Fintech attacks X-border finance that enables funds to move much faster

Nonbank fintechs are gaining ground, mainly with SMEs, but target larger ones for cross-border business, even as competition gives way to symbiotic 'coopetition' with larger banks.


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Consumers transfer funds to friends with relative ease and low cost via Ripple and Paysend, but cross-border payments - particularly for businesses - are significantly more difficult.

Cross-border payments are still frequently made by using the correspondent banking system, in which funds are routed through a network of correspondent banks, adding time and fees along the way. This method's detractors point to its lack of transparency. When compared to peer-to-peer consumer payments, business payments may necessitate more complicated know-your-customer (KYC) processes and require more documentation to be exchanged.

"New entrants tend to offer lower fees, faster transactions, and a degree of automation achieved through the use of application programming interfaces," said Nick Maynard, a lead analyst at Juniper Research.

Banks have traditionally dominated the cross-border payment market. Consumers and small - to medium-sized businesses (SMBs) - entitie that typically move smaller amounts of money - experience pain points related to high costs, lengthy transaction times that can last days, and the inability to see where a payment is in the process. According to The World Bank, the global average cost of sending $200 in the fourth quarter of 2020 was 6.5 percent.

"There are all kinds of delays and fees associated with [legacy cross-border money transfer methods," Erika Baumann, senior analyst at Aite Group, explained. "You may or may not know what those fees are, and you may or may not have to send a secondary transaction to compensate if your recipient is underpaid as a result of the fees taken during the correspondent banking process."

Analysts who spoke with Payments Dive said some prominent financial technology companies involved in cross-border payments include MoneyGram, Ripple, Wise, Rapyd, Thunes, Ria, and Paysend, without providing specifics on transaction volumes.

Fintechs have attempted to make cross-border business payments cheaper and faster in recent years. This has been accomplished in two ways: through cross-border payment rails that do not rely on traditional bank networks, or through tech solutions that make it easier for clients to connect to legacy bank rails.

While bank players still dominate the global money-transfer market for large corporations, financial technology companies are gaining market share for customers that move smaller amounts of money, particularly small to mid-sized businesses.

But the cross-border payment market is more complex than a "bank versus fintech" (or vice versa) paradigm. Instead, the market is moving toward a 'coopetition' model, as banks and fintechs seek to serve clients who fall outside of their core customer bases. In addition, the need for bank and non-bank networks to "talk to one another" is a driving force for fintechs and banks to cooperate more closely.

The market for cross-border business payments

As per Juniper Research, there will be nearly 14 billion business-to-business (B2B) cross-border transactions in 2021. According to the research firm, the total value of B2B cross-border payments will reach $35 trillion by 2022. Other estimates, including those from the consultancy Ernst & Young (EY), place the value of global cross-border payment flows at $156 trillion by 2022. EY estimates that $150 trillion of that total will be B2B transactions, with the total volume of cross-border payment flow growing at a rate of 5% per year.

To make international payments, most large banks use the Society for Worldwide Interbank Financial Telecommunication (SWIFT) cross-border payment network. SWIFT is a worldwide member-owned cooperative with over 11,000 member banks. SWIFT has been rolling out a global payments initiative, or SWIFT gpi, since 2017 to improve the speed and transparency of cross-border transactions, allowing them to settle more quickly (within a day, and often within minutes). SWIFT gpi clients can also determine where a payment is in the process. A spokesperson for the cooperative told Payments Dive that SWIFT gpi handles more than 75% of all SWIFT payments.

Banks, according to analysts, rule the roost on business cross-border payments for large entities due to the large volumes of money they move and the benefit of the additional client relationships banks have with large corporations.

Hugo Cuevas-Mohr, president and CEO of Mohr World Consulting, estimates that fintechs will be able to capture between 25 and 30 percent of the total number of transactions in the business cross-border payment market. Banks' dominance in the cross-border business payments market is due in part to the additional services they provide.

"Knowing your client is very important for any financial institution [moving funds], and knowing a business is a little more complicated," Cuevas-Mohr explained. "More information with a paper trail is required."

While SWIFT gpi is helping to move the needle on addressing cross-border payment barriers, it hasn't completely eliminated all sources of friction, particularly when dealing with banks that aren't using the SWIFT gpi system.

"Not every bank in every region and country is going to SWIFT gpi, so there has to be some reliance on the correspondent banking model," Baumann explained.

Fintechs that run their own cross-border payment networks

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FinFan is a fintech company in Vietnam as a X-border settlement gateway, FinFan plans to scale its mission of bringing payment service collection methods to more communities as marketplaces, traders, merchants, etc. or BNPL players that have become a hot topic in the payment industry nowadays.

FinFan is a model for connecting multiple national payment systems into a cross-border platform that could enable international payments to happen as quickly.

More than 160 countries already have instant (or "fast") payment systems that allow people to send money to Vietnam within seconds. However, sending money abroad is often still slow and expensive. Connecting these national systems internationally, through FinFan, could improve the speed, cost and transparency of cross-border payments.

In the nearly summary,  FinFan completed three major attractions as business growth over 500%, 1st player approved to disburse e-wallets by central bank and passed all due diligence for onboarding billion dollars brands from Money Gram, Thunes, PaySend, Remitly, Ria Financial, ... to Ripple and so many other successes were achieved in a time when we were forced to adapt to very adverse circumstances that proved us to be both robust and flexible in the face of changes.

Meanwhile, The prominent fintech company running their own cross-border payment systems is Ripple, a strategy partner of FinFan, a 9-year-old San Francisco-based firm that works with banks and payment-service providers.

Ripple collaborates with banks and corporate clients to provide blockchain-based cross-border payment solutions.

"The current cross-border payments infrastructure is based on a pre-internet system," said Pat Thelen, vice president and managing director at Ripple. "As a result, remittance costs are disproportionately high in comparison to the small values of these payments, and they frequently have a negative impact on the people who have the least."

RippleNet, Ripple's payment network, uses blockchain technology to move money instantly while providing transparent fees, real-time payment status, and certainty, according to Thelen. RippleNet also provides on-demand liquidity, with the digital asset XRP serving as a bridge between two currencies. Ripple's clients do not all use the on-demand liquidity service; rather, they use RippleNet's messaging and settlement layer, which is supported by a liquidity provider on the network, to complete cross-border money transfers.

According to the company, RippleNet allows users to send cross-border payments in 3 seconds with a cost of less than 1% to the sender. American Express is a notable U.S. client, but Thelen estimates that 90 percent of Ripple's cross-border clients are located outside of the United States, including Santander Bank, Japan-based SBI Group, Siam Commercial Bank, and others. Ripple has "hundreds of clients" in total and processed nearly 3 million transactions over RippleNet in 2020, representing nearly five-fold volume growth over the previous year, according to Thelen.

While the majority of activity on Ripple's cross-border payments network is for consumers, the company is seeing increased demand from small businesses, including for cross-border supplier payment use cases, according to Thelen.

In December, the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple, alleging that it conducted a $1.3 billion unregistered securities offering of XRP, the digital currency associated with the company. Ripple is fighting the charges in court.

Network providers: Fintechs that help banks and businesses access legacy cross-border payment methods

Other fintechs, such as Paysend and Rapyd, are not in the business of running parallel cross-border payment networks, but rather of making it easier for businesses and financial institutions to access legacy bank-led cross-border payment rails.

Paysend, a UK-based company founded in 2017, has just passed the 5 million customer mark in less than 5 years. The fintech startup's next-generation integrated global payment ecosystem enables people and businesses to pay and send money online, anywhere, and in any currency.

Following a $123US million Series B funding earlier this year, the company has added 1.5 million customers in the last six months alone, making it one of the world's fastest-growing fintech companies.

Paysend’s platform offers a way to send transfers instantly, via the app, at a fraction of the price, boosting financial inclusion through innovation. The Paysend app is projected to unlock up to $5.3US billion in annual savings for consumers and SMEs by 2025, and save millions of hours of process administration. 

"Banks and their functionality are not really built for mass payouts," Rosenblatt said. "For our clients, we create an easier experience than using the bank [and] we also have more features and functionality than most of the banks do."

Brendan Miller, head of global product marketing for Rapyd, said the company uses bank money transfer methods, but through its proprietary API developers can tailor user experiences. Rapyd's API allows clients access to payments, check-out, collection of funds, disbursements, compliance and card issuing.

The future of bank-fintech coopetition

Citi processes between $4 trillion and $5 trillion in payments per day, the vast majority of which are business-to-business payments (the percentage of which are cross-border transactions is not disclosed). The bank has been making efforts to improve the client experience with cross-border payments by increasing transparency and speed. This includes efforts to route payments through nonbank channels, such as digital wallets; developing tools to improve communication with clients about cross-border payments; and capitalizing on advancements in industry messaging infrastructure, such as SWIFT gpi.

"SWIFT gpi is like putting a FedEx tracking chip on a payment, so you effectively know where a payment is at any point in time," Manish Kohli, Citi's global head of payments and receivables, explained. "While SWIFT gpi does not speed up payments on its own, increased transparency and payment data assist banks like Citi in better routing cross-border money transfers, sometimes significantly improving transfer times."

Citi Payment Insights, which includes status updates via a visual tracker, and Citi Service Insights, which allows clients to communicate with the bank about payments and track inquiry statuses, are also client-facing tools that can be used for cross-border transactions.

In terms of fintechs, the bank stated that it does not consider them competitors because many nonbank payment providers are Citi clients. "We collaborate with these payment companies," Kohli explained. "Some we invest in, while others we use as components of a solution."

He cited a partnership between PayPal and Citi that allows Citi's institutional clients to make payments into customers' PayPal digital wallets via Citi's cross-border payments platform as an example.

Large banks are also leveraging new technologies, such as blockchain, to improve cross-border money transfer processes. JPMorgan Chase, for example, announced in April that it would use blockchain to improve money transfers between financial institutions around the world, including payments from Taiwan banks to beneficiary banks in other markets.

As banks invest in technology to meet client demand, some industry observers believe that bank-led innovation in cross-border payments is being driven, at least in part, by fintech pressure.

"I think they're worried about [fintechs]," said Vinay Prabhakar, vice president of Volante Technologies, a cross-border payments technology firm that works with banks and fintechs. "They have a level of agility, a level of technological capability, and a lack of legacy that allows them to move much more quickly."

As banks and nonbanks continue to innovate, competition may eventually give way to coopetition, in which bank and nonbank payment methods become more interconnected. In 2019, for example, a Ripple executive stated that the company's offering "can be very complementary" to SWIFT. In an April document, Wise stated that one of its goals for business payments is to "receive funds via SWIFT as a Wise for Banks partner."

The lack of interoperability with existing cross-border payment rails such as SWIFT poses a challenge for many nonbank closed-loop payment networks.

"There are [payment] providers that have been operating in this closed-loop system that have seen the limitations of their capabilities in terms of reach, and some of these [nonbank] payment providers are actually integrating into the traditional banking rails to be able to actually build that reach," said Isabel Schmidt, BNY Mellon's head of direct clearing and asset account services products.

According to Schmidt, BNY Mellon is one of the top five banks in the United States for cross-border payments. She declined to provide figures for the ranking, but she did say that the vast majority of BNY Mellon's daily transactions are cross-border.

Schmidt predicts that the next step will be a move toward a more integrated cross-border payments ecosystem that connects various bank and non-bank participants, each targeting a specific client base.

"I believe that all of the players will focus on, or try to find, their niche in terms of what truly differentiates them and where they can add value," she said. "Overall, the payment landscape will become slightly more complicated in the coming years before becoming significantly simpler."