The emergence of instant payments has been a gamechanger, with its 24/7/365 nature revolutionizing the payment & treasury ecosystem. Banks have adapted to rising consumer expectations and inherent regulatory changes, both in terms of standardization and swift processing, all while compliant with regulatory affair controls.    

Retail consumers in Europe and other regions were the first to drive these changes by adopting digital and secure real-time solutions as an alternative for cash and as another standard requirement for accessing commercial and financial markets. Card payments or instant Account-to-Account (A2A) payment schemes like BIZUM in Spain or BLIK in Poland provide users with an immediate update and confirmation in contrast to the traditional batch processing of payments during or at the end of each business day. The deployment of alternative, instant payment solutions has been evolving ever since entering also the B2B space. 

The SEPA Instant Credit Transfer (SEPA Instant) regulation in Europe was first launched back in 2017, but its obligatory implementation for banks across the 27 EU member states starts on January 9, 2025, for reception, followed by October 9, 2025 for the issuance of instant euro payments. For other Payment and Electronic Money Entities the adoption deadline expires on April 9, 2027.   

This is part of a wider effort to bring the euro payment landscape up to speed, given that nowadays, the share of instant payments in Europe is still low compared with other global regions where India and Brazil dominate the real-time payments market by volume. The forecast for Europe is that instant payments will account for 13% of all electronic payments in 2028 up from 8% in 2023.  
 

How can multinational corporates benefit from the SEPA Instant implementation? 

The operational and strategical long-term advantages of instant payments are substantial for corporate clients across the SEPA countries:

Enhancement of liquidity management and cash flows 

• Faster collections and the immediate availability of funds will enable faster treasury operations and reduce liquidity constraints by optimizing cash forecasting and management. 
• Improved cash conversion cycles of receivables and payables, leading to quicker access to working capital.

Operational efficiency

• Secure and verified 24/7 payment processing outside of traditional banking hours and across time zones.
• A faster reconciliation of traceable processes, reducing operational queries.

Operational costs

• Real-time access to funds reduces reliance on costly short-term financing solutions, reducing interest expenses.
• Charges applied on instant payments cannot exceed those applicable for regular SCTs.

Competitive advantage 

• Strengthens the relationship and enhances the trust and experience with customers and suppliers through a more rapid settlement of refunds or payments.

Where does Santander CIB come in?

At Santander CIB, we are driving innovation by bringing forward a wider range of payment methods and schemes to our multinational corporate clients, to allow for a more efficient allocation of resources and better cash management practices. 

We support the application and timeline of the SEPA Inst scheme in the Eurozone, which enables the instant transfer of euro payments from one payer account to that of a payee within 10 seconds, at any time, on any day (24/7/365). 

The scheme applies to payers issuing payments in euros from any currency account, between accounts inside the SEPA Eurozone. The current limit for retail instant payments is €100,000 but banks can eventually raise this for corporate users to make the scheme even more attractive.

MONICA ROMAN, Head of Payment Solutions at Santander GTB Europe: "We have faced an ambitious project to connect all our European Units and their payment channels to SEPA Instant. It will be the foundation stone for forthcoming value-added products for our customers. We are proud of our support for multinationals in these important areas, advising them on how to best create the standards for instant payments within their respective operational framework, sectors, and markets."

LAUREANO RUBIN DE CELIS RODRÍGUEZ, Head of Cash Management Sales at Santander GTB in Spain: "Santander in Spain was the first group unit to activate SEPA Instant payments after the official launch of the scheme. In recent years, our multinational corporate clients have found a way to unlock their value by optimizing their cash flow through the immediate availability of incoming funds."
 

Author: Ute Stammeyer, Head of Cash Management Advisory Europe at Santander Group.
 

For further questions, please contact the Cash Management Advisory Team in Europe (cashadvisory@gruposantander.com)
 

Alternative investors are key contributors in bridging financing gaps and transforming industry dynamics. The team at Santander CIB highlights the role of digitisation in attracting new entrants to the trade finance market.

Digitisation in trade finance is a hot topic for an industry that has for centuries relied on paper and whose multiparty and cross-border nature poses significant obstacles to streamlining and automating its processes.

Despite being a challenging ambition, the benefits for corporates and banks of investing in new technology are enormous: it significantly reduces time, costs and operational errors, thus increasing efficiency and maximising volumes, which ultimately makes participation in international trade and access to competitive financing more inclusive.

Because of its plethora of advantages, the digital transformation of trade is speeding up. Those players who are not able to keep up with the latest technological advances risk losing competitiveness and being sentenced to disappear in the long term. Santander Corporate and Investment Banking (Santander CIB) is committed to pioneering this new environment and anticipating the needs arising from the digitisation journey its clients have embarked on.

“As a global bank, we have the right infrastructure, capital and risk management capabilities to position ourselves at the centre of the ecosystem and act as anchors for our corporate clients to connect them to all of the different players in the trade finance arena and provide them with the best value proposition,” says Enrique Rico, global head of trade and working capital solutions at Santander CIB.

This collaborative approach has led the team to become investors in trade finance platform Komgo, partner with fintech Two and insurer Allianz Trade to support clients in increasing their digital B2B sales, and ally with software provider SAP to embed their receivables and supply chain finance solutions into corporates’ ERPs.

Unlocking the power of digitisation

But digitisation not only boosts collaboration among the financial and technological industries. It also enables banks to form intra-industry partnerships that offer larger and more comprehensive trade finance solutions, meeting all client needs and simplifying their lives.

The latest technological developments have propelled the standardisation and automation of processes and templates, significantly enhancing banks’ syndication and distribution capabilities. This transformation has unlocked the potential of trade finance assets, which have been traditionally very difficult to distribute.

“The originate-to-distribute model most big banks follow is vital for financial institutions to comply with capital requirements, manage credit risk and ensure liquidity,” says Rico. “But being able to structure a multi-bank solution is also key for our clients, especially when we are talking about large multinationals in need of centralising the trade finance and working capital requirements of their different subsidiaries,” he adds.

Multi-funder programmes are inevitable when attempting to achieve the scalability and broad geographical scope that most big corporates demand. Diversifying the pool of funding sources also contributes to underpinning a programme’s resilience and flexibility to meet peak utilisation.

“We have recently closed a multi-billion supply chain finance facility with a major energy player including several buying entities located in three different continents,” explains Ángel Bustos, global head of supply chain finance at Santander CIB. “Without a multibank approach, no institution would have had such a massive appetite for a single group and the company would have been forced to manage several facilities, each with its own platform, legal documentation and operational processes.”

Santander CIB’s multi-funder supply chain finance platform

With its multi-bank white-label digital platform, Santander CIB offers its clients the possibility of structuring global facilities with a single point of entry and seamless process. Both buyers and suppliers deal exclusively with Santander CIB as fronting bank, while the other funders benefit from a digitised process under which invoices are automatically assigned, sold and finally paid to each participant according to their quota.

To achieve this, the bank has consistently invested an average of US$20mn annually over the past years in cutting-edge technology to fully digitise its supply chain finance platform, simplify the supplier onboarding and payment processes, and open it up to other banks and investors.

“Alongside other major connectivity achievements, like the integration of our solution into the clients’ ERP, the multibank funding structure we have implemented has been an inflexion point in our offering,” says Bustos. “Thanks to a flexible and automated distribution model, we have expanded the possibilities of participation alternatives for investors in terms of countries coverage, currencies, appetite, and funded or unfunded options.”

Even the buyer can invest its own excess liquidity in its programme via a dynamic discounting module that allows it to buy back discounted invoices before the maturity date.

The bank estimates that two in three supply chain finance programmes will include a multi-funder approach by 2025. This is a major win for trade finance assets, which have been traditionally very difficult to distribute, mainly because of the lack of automation and harmonisation.

New investors expand trade finance horizons

Despite their anticyclical behaviour and low-risk profile – attributable to their commercial basis and short-term nature – trade finance assets have significantly less access to capital markets compared to other financial assets, such as mortgages or bonds.

This trend, however, has been shifting lately, with many private equity funds and asset managers showing interest in the multi-trillion-dollar, self-liquidating asset class of trade finance. As an example, Santander Alternative Investments recently created two funds to allow investors access trade finance assets and its “low default rates and high recovery rates”.

“The entry of private investors into the trade finance space is excellent news for traditional banks, since the current scale of the trade finance distribution universe is not enough to meet the increasingly tighter capital requirements and faces liquidity constraints,” explains Rico.

“Non-bank investors are helping banks alleviate these limitations, but more importantly they are opening new roads of origination and will bring alternative sources for growth.”

Indeed, emerging trade finance investors are poised to inject fresh capital into the current trade finance landscape, reigniting an appetite for developing countries, sub-investment grade companies, and SMEs – markets traditionally challenged in accessing financing. As they expand the scope of origination for banks, alternative investors play a crucial role in bridging the US$2tn trade finance gap.

However, for the distribution process to function effectively, participants cannot rely on manual intervention.

With increasing volumes and a growing number of investors, having robust technological infrastructure becomes essential. Only banks committed to digitisation will be positioned to lead this transformation and assume a central role in the evolving trade finance ecosystem.

At Santander CIB, we have warmly embraced this call to action.

World economy is going through challenging times. Recessions in the past have shown that small and medium-sized enterprises (SMEs) can be highly dependent on bank financing, and thus more sensitive to interest rates, compared to larger firms, who have a broader access to capital markets and higher access to credit.

According to insurer Allianz Trade, the macroeconomic turmoil is widening the trade finance gap, which is estimated to worth over $2 trillion for world’s SMEs and could lead to a 21% rise in SME insolvencies in 2023. In the current context, as SMEs anticipate the risk of facing future financing constraints, they will react by holding higher cash reserves and increasing their focus on managing their cashflows. This macroeconomic environment has led to an increased interest in B2B Buy Now Pay Later solutions, already gaining popularity as B2B e-commerce boomed.

These solutions allow for corporates to provide payment terms to SMEs (making them a more attractive seller and increasing sales) whilst mitigating the increased risk (receivables can be immediately purchased by the bank absorbing the corporates’ exposure to its buyers insolvency). BNPL represents a mutually beneficial solution to both seller and buyers.

Sellers using BNPL can benefit from;

• Higher revenues; increased basket size, buyer loyalty and stickiness
• Credit Risk transferred 
• Streamlined order-to-cash process with upfront financing 
• Focus on business growth, while outsourcing time consuming processes such as collection and reconciliation processes 
• Cost often more competitive than credit card charges 
• while benefits to the buyers include; 
• Access to embedded financing (trough extended payment terms with higher acceptance rate)
• Flexible liquidity; faster short-term financing for B2B customers and often at lower cost than traditional financing 
• Enhanced purchase experience with seamless, fully digital check-out experience 

With 360 million users worldwide, BNPL has become one of the fastest growing payment methods over the past two years – the BNPL market value has nearly doubled between 2020 and 2022 and the global B2B e-commerce market is forecast to grow at 17% until 2030. B2B sellers are now more likely to offer e-commerce channels than in-person selling.

According to B2B BNPL platform provider ‘Two’, e-commerce businesses who have implemented the solution have seen conversion rates go up by +20% and  average order values increase by 60-75%.

BNPL integrates into an e-commerce platform, providing an alternative to Credit Card payments. For clients, it is a seamless payment method with a number of benefits over the alternatives. In essence, B2B provides a safe, simplified, and flexible way for merchants to offer trade credit online.

The typical BNPL flow can be summarized in the following steps:

• At checkout, the buyer chooses between different payment methods, such as BNPL or an immediate card payment
• If the buyer chooses BNPL, there is an instantaneous credit check performed 
• If approved, the buyer is granted 30/60/90 days payment terms 
• Simultaneously, the bank purchases the receivable created and makes payment to the seller
• After the agreed time period, the buyer pays back the BNPL provider through e.g., automatic payment, bank transfer or card payment.

Santander CIB is working hard to always remain at the cutting edge of B2B payment solutions and has recently signed a partnership with Allianz Trade and Two to deliver powerful innovations in the market. Allianz Trade is combining its experience in trade credit insurance with fintech Two’s B2B BNPL technology to provide businesses with real-time data, automated trade credit decisions creating a seamless B2Be-commerce experience.

If you want to know more about our Trade & Working Capital solutions, click here.

Corporate treasurers, and financial institutions, are facing market pressures due to the huge advancements in technology over the last 50 years, such as regulatory changes.

There is a ‘battle in the playground’ where infrastructure, geopolitical considerations and alternative payment rails have driven fragmentation. 

Global corporates are looking for local reachability together with global platforms, and technology modernisation is increasing clients’ requirements for embedded solutions. 

We must all learn to adapt or be left behind in this continuously evolving environment, and offer value beyond payments.

Digitalisation is altering the way we pay

Money has been part of our history for thousands of years in some form or another. 

The payments sector has undergone significant evolution, moving through distinct eras - from paper to currently transitioning from the account era to payments becoming increasingly disconnected via APMs (alternative payment methods). Market forces are shaping the new era in payments by demanding accessibility, affordability, and most importantly security.

Clients are looking at combining traditional and APMs to boost sale conversions by simplifying and streamlining processes, as well as increasing cost efficiency. 

APMs break down geographical barriers, enabling businesses to reach consumers around the world without the limitations imposed by traditional payment systems. This can also enhance cross-border transactions, allowing businesses to expand their customer base and international markets.

They can also drive fragmentation in the market with a lack of payer participation and the high cost of integration.

A company’s aim is to improve collection management, shorten DSO (days sales outstanding), reduce fragmented payment collection channels, and to improve automation in both payable and receivables, in order to reduce delays and the need for any manual intervention. 

‘Open Banking’ increases competition and innovation in the financial sector by allowing for greater transparency and collaboration in the payments space. However, in the  data sharing remit, the greater benefit resides in the combination of data from different sectors, not only financial sector. And we expect regulators to make efforts in this direction; it is at the core of the EU Data Strategy released by European Commission back in 2020.

The popularity of digital wallets is increasing at a fast pace, and they are becoming one of the leading payment methods globally. These can be electronic devices, an online service, or a software programme allowing electronic transactions with another user.

Digital wallets allow users to access products through devices to make purchases. Digital wallets generally see strong encryption which provides enhanced security. 

Business-to-business-to-consumer (B2B2C) is a model that combines business-to-business and business-to-consumer for a complete service transaction. The methodology for B2B and B2C companies was to stay ‘in their lane’, but digital evolution is altering everything. The payments ecosystem continues to mature and augment. 
 
The market is seeing a collaboration in processes that creates mutually beneficial services and product delivery channels. The main two payment types being ‘credit card rails’ (Mastercard/Visa) and ‘A2A’ (Account-to-Account). 

Key areas that haven’t changed are the importance of seamless payments, and the need to manage payments correctly to keep cashflow healthy. 

Santander transformation considerations  

We are in the Instant Payment Revolution where payments are moving away from the traditional methods towards API connectivity, giving superior transparency.

Santander acknowledges the digitalisation disruption and the import role banks play in enhancing capabilities while maintaining reliability.

PagoNxt is a one-of-a-kind pay-tech business providing customers with an innovative one-stop shop for payments and integrated solutions. It combines the innovative technology of a Fintech while drawing on the strengths, reach and expertise of a global, leading financial institution.

Banks must constantly innovate in the changing payment landscape. Santander appreciates the importance of uniformity and homogenising global standards. The environment is not static, and our goal is to support and deliver solutions that are secure and flexible without driving further fragmentation. 

Santander draws on 160 years of banking history as we transition into the next payment era. You can learn more about our bespoke, value-added solutions in this space here. 
 
Ana Santos, Global Head B2B2C, Santander CIB: “The digital revolution has placed payments at the core of the customer journey. Clients demand an instant, secure, valuable and integrated experience. Santander is uniquely positioned to contribute in the B2B2C space to deliver scalable solutions by combining the bank’s working capital capabilities, the flexibility of its payment fintech and the strength of its Consumer Bank.”

Debt capital markets (DCM) are a key tool in the armoury of businesses looking to raise money through debt securities such as corporate bonds, but as with everything in the world of corporate and investment banking, the landscape is shifting beneath our feet. 

In 2022, the world’s total DCM issuance was $6.3tn, with the record to date being 2020, which was closer to $9.5tn. 

Not insignificant sums of money, but from where did debt capital markets originate, and in what direction do we expect them to go as we approach the second quarter of the 21st century? 

The history of debt capital markets 

You can go all the way back to 2400 BCE for the first recorded bonds – in existence long before stocks – which originated in modern-day Iraq and were written on clay tablets. 

However, it’s the 17th century where the idea of selling debt truly took off, as the Bank of England, one of the world’s oldest central banks, started issuing government bonds. Indeed, this also marks the birth of Gilt markets, courtesy of these particular certificates coming with gilded edges. 

Debt markets gained further traction in the 1700s, as a new covered bond known as the German Pfandbrief – a dual resource, asset-backed security – came into existence with noble landowners raising money against both their own credit and the value of their estates as a security. 

The next major revolution in the world of debt issuance came in July 1963, when the Autostrade issue for the Italian motorway network brought the first ‘Eurobond’ to the market, meaning that a multinational syndicate composed of financial institutions, for the first time, actively underwrote and distributed a transaction in a major currency – at the time, the US dollar. 

Since the 1960s, we have seen the market develop into a truly global animal. The present-day internal debt capital markets are comprised of bond dealer associations, clearinghouses, and exchanges, to name a few, while we’ve also seen the creation of single currencies and a multitude of investment banks, brokers, dealers and investors.  

Indeed, Santander CIB has a strong presence in many markets, acting as a structurer and underwriter of transactions, distributing paper across the globe and making secondary markets in a variety of subsets of asset classes that exist for Corporate, Financial Institution, Sovereign, Supranational and Agency clients. 

While Santander CIB’s place in the DCM ecosystem is a strong one, it’s never been more crucial to ensure fingers remain on the pulse of cutting-edge developments in the world of debt issuance. 

Have DCMs sufficiently modernised? 

Despite many advances in the trading of bonds in the secondary market over the years – such as the increase in the number of venues, as well as progressive automation – there has been surprisingly modest progress in the way new bond issues are executed, despite the significant technological steps made over the period. 

Right until the mid-90s, orderbooks were collated with pen and paper on trade blotters, and while spreadsheets sped matters up, the process overall was still an overwhelmingly manual one. 

Then along came online, shared order book systems, which brings things to the present day. This system allows salespeople, at all banks or institutions involved within the transaction, to enter orders into new issue order books once deals are announced. 

These systems also have the capability to automatically find and clean duplicate orders, while fixing any inconsistencies that arise, all but avoiding the need for long reconciliation calls, enabling more time to be spent on clients’ needs and less on timely administration. 

Conor Hennebry, global head of Corporate Debt at Santander CIB, comments: “our origination platform has grown considerably over recent years, and this is in part down to the investment in technology and our commitment to digital solutions.”

Santander’s place in the DCM ecosystem 

Santander CIB is committed to playing a key role in the in industry’s ongoing electronification, and accelerating the transition towards a more complete and coherent process, where investors can use their own, in-house order management systems to place orders and receive allocations. 

The deal execution world is complex and requires conjoined efforts from many of the key players in the DCM sphere, including Santander, in order to make the operation more efficient, particularly in relation to any pre- and post-launch processes such as pitching, provision of legal documents and settlements. 

Furthermore, Santander has been at the forefront of using blockchain for issuance, where in 2019 it launched the first end-to-end blockchain bond, worth $20 million. 

At the time, José M Linares, SEVP and Global head of Santander CIB said: “our clients are increasingly demanding the best thinking and technology in how we serve them in their capital-raising efforts. This blockchain-issued bond puts Santander at the forefront of capital markets innovation and demonstrates to clients that we are the best partner to support them on their digital journey.”

John Whelan, Managing Director – Crypto & Digital Assets at Santander CIB says: “the entire securities lifecycle has scope for digitization. At some point we can imagine where all securities will be digital and programmable. At Santander we are pleased to be playing our part with our clients in this extraordinarily complex industry transformation."

“It’s been a long time coming, but I truly believe we are about to experience huge advances in the efficiency of the full lifecycle of bond execution with the help of technology” adds Stuart Montgomerie, Managing Director – global head of Syndicate at Santander CIB. 

“We are passionate about playing our part to make this happen, working closely with our issuer and investor clients to ensure Santander is driving these changes for the benefit of all market participants as well as the global economy.”

A paradigm shift has been under way in the Cash Management business for some time now. Where once there was a bilateral relationship between the bank and the client, this is now a multilateral business where third parties participate to improve the overall service experience. In this context, Santander is analysing how to collaborate with new participants.

Before discussing SAP Ready, our solution for navigating this paradigm shift, it is important to describe the baseline situation. As a global bank, it is crucial for us to be at the forefront so as to continue offering a best-in-class service to our customers.

To make this possible and advance on a firm footing on this journey towards ‘invisible banking’, we explored what the market would want to simplify and facilitate their cash business. Here is where SAP Ready was born. SAP is the most widely used ERP among corporate clients, and it is the perfect partner to co-create distinctive solutions and make ‘invisible banking’ tangible.

Our alliance with SAP seeks to accelerate the digitalization of Global Transaction Banking services for our clients while helping them navigate supply chain disruptions and accelerate their decarbonization endeavours. SAP Ready’s ambition is to embed Santander Cash Management solutions, both global and local, within the client’s core system, enabling them to transact directly inside their own SAP ERP. It is important to highlight that SAP Ready is not only about Cash Management — it also covers the full scope of GTB solutions to enhance cash flow and lend efficiency to our clients’ supply chain using the most innovative solutions.

Jose Luis Calderon, head of Global Transaction Banking (GTB) at Santander CIB, said: “This partnership is a step forward in the digitalization of the solutions we provide to our clients, with a strong focus on connectivity, supply chain management and the energy transition. We already have a strong transactional banking solutions portfolio in Europe, America and Asia that helps our clients navigate the complexity of doing business globally. This value proposition comes from the combination of understanding their needs and their daily challenges while leveraging the latest technology that SAP can deliver and the depth and breadth of our product offering.”

In the Cash Management area, our vision is focused on three main pillars:

• Connectivity: As we have announced on previous occasions, we continue working on the SAP Multi-Bank Connectivity (MBC) solution. This service connects banks and financial institutions to corporates across Santander’s footprint in a plug&play mode to resolve many issues that corporate treasurers face in their day-to-day operations by embedding banking services within corporates’ ERP systems.
• Interoperability: We seek to offer cutting-edge technology in order to simplify and accelerate integration with our clients without requiring additional SAP installations. In this regard, Santander has been working on several initiatives to facilitate and accelerate our clients’ go-to-market processes and to boost their customer data extraction and transformation.
• Evolution: This partnership is up and running, and the pace of initiatives to facilitate our clients’ operations will accelerate in the near future.

While the potential upsides of these projects for corporates are clear, the ability to quickly switch the banking provider could be seen as a threat, as it was thought in the past that a cumbersome process created ‘stickiness’, i.e., that customers would remain with their incumbent banking relationship because changing was too problematic.

However, this old-school mindset has changed over the past 18-24 months, fostered by the advent of cloud and application programming interfaces, as well as the rise of platform business models. Corporate banks now want to make it as simple as possible for customers to use their banking services by taking advantage of embedded finance solutions. For that reason, Santander is approaching not just ERPs but also TMSs and Bank Connectivity Providers, as their rise exemplifies corporates’ need for quick and easy-to-use solutions.

Trending topics such as Cryptocurrencies, Stablecoins, DLT, Blockchain or CBDCs are part of many conversations in our daily life. Exciting times in banking may be coming since new shapes of money mean new ways of payments.  

Undoubtedly, banking industry must realize all these technological disruptions which may impact our client business in the upcoming years.

The core of these discussions within the industry lies on whether the new types of Digital Money would be valid means of payments. Santander Global Cash Management is no stranger to this subject.
 
Therefore the starting point is to understand the different sorts of Digital Money, what their attributes and specificities are and whether they could be suitable for transactional purposes. In a previous blog on stablecoins and CBDCs, we presented some of the varieties of digital currencies but there is more to know about these. In general terms, the industry sees it as a five-player game:

• Commercial Bank Money: Nowadays worldwide predominant payment method, is the money that everyone has on their bank accounts. Although challenged and questioned, the industry is moving forward to deliver a much more efficient and seamless payment user experience (ISO20022 migration, instant payment schemes, APIs). 

• E-money: Electronic Money is a type of digital money stored in -Money Institutions (EMIs)/Payment Institions (PIs) electronic wallets. While the industry hype is on Crypto and Stablecoins, e-money is increasing its popularity and user base (Mercado Pago, Mpesa, WeChat, Paypal). If the Closed loop nature of the solution brings instant settlement among parts and outstanding user experience, the reachability is exclusively bounded to the e-money network.

• Central Bank Digital Currency (CBDC): CBDCs are a digital form of central bank money, just as banknotes and coins issued by Central Banks but digital. Most central banks are exploring their potential benefits and risks as well as the value-added for the payment systems. CBDCs might have a major case in developing economies where financial inclusion is still fairly low (e.g. e-yuan, Sand Dollar, or e-Naira). Meanwhile, in developed economies there is no clear answer yet to the question “Are there proven benefits for a CBDC?”. At the same time concerns have been raised on how CBDCs could impact financial stability, new infrastructure costs for the whole industry, anti-money laundering plus privacy implications, and cross-border spillovers.

• Cryptocurrency: Digital asset that uses cryptography to secure transactions exchanged on a P2P network. Programmability, proven DLT network security, and disintermediation are key advantages delivered by cryptos. However, due to the ongoing turbulences in the global economy, the lack of regulation, and the increased volatility, cryptos are currently being seen more as intangible investment asset than a mean of payment. (Bitcoin, Ethereum…)

• Stablecoins: Digital asset that seeks to deliver the benefits of cryptocurrencies while trying to remove their volatility. Some stablecoin (e.g. USDC) look a lot like a programmable form of e-money, combining the benefits of that ecosystem with the open source nature of DLT, leading the relatively new phenomenon of "decentralized finance" aka defi.

However, stablecoins have been making a lot of buzz recently showcasing the inherited risks these assets have.

Both risk and volatility shown by cryptos and stablecoins could be mitigated by regulation. In this regard, MiCA regulation in the EU is being created to provide a uniform legal framework for crypto-assets and similar efforts are under way in the US or UK.

Santander participates in several initiatives towards trying to analyze potential use cases where these new elements might be beneficial:

• Fnality: Santander is a founder of the banking consortium to create a payment solution based on distributed ledger technology (DLT) and blockchain technology. It was created to facilitate peer to peer tokenized transactions backed by money held in a central bank account.

• CBDCs: Santander is actively participating in the ECB consultation process and other initiatives launched by the central banks in those geographies where we are present, exploring potential use cases, benefits or technologies in which the potential CBCD would rely on.

• Agrotoken: is the first global experience, launched in Santander Argentina, collateralizing loans with tokens based on agro-commodities such as soya beans, corn and wheat. The solution allows farmers to access new financing solutions extending credit capacity with tokenized assets.

“The Santander Cash management team is closely monitoring these new trends and initiatives to understand where the transactional processes could be impacted. More and more clients are seeking for comfort advice and solutions that ensure trust, reachability and interoperability and this can only be achieve through “Global Industry initiatives” (Fnality, RLN). Stéphanie Rodriguez Aniorté | Global Head of Payments Santander CIB

Technology disruption is changing the payment´s landscape… but the “final products” are yet to be revealed.

Over the last few decades, cybersecurity has evolved into one of the most critical functions globally, on both a corporate and governmental level. That’s no different at Santander CIB, where the cybersecurity team is headed up by David Sheridan, who has been at Santander for over 22 years and has overseen a huge amount of change. We sat down with him to explore how the world of cybersecurity has changed during his tenure, and what his team’s role at the bank is.

David explains that the function of cybersecurity at an industry level has evolved significantly  “Information security had largely been an IT function since the beginning of the interconnected age”, he says, “covering things like network security and systems access, it was very much a technical discipline within IT. Now, as people become more aware of the risks to businesses and clients from cyber threats and those threats become more sophisticated, it’s now treated as a discipline of its own”. 

Cybersecurity has come a long way in recent years. When the technology and platforms most companies use were originally built, they never imagined that the internet age meant the security of a product could change over time. In practical terms, that means that cybersecurity teams work with systems, which naturally overtime have vulnerabilities that have to be addressed. 

Our cybersecurity team plays a critical role within the bank, and their extensive remit covers both internal systems, and also working with suppliers and clients in an advisory capacity. 

Within the bank, the focus is on protecting, detecting and managing  before they arise. Ultimately, David explains, “this is a broader resilience piece. A lot of my team’s time is spent ascertaining whether we have the right controls to protect against  ransomware, testing systems for security or working with staff to understand the behaviors needed to protect against cyber threats. 

The work we do on staff training and awareness, and in ‘security by design’ in any new product or system we implement, is ultimately designed to defend what David describes as “the hyperconnected bank of the future” and implementing controls that ensure people can only access the information they need to do their jobs. 

Another area of focus is on supply chain risk. We therefore work closely with all our suppliers to ensure they are equally well protected and that they meet our security standards. “This all feeds into our client relationships as well”, David explained. As a business, it’s essential that we are secure right the way through our supply chain, to make sure in turn that our clients data and assets are protected. Ultimately, the job of the cyber security team when it comes to clients and customers is to generate trust between us, and value for them from our services. 
 

A stablecoin is a class of digital currency that attempts to offer price stability while offering an additional level of security from being backed by a reserve asset such as a pre-existing currency (e.g. USD) or gold, for example. Designed to dramatically reduce volatility in relation to cryptocurrencies (e.g. Bitcoin or Ethereum), this results in a form of digital money that is better suited to modern business and day-to-day transactions and transfers than other cryptocurrencies. 

Indeed, such a combination of traditional-asset stability with digital-asset flexibility has proven to be increasingly popular from investors to businesses alike. The Central Bank digital currency (CBDC) was introduced as the traditional market's answer to the stablecoin phenomena from the cryptocurrency world. A CBDC has credit quality of the central bank which can achieve settlement finality for financial contracts. This can also be achieved by other peer-to-peer services in the marketplace, like Fnality, a new wholesale digital cash payments system to settle tokenized transactions with settlement finality. This particular example has the added benefit of its infrastructure being on DLT (Distributed Ledger Technology) enabling faster implementation and meaning that it can interoperate with other DLT systems. It is anticipated that many digital currencies are likely to be built on DLT systems, with blockchains being the most well-known example of this type of technology. However, there are other technology platforms that central banks can consider. 

The use of hybrid information architecture is also being developed on a global scale from Europe to China. As such, digital currency projects have accelerated in the last four years and will only continue to build momentum. Regulators from the traditional banking sector still have a role to play however and are continuing to explore the different questions related to the digital asset processes. The control of Central Banks over CBDC’s is not dissimilar to physical currency, but there are also risks.  Decentralized finance could be a big change for governments, therefore central banks and governments need to work together to make regulated digital finance work globally. 

John Whelan, MD Digital Assets, Santander CIB said: ‘At Santander CIB we are seeing an increasing interest from our clients in the benefits of stablecoins, blockchain and other digital assets and we are proud to be at the forefront of this innovation in capital markets. We are closely watching both the development of CBDCs and privately issued stablecoins and we expect that they will coexist. We believe that Central Banks and other reguators should work together to ensure that prudent regulations are implemented in order to minimize risk and maximize the opportunities”.  

It is becoming increasingly clear that there is the potential for CBDC’s and stablecoins to enhance both wholesale and retail banking. With greater efficiency, increased automation coupled with a variety of DLT and blockchain platforms with unique capabilities, big changes in the plumbinging of the financial markets are anticipated.

In digital securities markets, CBDCs have been demonstrated to work well, and have the advantages of bringing a reduction in settlement risk and the ability to bring atomic settlement to the delivery-vs-payment (DvP) process. This is a good model for the wholesale market that needs to operate on the basis of Central Bank money with no credit risk on the CBDC itself. Through increased automation using DLT, a CBDC system can also avoid settlement risk and trading risks and has the potential to dramatically change Euromarkets. 

For retail banking the frequency of transactions is much higher and regulators need to consider any risks around the stability of the economy, including limits on how much digital currency can be issued to any single individual and whether the two-step currency-distribution model (Central Bank to commercial bank to retail user) should be maintained.

Both the wholesale and retail banking sectors have unique needs and as such it is more likely that Central Banks will take a technology agnostic, public/private partnership approach to making the first digital cash available.

There is still more to expect in the development of CBDCs, Stablecoins and blockchain, but the uptake is positive. In April 2021, Santander CIB collaborated with the EIB in launching the first EUR 100m 2-year bond, placed with key market investors, in the market’s first multi‑dealer led, primary issuance of digitally native security tokens using public blockchain technology (i.e. the public Ethereum network). Like the EIB’s role in green bonds or risk free rates, this new digital bond issuance aims to pave the way for other market players to turn to blockchain technology for the issuance of financial securities. Meanwhile in El Salvador, Bitcoin has been recognised as legal tender in a bid to tackle the economic problem for citizens sending money home from abroad, which accounts for up to a fifth of the country’s GDP (more here). To make these transfers, people must pay high transaction costs, meanwhile 70 percent of people are unbanked. At Santander CIB, our blockchain and digital assets experts are exploring the uses of the latest technology, its implementation and regulation, and will continue to push to be at the forefront of capital markets innovation.