This 4-part series on cross border payments starts by describing how the legacy competition works today as a way to segue to part 2 which describes why it is so expensive today. Part 3 looks at 4 types of Stablecoin disrupters. Part 4 looks at the adjacent markets for monetisation in the event that cross border payments fees go to zero.
These four posts will be published one week apart.
US Dollars on a plane
You can call this “Gucci Mule” if you are a fan of movies about drug smugglers and money launderers. Elevator pitch for this method:
- Dogs cannot smell paper.
- Paper is fairly light.
- Our early adopter market loves this method. It is often faster than a SWIFT payment and yes it is expensive but far cheaper than alternatives (such as paying tax or going to jail).
- Everybody loves those Yankee Dollars. That is why we date this from Bretton Woods in 1944 (which established USD as the global reserve currency); paper money in America dates back to 1690, but you need globally accepted paper for this to work.
Although you can date this back to the 1920s, when they were limited to the outlets of individual firms, we chose 1950 when the first universal credit card that we know today was introduced (Diners Club). Since then, Credit Cards have gone global and recent innovations by Stripe and PayPal have made Credit Cards easy to use digitally. They are only plastic cards in “card present” physical stores. For cross border transactions, you use “card not present”.
They are expensive because they provide credit to the buyer and as soon as you extend credit you have risk of default and fraud and both are expensive.
Back in my Misys days we would call SWIFT the Society for Wrangling International Free Trips and had expense paid fun at SIBOS.
SWIFT is 1970s technology and a tutorial about how it works is beyond the scope of this post. You would need to learn about Vostro/Nostro accounts and the difference between Correspondent Banks and Intermediary Banks (knowledge that is not much use unless you toil in the core banking engine room of banks). The key thing to understand is that SWIFT is an agreed messaging protocol between banks; you do not move money, you exchange messages between banks that credit and debit different bank accounts as per those messages.
Today you use Credit Cards/Paypal for smaller transactions or SWIFT for larger transactions.
Although it is less exciting for movies, the modern money launderer will pay a bank to move money through SWIFT (and the bank when caught pays a fine as a cost of doing business).
The Prepaid Card has been around as long as the Credit Card. It is cheaper for one simple reason – no credit risk.
The plastic Prepaid Card is still in use in physical stores. However it is the digital version (what we call the Prepaid App) which has the potential to disrupt the cross border payments market. We date this from 2010.
Companies selling Prepaid Apps also sell plastic Prepaid Cards. For example I have Revolut in both my wallets – plastic in my leather wallet and digital app on my phone.
I am using Revolut as an example because I use it and it is scaling fast. Revolut have a go big or go home strategy that could give both HSBC and Facebook Libra a run for their money.
Revolut, with far lower costs than a legacy global bank can afford to be disruptive on fees.
If Revolut can pull this off, we may see free cross border payments become a reality. Compared to the huge costs of legacy cross border payments rails, that is a very very big deal. As with any go big or go home strategy, there is risk and they will face completion from Stablecoins which we will cover in the last two posts in this series.
First see next week’s post – cross border payments part 2; your fat margin is my opportunity.
Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.
Novatti partners with leading global card payment company UnionPay
ASX-listed Australian fintech company Novatti Group Limited, a leading digital banking and payments company, has partnered with leading global card payment company, UnionPay.
UnionPay has more than 8.4b cards issued globally and a network spanning 179 countries and regions, highlighting its immense scale.1 In Australia alone, UnionPay is accepted by 90% of ATMs, 85% of point of sale terminals, and by major retailers such as Coles and Target.2
The partnership with UnionPay will drive growth in Novatti’s core payment processing business, with Novatti appointed as a UnionPay acquirer, providing UnionPay customers with access to Novatti’s merchant and transaction services across Australia.
The partnership will benefit other Novatti businesses, including ChinaPayments, Novatti’s China-focused, cross-border payments platform, which enables Chinese residents to pay Australian bills in Chinese currency. UnionPay has already been integrated into ChinaPayments, with transactions using UnionPay accounts already taking place. Further, ChinaPayments will shortly be integrated into the UnionPay app, providing eligible UnionPay users with direct access to ChinaPayments.
The partnership with UnionPay adds to Novatti’s growing list of tier-one global partners, including Visa, Alipay, WeChat Pay, Google Pay, Samsung Pay, Marqeta, and Decta. Growing commercial relationships and payments processing networks with these major partners underpins a core pillar of Novatti’s long-term revenue growth strategy, leveraging Novatti’s existing platforms and infrastructure to deliver more services and gain a greater share of wallets with our customers.
Managing Director of Novatti, Peter Cook, said, ‘We are thrilled to be partnering with UnionPay, a leading global card payment company. Through this partnership, Novatti will drive continued growth in our payment processing business, delivering further value from our existing platforms and technology.’
1. UnionPay International – https://www.unionpayintl.com/en/aboutUs/companyProfile/introductiontoUPI/ & https://m.unionpayintl.com/wap/en/mediaCenter/newsCenter/marketUpdate/7157.shtml
2. UnionPay International – https://m.unionpayintl.com/wap/en/mediaCenter/newsCenter/marketUpdate/6932.shtml
flexigroup announces strategic partnership with Mastercard
FlexiGroup announce a partnership with Mastercard to expand the application and distribution of bundll, the world first buy now pay anywhere platform built by humm. Already live in Australia, bundll allows customers to buy now pay later everywhere Mastercard is accepted and bundll their purchases into easy to manage instalments with inbuilt budgeting services.
Under the agreement, Mastercard will work with its partners to drive adoption and will support the development of the open-loop, work anywhere, pilot. The platform is able to support different integration and commercial models to achieve scale in different markets.
The agreement is for five years and is expected to deliver a sustainable growth path for humm, at the same time as expanding the services that schemes can provide to customers.
Richard Wormald, Division President, Mastercard Australasia said, “While there are lots of BNPL platforms around the world, this latest development for bundll is differentiated in the way it is able to partner with existing banking systems and provide BNPL technology and products without needing to sign up local retailers, while still generating a sustainable revenue stream. With the growth of BNPL, Mastercard understands that many issuers around the world are looking to solve for this increasing consumer preference.”
flexigroup CEO Rebecca James said, “The bundll platform is unique as it offers a turnkey but flexible solution to banks and other card issuers around the world. You don’t need to sign up merchants or integrate into legacy bank systems, and it will work in any regulatory environment.
“bundll’s proprietary affiliate programme also creates revenue sources globally, and creates a curated and unique shopping experience that is based on customer preference, not which retailer is paying for the click. Discussions are already well progressed with a number of banks under the strategic agreement.”
First strategic partnership for humm ventures
The partnership with Mastercard is the first announcement of humm ventures, an initiative designed to spearhead innovation between the Company and new partners. humm ventures will enable local and global companies to partner with flexigroup to utilise its substantial product and technology offering within their own ecosystem.
humm CEO Rebecca James said, “flexigroup has significant technology and data expertise within its market leading product suite, and through humm ventures we will collaborate and partner with the world’s best technology and payments companies to realise that potential. It will significantly increase the distribution potential for our technology stack so that our products can thrive in our partners’ ecosystems, without impacting our core business. We are excited about the opportunities that humm ventures will create to expand our market and the geographies in which we operate.”
Sephora Singapore Ropes in Atome to Offer Buy Now, Pay Later Payments
French beauty retail giant Sephora Singapore has partnered with Atome, a buy now, pay later service, to offer customers flexible payment options across its e-commerce website, mobile app as well as physical stores in Singapore.
Atome launched its service in December 2019 and now reportedly partners 1,500 online and offline retailers across verticals including fashion, beauty, homeware and lifestyle.
This partnership allows customers to split their purchases into three equal payments over time with zero interest, hidden charges or annual fees.
Sephora has 12 physical outlets in Singapore, an e-commerce website and mobile app, offering their range of products including makeup, skincare, fragrance, haircare, bath and body and more.
Alia Gogi, President of Sephora Asia, said:
“The shopping behaviour and profile of Sephora customers has evolved in the last few years, but especially so this year. They now not only expect a secure, seamless and easy payment experience but also flexibility and choice in how they shop and pay for their beauty products online, on mobile and in-stores.
We’re delighted to partner with Atome in introducing ‘buy now, pay later’ flexible payment options to first our Singapore, and later Malaysian customers, enhancing their shopping experience both online and in our stores.”
David Chen, CEO of Atome, said:
“We’re really humbled to partner Sephora, a global brand that is not only a leader in beauty and retail, but is also constantly evolving and staying on the forefront of the latest consumer shopping behaviours and payment trends.
We’re thrilled to be able to offer Sephora customers in Singapore, and later Malaysia, a safe, easy and flexible payment experience, especially as we enter the festive end-of-year shopping season.”
Featured image credit: Unsplash
GB & Partners invests €6 million in DiPocket
GB & Partners Investment Management Ltd. marked September with a 6 million Euro investment to further expand its fintech portfolio, advancing EXIM Cross-border Fund to take majority ownership of DiPocket Ltd.
DiPocket, registered as well as licensed in the UK and holding an e-money licence (while it has also recently received an e-money license in Lithuania (https://investlithuania.com/news/uk-fintech-dipocket-establishes-cee-base-in-lithuania/) enabling it to continue serving its clients across Europe after BREXIT), is the newest member of EXIM Cross-border Fund’s portfolio that is managed by GB & Partners Investment Management. GB & Partners’ continuous professional support will fast track DiPocket to become a dominant B2B financial service provider in the CEE region.
The company’s visionary founders (Fedele DiMaggio and Pavel Pokhylchenko), its 1,5 million EUR sales revenue of 2019, its international operations in more than 10 countries and its stable cooperation with Mastercard® since their founding in 2015 provide ample justification for the fund manager’s confidence.
The mission of GB & Partners,with its 100% holding company, Tomahawk Ltd. (the direct shareholder in DiPocket) is to bring unparalleled professional talents under one roof by uniting its fintech companies in a logically architected, extensive and diverse portfolio.
The fund manager sees the unique peculiarities of the multi-currency, multilingual region as an exceptional economic opportunity. DiPocket’s unique technical and IT capabilities coupled with the convenience of domestic IT knowledge and capacities, explain why Hungary could prove to play a key role (in addition to the Lithuanian center) in the region’s digital financial market. DiPocket offers a unique occasion according to its previous accomplishments and present competence.
“Coupling financial muscle with relevant industry expertise and a strong business network in our core Region, GB & Partners is the springboard we had been looking for to propel DiPocket into its next stage of development” – said Fedele Di Maggio, co-founder and CEO of DiPocket.
„The ambition of GB & Partners is not only to enter the regional, but also the wider European fintech picture. We would like to see DiPocket in an even more advantageously competitive situation and we will work on accelerating it to a track of exponential growth, backed by Hungarian expertise. Not only do we provide capital support and structural assistance, but also hire proven to be successful professionals like Márton Báti and Ádám Farkas through the management of Tomahawk” – explained Gábor Bürchner, chief investment officer of GB & Partners.
In contrast to the operational patterns of Revolut or Transferwise that are already established in the region and are very much focusing on serving the end-user, DiPocket puts the emphasis on the very custom needs of its corporate clients who choose to form the brand experience for their customers in accordance with their own cashless financial service needs. Among others, such as payment solutions for festivals or gift cards for shopping centers in the form of branded physical or digital Mastercard® cards. In addition to its product packages DiPocket also develops ancillary solutions like custom-made automated services, such as syncing invoicing with bookkeeping whilst communicating in real-time with the bank. Particularly effective for both large corporate clients and SMEs. These even more efficiently designed proceedings open up new horizons for companies at large.
„The flexible, trustworthy and innovative financial solutions of DiPocket are able to help Hungarian companies enter international markets, and also to strengthen their domestic positions” – continued Gábor Bürchner.
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