Interview by Kate Goldfinch
This year, Visa made an offer to acquire a leading cross-border payments business, Earthport. The acquisition was completed in May, resulting in a final price of over $250m. This purchase will enable Visa to reach the vast majority of the world’s banked population through fast and secure payments.
Earthport works with numerous Tier-1 banks, ecommerce businesses, platforms and payment service providers, and has been a Ripple partner since 2015. The Fintech Times spoke to Earthport’s Valli Ardalan, Vice President of Business Development and Marketing, Helen Smith, Chief Operating Officer, and Rosie Faulkner, Group Head of Compliance, on what the future of cross-border payments may look like.
TFT: What segment of cross-border markets is at your core?
Valli Ardalan: If you look at cross-border payments in terms of B2B and B2C, we operate in B2B. Right now, depending on where you read it, about 95 percent of B2B cross-border payments are still happening through the incumbent banking system, through correspondent banking. Typically, it is an inefficient and expensive process that was built to manage the movement of large sums of money. However, with the increase in globalisation and the use of micro-payments that all businesses tend to have, it is not the most efficient system, so people have been looking for alternatives. That for example is where you see the concepts of some of the blockchain-based providers come to light.
What we have done however is use the incumbent system, refocussed in a way that enables a more direct path to a network of global partners. So, we do cross-border payments but we settle them locally. Our clients typically send us a single transfer of batched smaller payments. We then send it to a local partner who will distribute at local cost rather than at an international cost. It is an interesting place for us to be. Today we work with a lot of tier 1 banks, money transfer organisations, payments service providers etc.
TFT: How does your service work?
VA: We offer kind of a niche channel to settle through the Automated Clearing House (ACH) in local territories. We focus on a specific transaction type which is large volumes of low-value payments. Typically, the advantage of using us is around the batching of payments, a single international transfer from the clients’ bank to our Earthport bank. Then, we will send that to our local network partners, who will distribute the individual payments to the individual bank accounts. The efficiencies in this is that rather than sending 10,000 payments through SWIFT or through the correspondent banking network, you would send one international payment and we would then settle it as a local payment in the jurisdiction that you were sending the money to. The net result is increased speed, visibility, and it is more cost efficient than doing it otherwise.
TFT: You mentioned a cooperation with Ripple. What services do you deliver over to them and what are your thoughts on DLT-based cross-border companies and their perspectives?
VA: We connect to the Ripple network and we can then settle funds for them in fiat currencies in a local territory.
the advantage of using us is around the batching of payments, a single international transfer from the clients’ bank to our Earthport bank.
Regarding blockchain providers, all of them like Ripple, IBM, World Wire are coming now with propositions to send that money, it is innovative and exciting. However, in my view until there is a solution for the volatility of the digital asset (cryptocurrency), businesses will be very cautious about using those types of processes to send money around the world in large volumes.
TFT: What players do you think will be newcomers to the cross-border market in the near future?
VA: There are a number of non-traditional players entering the market. These could be any of the credit card processors who are looking to expand cross border services. The largest tech providers are jumping into it as well. Apple with its Apple Card is interesting for a number of reasons. Personally, I think it’s really interesting for adoption of fintech, which is upfront because their brand is tribal and so large that it will really give people confidence to try new things. Amazon has the capability to do something really special creating financial products through the data that they capture. I believe we are only at the beginning and there is plenty more to come.
TFT: Will money transfer costs slow down in the future?
VA: I think we are constantly racing towards zero. But once you get to zero there’s nothing left to motivate the growth and innovation in that industry. Payments as a whole will become very cheap in the future, but they will be considered as an add-on to alternative products that go with the service.
TFT: How would you describe the payment industry in 10 years from now?
VA: Technology is growing so incredibly rapidly that I think it’s very difficult to make an accurate guess on where it is going to go. I think in 10 years time we’ll be using digital assets, the concept of cash in parts of the Western world will be disappearing very rapidly. Biometrics will be playing a very large part in identification and security. It will be cheaper, faster, more efficient and easier for everybody to use.
I think payments will continue to evolve with other technologies we engage with such as mobile phone, touch(bio) or some sort of new device. Look at WeChat in China today, which uses facial recognition at the point of sale. So you walk into a corner shop to the register, it scans your face, charges your account and you walk out.
TFT: Payments have always been a driver of innovations in the financial industry. Will it remain in the nearest future?
VA: Yes, I think it will continue to do so because it’s the one thing that you have to engage in every time you leave your house, if you’re going out with your kids or your partner or whatever you’re doing. So, reducing the friction is always going to be a focal point and there will be a line between how much of the friction is reduced and how secure it is and that will be the balance. I think payments will continue to innovate. In financial technology we are just scratching the surface of financial products. In the future this industry will be about getting much better value for the consumer. All those things are going to be far more efficient.
TFT: Visa has acquired Earthport at the beginning of this year. What does it mean for your company? Will it bring some changes into Earthport’s strategy?
Helen Smith: It’s too early to say because we’re still in a period of transition. What I can say is that our engagement and discussions to date continue to be very collaborative and encouraging, with teams from Visa and Earthport now working together and feeling excited about the future of the combined business.
TFT: The vast majority of cross border providers consider Eastern Europe as the key market in terms of delivering payments. Is it the same for you and what are your core markets?
HS: Europe overall is a key market for us, we have a number of important clients and partner network relationships based in the region. Eastern Europe in particular has become a growing Fintech hub, with a number of companies operating out of Lithuania. Obtaining a license in Lithuania enables us to continue expanding our capability in this region through new partner relationships and local innovation. Other regions are also key to Earthport’s business including the Americas and Asia as we are a truly global cross-border payments business.
TFT: What are the biggest challenges in compliance?
Rosie Faulkner: We’re moving money all over the world every day and working in a sector that is rapidly growing so our consistent key challenges are, of course, anti-money laundering and counter terrorism financing, these are drivers for change and are constantly evolving. Also, regulations like PSD2 and strong customer authentication play a huge role in compliance today.
TFT: How big is your compliance team?
RF: When I first joined our compliance function there were approximately 5 people. Now it is closer to 25, which demonstrates the commitment from the business of appropriate compliance resource and processes. We’re constantly looking to evolve and enhance our framework. It is essentially what’s enabled us to grow our network. The size of our network is possible because our partner banks have the assurance that all our controls are robust. This trust and reliability enable us to service premium clients; our diligence processes are specifically tailored towards the type of businesses that we target, as is our live screening, live monitoring and retrospective monitoring.