able to gain market share with the disappearance of their competitors, and thus compensate for the reduction in unit margin, which will be inevitable in this environment of capital scarcity.

Approximately 70% of the world's GDP runs on SAP systems, and while the new economic model deepens the concentration of GDP, this percentage will grow. This makes SAP the key player in the capital optimization process.

Add to the above the collaboration/communication scenarios that the Internet of Things or Artificial Intelligence (SAP Leonardo) is bringing, which multiplies the potential of SAP in its role as the main integrator of business processes between companies.

With all this, SAP has become much more than a software system and it is in fact the "language" spoken by most of the world's GDP.

However, financial services have remained isolated from this integration process, but this has placed them in an untenable position.

The optimization of solvency and liquidity is based on the same principle as the optimization of inventory, transport costs or production capacity. All system optimization processes are based on the second law of thermodynamics which, in a nutshell, tells us that an optimization process requires reducing the entropy of the system with information.

Communication theory teaches us that the transmission of information is more efficient using a standardized communication language, and that the efficiency grows with the number of agents using the same standard. If SAP has become the standard communication language for 70% of the world's GDP and growing, there is no alternative, the financial system must speak SAP for optimizing capital.

If the previous statement is true, why has the financial system remained disconnected from the integration and standardization process that has occurred in the non-financial economy?

There are multiple reasons, but the main one is that the pressure to optimize capital was never high enough.

Many of us believed that the financial crisis of 2008 represented the beginning of the end of a financial system driven by volume and not by capital optimization, and for a few months it gave that impression. But the “Too Big to Fail”, the Troubled Asset Relief Programs, the Bailouts, the Quantitative Easing Cycles and the growth of Shadow Banking made it clear that this was not the case.

However, as a physicist, I knew that an unsustainable system someday becomes unstable, and decided to work on a capital optimization model, that would be necessary when the capital scarcity made the financial system unstable.

This day has come; the combination of weak growth, as a consequence of the scarcity of energy resources (although not only energy), and the excess of debt (the largest in the history of capitalism) makes it urgent to transform the financial system, from a model based on volume to a model based on capital optimization.

Our system, built on SAP technology, integrates with the processes of the real economy (managed with SAP), and determines its capital and liquidity consumption. With this information, it proposes financial instruments that cover deficits or excesses of capital and liquidity, adjusting the price to the risk of the operation.

Making an analogy, it works like inventory replenishment and optimization processes, in which we reduce the cost of inventory obsolescence, sharing information on real demand, transport capacity, etc., but optimizing solvency and liquidity instead of inventory obsolescence.

We are confident that this value proposition creates a significant competitive advantage in today's capital-scarce environment. And the advantage will increase while the environment worsens, as unfortunately it will happen.

We are working on presenting our system to the market and looking for business partners and investors. If you are interested, do not hesitate to contact 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

Ukraine War, Capital Scarcity and Capital Optimization with SAP Banking

 Dear,

The last few weeks have been very difficult. Since the Russian military intervention in Ukraine began, our societies have been subjected to deep stress, both emotional and economic.

I am afraid that the confusion generated by the emotional shock of the harsh images of deaths, bombings and refugees makes difficult a balanced analysis of economic reality. Analysis that, however, is more necessary than ever.

My main background is Physics, and from a very young age I learned that Energy is the ability to Produce Work, and some time later I understood the causal relationship between the availability of energy and economic growth.

Tensions in the energy markets began just as the restrictions of the COVID-19 pandemic were being eased, reactivating the economy. These tensions that caused inflation to spike have been accelerated and multiplied by the economic effects of the war in Ukraine and subsequent sanctions and retaliation.

In order to control inflation, central banks have reduced liquidity injections, repeating a pattern of behavior that we already saw in the summer of 2008.

Unlike then, the banking system seems better capitalized, but shadow banking assets are much larger and their effect on the system's capital consumption is consistent with their volume and risk.

Summarizing; the combined effect of weak growth due to energy shortages, accompanied by the scarcity of other critical resources, and the overconsumption of capital due to excess debt, threatens to destabilize, sooner rather than later, the financial system.

Some concerning signs have appeared this week, triggering margin calls, increasing counterparty risk and market volatility.

For many economists, this environment is structural; energy shortages will be present for a long period of time, and financial difficulties caused by excess debt, combined with weak growth and reduced liquidity, will translate into an increasing number of defaults, delinquencies and insolvencies.

We are facing a very serious capital scarcity crisis and we are not ready for it.

Capital is the most important resource in the financial system (actually in the economic system) and in an environment of scarcity, there is no higher priority than optimizing it.

Capital optimization has always been at the core of SAP's value proposition. The subsidiaries of the groups of companies, and the networks of groups of companies integrate their business processes, sharing information in order to reduce the costs of supply, production, storage and distribution, while maximizing the level of service.

Over the past 30 years, SAP's products and services offering have transformed the supply and distribution chains of the real economy, and it is now in the position to multiply these benefits, with the deployment of new Geolocation, Artificial Intelligence and IoT technologies.

But the financial system has remained detached from this transformation, greatly limiting its ability to optimize capital.

I personally discovered this in 2012 and started working on finding a solution.

The solution had to follow the guidelines that had enabled SAP to transform the real economy; technical integration and process integration.

Technical integration means that we have to express the banking processes with SAP technology, because in this way technological compatibility reduces the operational costs associated with the integration of processes.

The integration of processes supposes a greater challenge, because it implies modeling the processes of the real economy in terms of generation and consumption of liquidity and solvency. I will give you an example.

Let's evaluate the distribution process of a perishable product. Efficient shelf-life management reduces obsolescence costs and service level. This improvement in the process affects the efficiency and profitability of the company and we can already see intuitively that it tends to improve its solvency.

But for the improvements to be effective, we have to move from intuition to a systematic process of measuring the impact of efficient shelf-life management of perishable products on the company's solvency.

The solution is to express in terms of generation and consumption of solvency and liquidity, the business processes of companies managed with SAP (supply, production, sales, distribution, etc.). Saying it is easy, but doing it has required a significant effort.

Once the balance of generation and consumption of solvency and liquidity of a process is measured and recorded, we determine the needs or excesses of solvency and liquidity of the process, covering the gap or surplus through the proactive offer of financial services.

To a certain extent, it is similar to the collaborative processes in logistics replenishment, but replacing material stocks with solvency and liquidity (financial instruments).

We are confident that this value proposition creates a significant competitive advantage in today's capital-scarce environment. And the advantage will increase while the environment worsens, as unfortunately it will happen.

We are working on presenting our system to the market and looking for business partners and investors. If you are interested, do not hesitate to contact 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

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

SAP Banking and Capital Optimization in a world of Capital scarcity.

 Dear,

Although many economists deny it, the economic growth experienced by humanity in the last 200 years has not capitalism as its main factor, but access to cheap and abundant energy brought about by the industrial revolutions.

With the oil shocks of the 1970s, growth weakened and the system had to turn to debt as a resource to boost the economy. For this reason, at the beginning of the 1990s a process of deregulation of the financial system began, which allowed the limits established after the great depression of 1929 to be exceeded.

The 2008 crisis showed us that the seams of the financial system were beginning to unravel due to the unpayable debt. In order to continue turning the wheel of growth, public funds were transferred to cover private losses (TARP), the cost of capital was artificially reduced with the quantitative easing cycles and the use of shadow banking was encouraged. The price to pay has been an artificial stability of the financial system that is more leveraged than ever, but in which in theory, banks are well capitalized. In reality, the overleverage of the counterparties has undercapitalized the entire system, so that the solvency of the banks is fictitious, but another long decade of economic growth has been enjoyed.

The obsession to generate nominal returns while ignoring the cost of capital, a fundamental characteristic of a volume-oriented financial system, has inflated the largest financial bubble in the history of capitalism, with ramifications in the Chinese real estate sector, the US shale oil industry, cryptocurrencies and some more that we will discover soon.

The objective of all this effort to squander resources, until confronting the physical bases of growth, was to lengthen the mirage a little more, whatever the cost.

Congratulations to everyone, we are already close to the limits that the planet can support. And now what?

Now we face multiple and critical challenges; the energy transition, the climate crisis and the transformation of the financial system.

Why has the transformation of the financial system become critical and urgent?

Economic growth is strongly coupled with energy consumption, as we mentioned before, the stages of strong economic growth have required abundant and cheap energy.

But the energy transition and the climate crisis are reducing the availability of energy, so it is reasonable to think that they will reduce economic growth.

And the lower economic growth has as a consequence a lower generation of capital that, together with the excess of debt, has brought about a new economic environment characterized by the scarcity of capital.

If capital is scarce, the main driver of the financial system should be capital optimization.

That is easy to say but very complicated to implement, the proof is that there are not many concrete proposals in this regard.

As the Second Principle of Thermodynamics indicates, optimizing a resource requires reducing the degrees of freedom of the system that consumes it (entropy) and that can only be done by incorporating information.

The practical application of this principle to the management of business processes is the work of the Israeli Physicist Eliyahu M. Goldratt With his Theory of Constraints, Dr. Goldratt taught us how to optimize the consumption of tangible capital (production capacity, transport, storage, etc.).

Since 2008 I have worked on translating the Theory of Constraints to the optimization of intangible capital (solvency and liquidity), based on postulates analogous to those of Dr. Goldratt.

I have been a SAP consultant for 30 years and I have seen how it has transformed multiple industries by integrating business processes, establishing a data and process model that has become a "de facto standard".

This standardized data and process model has reduced the operational costs associated with integration, facilitating the optimization of tangible capital.

Optimizing solvency and liquidity requires integrating the provision of financial services with the processes of the non-financial economy, establishing a common language between both worlds.

In other words, it requires modeling the events, assets and liabilities of the non-financial economy in terms of generation and consumption of solvency and liquidity. This is exactly what we have done for the last 12 years.

With this information, and using standard SAP Banking tools, our system proactively proposes financial instruments that cover solvency and liquidity deficits in a business process. Additionally, it offers investment opportunities to processes that generate solvency and liquidity surpluses. All of this, adjusting the risk weighted investment yield, with the aim of reducing the solvency and liquidity consumption of the system.

Making an analogy, it works like the inventory models managed by the supplier, typical of logistics, but offering financial services instead of restocking products.

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