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PAVING THE WAY TO PAYMENTS MODERNIZATION WITH A SHARED HIERARCHICAL LEDGER SYSTEM

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Marten Nelson, CEO, M10 Networks

 

A few days ago, the Secretary of the U.S. Treasury admitted that she’s still on the fence about digital currency. Unlike the Bitcoin-loving president of El Salvador, Secretary Yellen thinks further study is warranted before diving headfirst into the digital currency deep end.

This hesitancy is good. It’s worth asking a few questions: What’s so great about digital currency? What will it allow us to do that we can’t already do within our current two-tier monetary system?

The answers to these questions are multifaceted and can depend largely on where you are, since the drivers to adopt digital currency differ from one country to the next. Sweden, for example, is virtually cashless. The Swedish central bank is responsible for issuing money to citizens and if it can’t do so because people don’t use cash, then a different form of currency makes sense. If we look at developing countries, financial inclusion becomes more of a driver for adopting digital money. And of course, from a corporate treasury perspective, the speed of settlement, reduced costs, and the potential for conditional payments enabling new payment models are all very enticing.

Marten Nelson

Adopting central bank digital currency (CBDC) doesn’t have to be the first step to realizing the benefits of digital currency, however. In fact, individuals can have universal access to instant, cheap, and safe payments without CBDC. Other drivers, such as preventing currency substitution, maintaining (or establishing) currency hegemony, and improving payments between countries, can also be addressed without wholesale adoption of CBDC.

The key is payments modernizationReal-time payments, account-to-account payments and open APIs are all great examples. But payments modernization can also be viewed as the first step towards adoption of CBDC. If done correctly, it can create a framework to facilitate the interconnection of tokenized central bank money and commercial bank money, much in the same way that money works today. It just needs to be more efficient and totally secure.

I’m a payments nerd, not a crypto fanatic. But I do believe that blockchain holds the answer to payments modernization and the creation of a Regulated Liabilities Network (RLN). Yet, in order to maintain the current two-tier monetary system, dispersed ledger technology must preserve the relationship between central banks and commercial banks.

A shared hierarchical ledger could create this type of RLN system that enables the tokenization of both central bank money and commercial bank money. The central bank portion of the ledger would be designated M0 and the commercial bank portion of the ledger, M1. M0 and M1 are distinct but joined in a hierarchical fashion.

This shared hierarchical ledger framework enables instant settlement between banks and their customers on the network. Domestically, it includes payments between individuals (P2P), between businesses (B2B), and from individuals to businesses (C2B). Payments are always “push payments” (credit transfers) and can be pre-authorized to create pull-like (debit transfer) payments.

In the case of cross border payments, a shared hierarchical ledger would allow banks to avoid routing payments through multiple intermediaries. Instead, a hierarchical ledger would allow instant, low-cost point-to-point transactions with currency ledgers that are interconnected through an FX service. The FX service would simply require accounts on the source and destination ledgers of a transaction and provide liquidity to the transacting counterparties.

And this is just the beginning. A shared hierarchical ledger recognizes that banks are already regulated entities. Using the RLN enables banks to do things more efficiently, but from a regulatory perspective, the banks are doing what they already do today: accepting deposits, providing loans, enabling payments, providing trade financing, disbursements, remittances, and merchant payment processing. There’s no need to change national laws or to apply additional regulatory oversight.  Banks would remain responsible for KYC when onboarding new customers and AML and sanction screening when processing payments.

An RLN based on a shared hierarchical ledger would also be highly cost-effective. If shared ledgers are connected through a single cloud-based platform, banks will benefit from economies of scale. Furthermore, the reduced reliance on correspondent banking provides additional savings, as does the ability to lower liquidity requirements, since banks can move assets instantly to where they are needed.

A modern RLN based on a shared hierarchical ledger would also use state-of-the-art authentication, tokenization, access management, and other tools which are generally not available to your average commercial bank, making the network highly secure. And perhaps most importantly, payment modernization based on a shared hierarchical ledger system can be realized in a matter of weeks or months, instead of years or even decades. This point is critical to stave off the threat of an unregulated internet of value.

At M10, we encourage central banks to continue researching and experimenting with CBDC. We also encourage implementing payments modernization solutions in parallel to connect M1 and M0 and provide future options for CBDC. This two-pronged approach is already bringing the key benefits of CBDC to market faster, and has the potential to dramatically reduce the cost to central banks.

 

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NutreeLife triples production with finance from Siemens Financial Services

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Plant-based snack manufacturer NutreeLife has massively increased its production capacity with the help of a hire purchase solution from Siemens Financial Services (SFS).

Founded in 2017, NutreeLife is a rapidly growing company which produces vegan protein bars, snacks and other healthy vegan products. Following a significant increase in demand, the manufacturer wanted to invest in a new production line.

As Patrick Mroczak, MD and CEO at NutreeLife Ltd explains, “We were ready to invest in the next stage of business development. We needed new equipment to meet demand but we also wanted to preserve our cash flow to deal with the volatility of the pandemic.”

To protect the business’ working capital, SFS suggested a hire purchase arrangement. Under the agreement, NutreeLife could acquire the equipment immediately and with no upfront costs. Instead, SFS tailored the arrangement so that the company could spread the cost over 5 years in regular payments and at the end of the arrangement NutreeLife will automatically own the equipment outright.

Under the hire purchase solution, the manufacturer also met the conditions for the UK government’s super-deduction tax initiative, whereby a company investing in qualifying new plant and machinery assets is able to claim 130% of the equipment’s value in year one.

“As a relatively new business, it’s not always easy to gain access to the right finance at a good price but SFS were incredibly accommodating. They really understood the benefit of the technology for our business and helped us unlock the investment,” adds Mroczak.

With the new equipment and technology installed, NutreeLife has been able to triple its production and turnover, and expand operations in tow.

“Despite the ups and downs of the pandemic, the new production line has helped us to keep things moving. As demand rises we’ve been able to take on much more staff and use our working capital towards stockpiling raw materials when needed.”

And the business’ success has not gone unnoticed. NutreeLife was awarded Small Business of the Year at the 2021 Lancashire’s Be Inspired Business Awards (BIBAs).

“Working with SFS has truly opened up news avenues of business for us. The team is so fast and responsive and clearly dedicated to finding the best solution for our machinery needs,” comments Mroczak.

Kirsty Talmage-Rostron, Business Development Manager – UK South at Siemens Financial Services comments, “It’s always exciting to work with an innovative award-winning manufacturer like NutreeLife. Despite the challenges of COVID-19, we’ve been able to help the business rapidly develop and look forward to continuing to support this growth strategy as the business expands into new markets.”

 

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HYDR DEVELOPS INVOICE FINANCE PLATFORM TO INTEGRATE WITH MAJOR CLOUD ACCOUNTING SOFTWARE PROVIDERS

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MANCHESTER – UK – 17th January 2022 – Fintech start-up, Hydr has developed its proprietary invoice finance platform to integrate with more major cloud accounting software providers including Sage and QuickBooks.

After launching exclusively with Xero in May, the Hydr platform can now be accessed by millions more SMEs in the UK who want to leverage their unpaid invoices to optimise cash flow and help fuel their growth.

Users of Sage, FreeAgent, KashFlow, QuickBooks and Xero who sign up with Hydr can get paid almost immediately for the work they have completed and invoiced, rather than having to wait out long payment terms and even having to consider extending their borrowings to maintain working capital.

Customers who link their account to the Hydr platform can expect a class-leading, seamless integration. No duplication of data is needed, they simply continue to raise their invoices with their cloud accounting provider as normal and Hydr will do the rest, funding approved invoices within 24 hours.

Hydr co-founder, Nicola Weedall said, “We’re so pleased to have achieved this product milestone. The impact of long payment terms and late payments is affecting millions of small businesses in the UK; many are navigating CBILS repayments and ramping up post-Covid trading which can put a strain on working capital. We feel so strongly that getting paid early is the best way of optimising cash flow, far better than extending borrowings.”

Hydr co-founder, Hector Macandrew said, “Invoice finance in years gone by has often been complicated and time consuming to apply for, complex to manage and opaque in pricing. It is absolutely ripe for disruption and cloud accounting and open banking has made this reinvention achievable. With our simple, transparent and fairly priced proposition, it is now more accessible and attractive to small businesses than ever. We encourage more businesses to consider it.”

Hydr helps small businesses optimise their cash flow with fully digital onboarding that takes just 15 minutes. Hydr’s platform connects with a company’s data and financial information creating a seamless digital experience without the need for the company to submit any additional paperwork. Funding decisions are given in real time and Hydr pays 100% of the value of an invoice (rather than the traditional 70-90%) within 24 hours, minus a transparent, fairly priced fixed fee. Once quoted, the fee never, ever changes and includes credit insurance.

Hydr works with small businesses registered in England in Wales that sell products or services to other businesses (B2B).

 

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