Cross-border payments are becoming an increasingly important part of business. With the rise of e-commerce and the globalisation of production, funds are being sent overseas at an increasing rate.
Cross-border payments of US$127.8 trillion were made in 2018, and this figure is expected to increase to US$155.9 trillion this year.
Clearly, this is a market that is growing rapidly, and many are watching the space closely as startups compete to fill the growing need for these payments.
Last week, several individuals were invited to speak at a panel discussion at the Singapore FinTech Festival’s Green Shoots event.
The panellists consisted of Jason Thompson, CEO of Partior; Steven Haley, Director of Market Development and partnerships at Mojaloop Foundation; Carrie Suen, a senior advisor at Ant Group; and Steven Chan, International Head of Government Relations and Public Policy for Asia-Pacific and Latin America at PayPal. The session was moderated by Camilla Bullock, founder and CEO of Emerging Payments Association Asia.
The panellists discussed several issues, including the purpose of payments startups, the environment needed for startups to grow, as well as the problems that startups face when dealing with cross-border payments.
The regulatory environment for startups and consumers
One of the main issues for startups that the panellists noted were concerns on the different levels of regulation and regulatory requirements that startups and companies have to deal with.
In particular, Steven Haley noted that different regulators have differing ideas on what constitutes fulfilment of know-your-customer (KYC) obligations by businesses.
There are different types of KYC standards, and this is a problem that needs to be resolved. What happens when different types of entities need to interact? Wallets and banks do not always share the same KYC obligations and information, and different regulators have different needs for KYC obligations.
One issue is that for merchants, they often have to enter KYC information that banks already have before cross-border payments can be processed.
– Steven Haley, Director of Market Development and Partnerships, Mojaloop Foundation
In addition, governments are not always on the same page with startups and companies when it comes to partnering with other companies.
Steven Chan of PayPal suggested that regulators have a difficult time understanding partnership.
“Even with the right partnerships and right licensing in place, they still feel that they need to have oversight, supervision, additional KYC and anti-money laundering [initiatives] et cetera,” he added,
Chan notes that in some jurisdictions, this could mean requiring up to five different metrics to support that the business has fulfilled its KYC obligations.
To Chan, these present a huge problem for startups — they discourage startups from forming partnerships, but these partnerships are valuable because they open up access to banks and e-commerce platforms that would help these startups to scale.
At the same time, Chan dubbed Singapore as a country that gets regulation right: “It’s not just about having regulations around payments, Singapore’s government also provides resources (for startups)”.
What should startups focus on?
The panellists also pointed out that there were several issues that startups should focus on resolving.
Jason Thompson, founder of Partior, argues that “when startups grow, there is an inefficiency that they are addressing”, and that interoperability was key in addressing these inefficiencies.
Carrie Suen of Ant Group agreed, positing that interoperability of payment systems was critical and that “success lies in growing both the consumer base and merchant client base quickly in order to reach a critical mass”.
In order to achieve this, the company founders pointed out that governments do not oppose startups. Governments can form part of the client base for these startups instead, and finding a way to address inefficiencies that governments are not dealing with can be a good start.
For one, Thompson suggests that what he has done is to position Partior as not a competitive force with the government, but to complement government efforts.
Governments are not monolithic, and that at the end of the day, they are also end users (of products) themselves. What we as startups can do is to make them more aware, and to allow them to pursue digitalisation, whether by setting standards or by resolving cross-border issues.
– Steven Chan, International Head of Government Relations and Public Policy for Asia-Pacific and Latin America, PayPal
The importance of working together
As a start, the panellists pointed to an important problem within the payments space that both startups and governments could begin to tackle: interoperability between payments systems.
Currently, there is a lack of standardisation within the payments industry that no individual company or government is able to resolve.
We need to make sure that users have a very standard and simplified experience. For example, if we look at ATMs, everyone knows what to do at an ATM — it is a very simple and standard experience. But when it comes to cross border payments, I don’t think we have done a very good job of standardisation.
– Steven Haley, Director of Market Development and Partnerships, Mojaloop Foundation
That being said, the panel did express that the payments space in Singapore and Southeast Asia has been working towards this end, with the use of QR codes that can now be used to perform cross-border payments.
While complete interoperability may still be some time away, the panel pointed out that progress was being made, and suggested that companies need sandboxes to better improve on their products by better understanding how users carry out cross-border transactions.
With the world moving past the Covid-19 pandemic, cross-border payments are becoming more important.
As tourism picks up, fintech companies are gearing up to take advantage of this resurgence and they are at the forefront of what can encourage greater economic growth for all — lowering costs of business, enabling money to be sent all over the world, and addressing problems that would otherwise go unsolved.
Featured Image Credit: Elevandi