Having been recently appointed as General Manager of Oberthur Fiduciaire, Etienne Couëlle must deal with a global health crisis that is expected to continue impacting economies around the world. Our discussion with this key player in the global security printing provides insight into a business that is as discreet as it is innovative.


What has been the impact of the public health and economic crises on the banknote printing industry and your company?

As with all sectors, the current crisis brings a high level of uncertainty. That being said, the global security industry is in a unique position because our customers are central banks that need to provide their citizens with liquidity (cash). We are much less impacted by the crisis because while online payments have grown, a large majority of the world’s population still prefers to pay with cash – even in developed economies. The proof is in the numbers: in the euro zone, for example, the amount of cash in circulation increased by 11% in 2020 compared to the usual 5% per year. Confidence in cash remains strong and has even increased with the current crisis.  

This confidence citizens have in cash can be seen by the orders we have received from the central banks we work with. Despite the crisis, our ability to produce and deliver orders of banknotes has not been compromised. Our processes are subject to ISO norms with very strict requirements covering different areas such as quality management systems (ISO 9001), information security (ISO 27001), respect of the environment (ISO 14001) and even anti-bribery programs (ISO 37001). Having the trust of our clients is of the utmost importance to us and we have done everything we can to fulfill our mission regardless of the current economic context.  


You have now been the General Manager of Oberthur Fiduciaire for a few months. What priorities or ambitions do you want to focus on?

Even though I have recently started in this new role, I am really going back to my roots because I actually left Oberthur Fiduciaire fifteen years ago. The company has always been dear to me and I have never strayed too far from it. I have spent the last eleven years in the field of in vitro diagnostics (clinical biology) and over the last 12 months I was focused on setting up the infrastructure for large-scale COVID-19 RT-PCR testing.  

The public health and economic crises have demonstrated just how resilient Oberthur Fiduciaire is which has enabled us to be 100% invested in our work. The numerous central banks that make up our clientele have benefitted from our focus. This resiliency did not happen by chance, but is the result of our optimized value chain that is expertly handled by our teams. In recent years, Oberthur Fiduciaire made the decision to stop relying on suppliers or subcontractors whose own potential difficulties we could not prevent. We recognized that their problems could have a negative impact on our production. It was with this perspective that, in 2017, Oberthur Fiduciaire acquired VHP, a Dutch company specialized in paper production for banknotes. Our Chairman and CEO, Thomas Savare, called this union a “perfect match” since the two companies are complementary and enrich one another. Plus, it allows Oberthur Fiduciaire to now have an extremely efficient supply chain with little exposure to external factors. Our daily objective is to further strengthen our supply chain and to constantly pursue innovations, particularly safety and security features. The success of our Bioguard treatment against COVID 19 has proven that innovation must remain at the heart of our business.


 

What are the characteristics of Oberthur Fiduciaire’s Bioguard protection for COVID-19?

Oberthur Fiduciaire is a world leader in banknote printing and for years now, the company has been interested in the question of whether or not bacteria, viruses and other microscopic fungi are transmitted when cash exchanges hands. Well before the H5N1 crisis, our teams developed a treatment that was constantly tested and improved in order to make the surface of banknotes “hostile” to bacteria, viruses and other microscopic fungi – without having any negative impact on humans. This is an additional safeguard that should put an end to scientifically unfounded fears perpetuated by certain interested parties trying to discourage cash payments in order to push people towards electronic payments. 

In March 2020, at the very beginning of the current pandemic, an independent laboratory tested our Bioguard treatment and found that it was particularly effective against coronaviruses. The tested samples showed that 99.9% of the human coronaviruses OC43 were eliminated by Bioguard. Untreated banknotes had 1,000 times more traces of the virus than those treated with Bioguard. And this is considering that the surface of banknotes is already very inhospitable to viruses. There is essentially a 0% chance of finding active viruses on a Bioguard-treated banknote – a probability you don’t get with a credit card for example…

Bioguard can be applied while banknotes are being printed, as a post-printing varnish or can be directly integrated into the paper’s production process. It is also effective when applied to a variety of other everyday objects. This newfound success of our treatment against a virus that has caused so much human and economic devastation has not gone unnoticed by central banks.

 
How do you reconcile your business activities with the climate crisis?  

To start, Oberthur Fiduciaire made the choice to concentrate on producing banknotes made of paper. Since the circulation of banknotes in Europe began to boom in the 17th century, they have always been made of cotton (paper). Some benefits of this natural material include that it does not cause pollution, can be renewed with each harvest and is easily recycled. Over the past few years, a small number of central banks have chosen to put polymer banknotes into circulation. We have decided not to go in this direction as it goes against our commitment to the environment. Simply put, polymer is plastic. It is therefore very difficult to recycle and does not have any properties that are inherently superior to those of paper. Made from plant-based renewable raw materials, the paper banknote still has some wonderful pages of history to write and we hope to contribute as much as we can to that story. Even more so because, at the end of its lifecycle, the paper banknote can be recovered securely.

Recycling is not a meaningless word for Oberthur Fiduciaire considering that 80% of the waste from our factory in Rennes is recycled.  Furthermore, that location has been 100% powered by renewable energy for almost a year now. These efforts have also been implemented in our other production sites and all have been ISO 14001 certified. Our approach is voluntary and proactive and eventually, we hope all of our activities will be climate neutral. 

The challenges of banknote printing

Banknote printing is an industry fraught with risks and challenges. Not only are there myriad security concerns, the need for exceptional quality, longevity, cultural resonance, and technological sophistication all compete for attention during the design process.
The Reserve Bank of Australia’s recent ‘micro-text’ slipup demonstrates the need for meticulous attention to detail. Equally, the ongoing epidemic of counterfeit banknotes in Malaysia is an indicator of both the complexity and the practical necessity of utilising up-to-date anti-forgery technology in the prevention of crime.

On top of these considerations, central banks are constantly trying to keep their finger on the pulse of national sentiment, staying modern and deploying cultural personalities and references onto banknotes whilst avoiding the sting of controversy such as the one on gender equality among the historical characters printed on banknotes.

Central banks and their requirements

The requirements of central banks are best outlined in the call for tenders they engage in at the start of the banknote printing process. Banks will put out the request for services with their essential specifications, and banknote printers will respond carefully to these with their own proposals on how they can best tackle their requests.

“These specifications contain requirements of cost, technique and a vision I would say almost artistic or at least symbolic...[Banknotes] must contain as many security features as cultural ones,” explained Thomas Savare, CEO of the banknote printer Oberthur Fiduciaire.
“Candidates present their technical and technological capacities and clients can then make a choice among the candidates by taking into account all the criteria they consider to be relevant,” he said.

Each central bank will have its own criteria for companies that it works with, but some elements are a must. As such, the effectiveness of the relationship between banks and their fiduciary printers can be improved through close ties.
The relationship between central banks and their banknote printers is more than a contract: it is a partnership, Savare explained. "What remains at the heart of the relationship, as it does with private companies, is trust. It must be the fundamental quality of every relationship and every transaction,” he said.

Quality design and cultural vision

Because banknote printers have a privileged role in their work with central banks, they can have huge influence over the design process. They are specialists who bring a lot of expertise to the table, even at this early stage, helping banks to avoid mistakes that may affect the quality of the finished product.

“It is not just a business for us, it is a real craft that we do with passion and commitment. We also strive to put listening at the root of our relationships with our customers,” Savare said.

It is important that banks and their printers collaborate on a complete vision for the banknote series. While both parties will have ideas about the project, give and take is necessary to produce something that the bank will be pleased with over the lifespan of the banknote.

“It seems essential to us not to apply pre-established processes and designs to customers. Once again, the banknote is not only a practical object, it is a social bond and a cultural medium,” Savare said.

Security and Technology

Close partnerships allow banks to express their needs and cultural expectations, in turn allowing printers to combine them with know-how and integrated security features that are also intuitive to use for the public.

Printing companies, particularly well-established ones, have industry-specific technologies that are nearly impossible to find anywhere else. As responsible partners, they are constantly evolving their capabilities to guarantee the integrity of their customers products through new printing techniques and inserted components such as holograms and security threads.

"The banknote is a highly technological object and must be very well secured. We put a significant part of our resources into R&D in order to always remain ahead of the curve,” Savare explained.

Security printers play a proactive role in improving industry standards. While central banks have been increasingly demanding in terms of security guarantees, printers can positively influence trends in practice by working to beat these expectations. For the printers, this results in a competitive advantage so they are incentivised to do this by acquiring certification that can back up their statements and guarantees.

“We are rather satisfied with the tightening of the requirements of the central banks because it raises the general level of the sector and at the same time allows us to distinguish ourselves. Potential customers quickly realise that whatever their requirements, we already have the same ones,” Savare adds.

Guarantees of the whole supply chain

“Today, central banks are increasingly aware that observing the finished product is not good enough. The customer wants to be able to control safety for each step of design, production, transport and final delivery,” Savare explained.

For this reason, printers have an existential requirement to think about their partners’ supply chain needs first. If they act without consideration, they can lose a contract. By being transparent about their processes, printers provide central banks the confidence that they need to develop strong working relationships and make good on statements about their own supply chain commitments. This is another way that the fiduciary industry functions as a key partner to central banks.

In addition, in a context of growing awareness of environmental issues, Oberthur Fiduciaire publicly demonstrated its strong commitments at the World Banknote Summit in September 2018. Indeed, the French company has adopted a sustainable management system based on international ISO standards. This system, which the company has called EARTH 365, aims to continuously improve procedures and products in order to further minimize their environmental impact. This concern is obviously shared by the Central Banks themselves, which are happy to be able to count on partners who, from the beginning to the end of the supply chain, take these concerns into account.

By thinking of themselves as partners, printers and banks both benefit from reactive, secure relationships built on trust. This empowers them to take on the larger issues affecting their industry with flexible, multi-perspective solutions, and ensures that companies cutting corners or unwilling to step up will eventually disappear

Both companies are not newcomers to the market. Oberthur Fiduciaire is more than one and a half centuries old, and VHP's history traces back to 1644.
During this time, both companies have made significant progress. The French security printer gained production capacity of over five billion banknotes per year and established two production sites in different European countries. In turn, VHP preferred to stay under radar by keeping the operation small and somehow discreet in the Dutch countryside. However, this did not prevent the company from focusing on R&D activity and obtaining several patents for unique watermark technologies, security threads and banknote paper. Its plant is capable of producing 6,500 tons of paper a year and exports to more than 140 countries.

Successful move

The security printing market is a hard nut to crack. Banknote printing enterprises are prone to bankruptcy due to high requirements for production and complex customer relationship management. Also, the number of banknote producers is small, and they are mainly located in Western Europe and Asia. This situation creates huge gaps in the market, but it is difficult to fill them because of the high barrier to entry and strict production requirements. Thomas Savare, CEO of Oberthur, explains : “The criteria to choose a supplier is obviously based on the technical ability, the experience and security, and then, of course price comes into play. The purchasing processes are becoming more and more professional. Now, there are tenders with pre-qualifications for example.”  In these conditions, the VHP - Oberthur Fiduciaire deal has become profitable for both parties. The previous owner of the first experienced great financial problems in early 2017, and the growing ambitions of the second required active growth and development. On July 31, 2017, Oberthur Fiduciaire officially announced acquisition of Arjowiggins Security BV (its assets included VHP) and its intellectual property for € 22m plus an earn-out.
The acquisition of VHP fits perfectly into Oberthur’s strategy. The French company has a golden rule - to keep everything under strict control. All stages of the company's supply chain must adhere to uniform standards. The bar is high: Oberthur has obtained various certificates, ranging from health and safety to environment, security and quality (ISO 9001, ISO 14001, ISO 37001, OHSAS 18001 renewed in 2015). It is no surprise that VHP Security Paper is now applying the same standards. If you want to optimize your supply chain, all its links should be forged in the same manner. Oberthur Fiduciaire is aware that traceability and transparency throughout the supply chain have become the market's priority. Indeed, the quality of the finished product, which is crucial, is no longer sufficient to convince customers. It is necessary to be able to showcase a complete process from production to delivery, including storage, transport, etc., that meets the high requirements of such a product, and VHP complements Oberthur's project in this respect.

Accelerated synergy

Usually, the synergistic effect of M&A deals appears only after a few years. Sometimes a market giant that acquired a small innovative company fails to manage it properly. For instance, it happened with Google's owner Alphabet and a small hi-tech startup Nest. Alphabet could not effectively manage Nest and eventually was forced to close the company two years after the acquisition.
However, the case of Oberthur and VHP turns out to be an example of successful cooperation. VHP’s knowledge and experience came in handy since the French security printer constantly looks for innovation. Just a few months after the deal, Oberthur presented new self-verifying banknote features comprising a transparent through window at the Banknote Conference held in May 2018 in Dallas, Texas.  There, the French did not hide that its subsidiary VHP took active part in development of the new feature.
A couple of months earlier, Danmarks Nationalbank announced that Oberthur Fiduciaire SAS has been chosen to supply Danish bank notes from 2018. It represents a huge qualitative leap forward for both Oberthur and VHP, since Denmark is a completely new market, which just started outsourcing their banknote printing. The governor, Hugo Frey Jensen, commented : “During the tender process we considered the prices, quality, security and corporate social responsibility of potential suppliers. We are convinced that Oberthur Fiduciaire SAS is able to meet our expectations.”

Promising future

Although the market is pretty difficult to handle, the banknotes printing industry hides plenty of new opportunities. Smithers Pira forecasts that the global market size value for banknote printing will increase from $9.5 billion in 2016 to $11.2 billion in 2021 at a CAGR of 3.3%. Thomas Savare is convinced that this is a great opportunity, but also an enormous challenge: “Our business will experience a growing complexity that will help strengthen the position of companies whose know-how and culture of innovation are well established”.
Securing one of the most important supply chain components, banknote paper, is an essential part of successful development. That is why cooperation with VHP will only strengthen Oberthur Fiduciaire’s position as one of the largest and fastest growing banknote printers in the world.
 
Links
https://www.thestrategist.media/oberthur-fiduciaire-banknote-printing-fiduciary/
https://www.cio.com/article/3082033/mergers-acquisitions/how-google-killed-nest-and-why-acquisitions-fail.html
http://www.banknoteconference.com/2018-presentations
http://www.numismaticnews.net/article/oberthur-fiduciaire-print-denmarks-notes
https://www.smitherspira.com/news/2017/january/banknote-print-industry-growth
https://www.journaldeleconomie.fr/Oberthur-Fiduciaire-securise-sa-Supply-Chain_a6027.html

Watermarking is a misnomer : it is created either by embossing the rolling pins on the paper press or by voluntarily omitting fibers in certain areas during the paper production phase. The process therefore involves no water, and the name only comes from the “wet effect” which will be seen when light passes through the paper. In addition, it originates from the jewelry world, not the paper world. The European Central bank chose the watermark both for its symbolic value and its difficulty to counterfeit : “The Eurosystem chose to put a portrait of Europa in the watermark and the hologram of the new series of euro banknotes. Europa is a figure from Greek mythology [...] against the light,  portrait of Europa, the value and a window become visible. Put the banknote on a dark surface and the light areas become darker”. As part of the paper itself, watermarks are virtually impossible to “copy and paste” to the paper. As a relatively cheap, easily usable to detect anomalies, and technologically advanced security design, it earned the right to return to the working table, in the eyes of Oberthur fiduciaire’s designers. 
 
Oberthur Fiduciaire must, naturally, remain discreet on most of the security features it places on its bills, but the general idea is as follows : the replacement of a banknote series is bad news for counterfeiters, who must often start over their copying process. Adding a maximum amount of new complex security designs into the new series will slow down forgers all the more, hopefully leaving them too little time to study and copy between banknote series. As reported by currency-specialized website CoinWeek, the new krone banknotes which Oberthur had delivered just prior displayed “two new security features. In the lower-left corner of the front side of the new notes there is a ring. When you tilt the banknote in different directions, the ring appears to float and you can see a play of colors. When you tilt the note back and forth, the chain on the right-hand side of the banknote appears to move.”
 
In all, 17 specific patents relative to design security are owned and used by Oberthur, in addition to general banknote-printing technology, available to all the industry. But developing security features into the design is unfortunately not enough, without advanced control of the supply chain. Counterfeiters will save a lot of time in the reproduction of banknotes if they can gain access the same material as the legitimate producer. This is done by accessing the supply chain covertly and discreetly collecting a small sample or simply copying it. This is partly why Oberthur Fiduciaire chose to acquire one of its suppliers, VHP Security Paper, “VHP Security has been developing new technology watermarks for some time and its Pixel watermark, released just a few years ago, has already been selected by ten countries and features on more than 30 billion banknotes. The technology creates bright areas in the watermark, making it easy to identify and authenticate and more difficult to counterfeit.”
 
By integrating upstream, Oberthur Fiduciaire is now able to improve reporting methods, adapt production methods, develop synergies and reduce costs, secure production processes. Finally, it can access the entire company’s technology and broaden the technological barrage it lays before counterfeiting organizations. 
 
Stock Exchange analysts reported the operation in last July : “Arjowiggins Security sealed an irreversible deal with Oberthur Fiduciaire for the sale of its daughter company Arjowiggins Security BV including its VHP factory located in Apeldoorn in the Netherlands and the intellectual property rights linked to the supply of paper for banknote production.” With its hands directly on the paper production unit, Oberthur Fiduciaire no longer needs to rely on customer relationship to ensure that the supply chain and technology is out of reach of malevolent hands and eyes. VHP Security papers owns ten  main security patents, covering watermark technology, high-durability papers and security threads.
 
Any security feature, on any banknote ever, can be counterfeited, and secure printers knows that. But they also know that, the more complex and refined the system, the longer it will take to forgers to make an equivalent product. If they can crack into the supply chain by intruding into a supplier’s warehouse when his security is lax, they will speed up the process. Oberthur Fiduciaire has therefore founded its entire strategy on time : making complex, constantly evolving, features on its products, the base products of which are kept under its tight control.  
 
By the time forgers crack into features or warehouses, the bills will long have been modified, sending counterfeiters back to square one. Despite almost a millennium of existence, watermarking technology still has enough potential to send counterfeiters scratching their heads for more time than they have.

Everything started on November 8th, when Prime Minister Modi announced the withdrawal of 500 and 1,000 rupee banknotes as he declared war on the supposed ‘black money’. He wanted to flush these high value notes out of the system to ‘end the country’s endemic corruption and widespread counterfeiting’. These two notes represented about 86% of all the cash in circulation in India. The notes were replaced with new ones that amounted to just a fraction of the value (and the 1,000 rupee had been discontinued completely).
 
The disruption created a chaos with hundreds of thousands of Indians trying to deposit discontinued notes at the banks. It was painful and made much worse by the poor implementation of the decisions. It paralyzed major segments of India’s economy which is still today almost entirely cash-driven. The crash also caused over 100 deaths and a complete distrust of the institutions. Many lost their jobs because there was no cash available for the employers to pay their employees. 
 
“I’ve never had any land, and now I don’t have a job. I have two kids, one six and the other four, I’ve no idea how I’ll support them. My wife is now the only one in the family who has a job but even she doesn’t get paid any more,” (1) said Devle, a casual labourer who lost his job after Modi’s move.
 
Rapidly, the interests that PM Modi had in the dematerialized payment method sector surfaced. Modi was even attacked by the Congress itself calling Modi to be very clear about the reasons that pushed him to back up an impossible ‘cashless India’. “The Prime Minister should declare the names of international shareholders in mobile wallets, e-wallets, debit and credit card companies whose business prospects have flourished following the Centre’s demonetization move,” said Mohan Prakash, All India Congress Committee’s General Secretary.
 
India and its 1.3 billion citizens represent a very profitable potential market for the sector of debit cards, credit cards, e-wallets and mobile wallets. In a country where cash becomes rare or forbidden, it’s 1.3 billion potential customers that have no choice but to change their financial habits. Modi’s personal relations with foreign shareholders of the sector were brought to light: “Vested foreign powers had been striving for two years to increase their footprint in the country. The Prime Minister and his government is playing into their hands. They are acting as their agents,” claimed Mohan Prakash, who is in-charge of the party affairs in Maharashtra. He further alleged that it was “these very powers who were behind the government’s push for a cashless economy”.
 
An estimation was made that such foreign powers would collectively earn Rs 4 lakh crore (4 trillion rupees) of profits from the PM’s move. “It is for the PM and his ministers to clarify their position”, claimed Prakash.
 
The impact was tremendous and the small-scale industries that have been “adversely hit due to the demonetization-triggered liquidity crunch” (2). The Government was accused of ‘turning a blind eye to their woes’ by Prakash and his followers. Now, movements are asking PM Modi to resign and to compensate the families of those who have lost their lives while queuing up outside ATMs and banks.
 
Just one week later, the name of Prime Minister Narendra Modi re-surfaced as he was accused by the Aam Adam Party (AAP) of asking money from Paytm, an app that would reap the benefits of 10 new stations of Delhi Metro going cashless from January 1st.
 
Currently the Dehli Metro Rail Corporation (DMRC) uses cash almost entirely but according to an official statement from the ministry of transportation: "10 Metro stations of the Delhi Metro network will go completely cashless in their transactions from January 1, 2017, onwards as part of the Government of India's vision to transform India into a cashless economy.’’ (3)
 
Paytm would be the app allowing these cashless translations to happen. This decision came as following Modi’s push on a cashless India and because of his personal relations with the people directly involved in the app management and development, questions were asked about the counterparts he might have been getting from Paytm.
 
Today the case is being investigated and if the allegations were proved to be true it could very well be the end of PM Modi’s term as well as the end of the cashless fiasco. It is now known for a fact that India isn’t ready for a cashless society and that no one wants it besides the corrupted elements that might take advantage of it despite of the people of India’s distress.
 
(1) Note ban: will it make India, or break Modi?, SCMP, Debasish Roy Chowdhury, January 8th 2017
(2) Foreign powers behind PM Narendra Modi’s cashless drive, says Congress, Express News Service, December 23rd 2016
(3) PM Modi accused of bribery again as 10 Delhi Metro stations go cashless with Paytm from January 1, Arkadev Ghoshal, IBT, December 24th 2016