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WHITE PAPER

SAP Treasury Correspondence Monitor with Counterparty using Blockchain Technology

 

Abstract
SAP typically provides usage of correspondence generated, like MT300, MT320, MT700 & MT760, which will be sent to counterparties for confirmation. A file can be downloaded to a file server, then the file is uploaded to a third party system, this takes over the arrangement of the transmission of files to and from the counterparties. Typically, SWIFTNET is used as transmission channel to send and receive confirmation on Treasury deals. However, across the globe there are few countries which do not use SWIFTNET channel.

This white paper explains how technology can be best utilized, with an additional add-on component Blockchain that can substitute or replace SWIFT, in order to automate the auto confirmation process and monitor the correspondence with counterparty in an monitor.

Background
Globally SWIFTNET is used to transmit treasury deal confirmations. The confirmations are generated from different processing system as per prescribed formats (MT300, MT320, MT700, MT760 or ISO 20022 XML). Typically, SWIFTNET is used as a transmission channel to send and receive confirmation on Treasury deals. However, across the Globe there are a few countries which do not use the SWIFTNET channel.

Scenario

Forex Business process
When a treasury contract is entered with a counterparty, the trader will send the contract details to counterparty for counter confirmation. A correspondence is generated by SAP based on the product used like Forex. A standard format such as, MT300 will be generated and saved in an application layer of SAP. Using SAP PI, the data will be FTP’ed to the Blockchain server.

With SWIFTNET SWIFT replaced with Blockchain

 

Investment/Borrowing Business Process
When a treasury contract is entered with a counterparty, the trader will send the contract details to counterparty for counter confirmation. A correspondence is generated by SAP based on the product used such as Investment or Borrowing. A standard format such as MT320 will be generated and saved in an application layer of SAP. Using SAP PI, the data will be FTPed to Blockchain server.

With SWIFTNET SWIFT replaced with Blockchain

Letter of Credit Business process
When a treasury contract is entered with a counterparty, the trader will send the contract details to the counterparty for counter confirmation. A correspondence is generated by SAP based on the product used such as a Letter of Credit. Standard format like MT700 will be generated and save in Application layer of SAP. Using SAP PI, data will be FTPed to Blockchain server

Business Requirement

A treasury confirmation must be sent to the counterparties for counter confirmation in order to avoid risks and frauds, as the treasury contracts have a huge exposure in other currencies too. A robust dash board is required to monitor the exposure with counterparties because of Investment/Borrowing/Forex/Trade Finance.

SAP Integration with Blockchain
Business Background
When FOREX contract (buy/sell) is agreed with a counterparty, SWIFT messages such as MT300, MT320, MT700 & MT760 are to be used for communication between business partners.

ChallengesConnectivity with SWIFT is not available in most of countries (Example-Russia, Venezuela, Korea, Ukraine & India). In the absence of the SWIFT connectivity, counterparty confirmation on the contracts such as Forex/Trade finance will be a herculean task to monitor the emails/fax and reconcile the contracts. Risk on exposures like trade finance is also high.

Blockchain integration with SAP
Standard messages as per SWIFT are delivered in SAP as templates. When a contract is entered in SAP Treasury, it can trigger a text file (MT300 format) and FTP (File Transfer Protocol) using SAP PI to the Counterparty/Blockchain

Prerequisites
The prerequisite is SAP 6 with EHP8 or above, Required Business Function FIN_TRM_TRADE_FIN
Blockchain server

Value Proportions
 Risk compliant – Multiple security levels can be applied in Blockchain
 Common interface with multiple counterparties
 Realtime update using hyper ledger

SAP Solutions
The standard delivery of SAP Correspondence creates a correspondence for treasury contracts that are made in supported treasury contracts. In SAP Correspondence Monitor, these treasury contracts are sent and received along with auto matching concept integrated automatically.

Option 1 File Transfer (without Encryption)

Process Steps
1. The MT300/MT320/MT700/MT760 files are generated in SAP
2. The MT300/MT320/MT700/MT760 files are stored in Application Layer of SAP
3. The SAP PI should pick the file from Application Layer FTP/hash to Blockchain cloud
4. The MT300/MT320/MT700/MT760 files are shared on Blockchain Server network
5. A counterparty will download the MT300/MT320/MT700/MT760 files from Blockchain Server network
6. A Counterparty will upload/hash accept MT300/MT320/MT700/MT760 files into Blockchain cloud
7. SAP PI will download accepted MT300/MT320/MT700/MT760 files from Blockchain cloud and save them in Application Layer of SAP
8. Matching of Outgoing MT300/MT320/MT700/MT760 (Automated process)
9. Correspondence Monitor Updated as Matched deals SAP correspondence monitor
Option 2 File Transfer (with Encryption)

Process Steps
1. The MT300/MT320/MT700 files are generated in SAP
2. The MT300/MT320/MT700 files are stored in Application Layer of SAP
3. SAP PI should pick the file from Application Layer and apply encryption key and FTP/hash to Blockchain cloud
4. The MT300/MT320/MT700/MT760 files are shared on Blockchain Server network
5. A counterparty will apply encryption key and download the MT300/MT320/MT700/MT760 files from Blockchain Server network
6. A counterparty will upload/hash accepted MT300/MT320/MT700/MT760 files into Blockchain cloud
7. SAP PI will download accepted MT300/MT320/MT700/MT760 files from Blockchain cloud and save them in Application Layer of SAP
8. Matching of Outgoing MT300/MT320/MT700/MT760 (Automated process)
9. Correspondence Monitor Updated as Matched deals

Correspondence Monitor

 

Note: – Google is source for Symbols, pictures used in process flow.

Conclusion
The integration of SAP with Blockchain add-on can process SAP confirmations and send it to the counter-parties using Blockchain, which can substitute or replace SWIFTNET channel. A Blockchain integration with SAP Correspondence monitor will help reduce the fraud in banking industry.

About Author
Colin Thomas has ten years of domain experience in Financial Accounting and twelve years of SAP experience. His experience in SAP includes business process re-engineering and SAP implementation in Finance and Manufacturing and Treasury processes. He holds a master’s degree in Commerce and he is certified in S4 HANA Finance 1610, Certified in IFRS and ITIL certification.

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4 Comments

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    1. Colin Thomas Post author

      Hello Jose

       

      Blockchain server network, we meant blockchain platform which can hosted on a cloud. Yes it can be virtual or on premise.

      Colin

       

      (0) 
  1. Kishore Marodia

    Hello Colin

    Thanks a lot for sharing DETAILED insights. Whenever i think of a use case in SAP for block chain, the first doubt I get is HOW do we get all the required parties to build channel/interface to Blockchain n/w .. or may be I am missing something

     

    SWIFTNET is a standard n/w and parties/banks have access to it. However if we go via blockchain route, does it imply that banks/counter parties have to build new interfaces to Block chain? Would they opt for this?

     

    THanks

    Kishore

    (0) 

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