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The Rise and Rise of B2B Cross Border Payments Disruptors | The Financial Technologist
In recent years, the global payments landscape has evolved tremendously, with the most recent changes driven by the advent of B2C ‘disruptors’ in e-commerce and e-payments, from Amazon and Google to PayPal and WorldPay. While it is hard today to imagine how any of us managed without online shopping channels and associated instant payments, even across borders (for example, when making purchases in China or the US), the traditional B2B payments segment has still to navigate myriad regulatory and compliance challenges - and processing inefficiencies – that are a source of continuing frustration for many corporates and small businesses with international payments needs. Of course, this situation is changing, particularly as a result of the growing contribution and influence of fintech ‘disruptors’ in what was hitherto a bank-exclusive ‘closed shop’. In the past few decades, FinTechs have built a solid presence and reputation within financial markets generally and the banking industry specifically. As their profile and influence has grown, and their role has shifted from ‘third party service providers’ augmenting banks’ product and service offerings to financial markets participants in their own right, FinTechs are increasingly acknowledged by regulators and other industry ‘overseers’ as legitimate financial service providers, rather than actors on the fringe of the industry. Trying to take the challenge of cross-border payments and transform it into a wholly new system overnight is unrealistic. Luckily, the rise of FinTechs and the introduction of regulatory changes focused more on interoperability present a promising future that can greatly benefit SMEs. In our recently published (June 2023) eBook, Simplifying the Complexity of Cross-Border Payments for SMEs we observe that there are many reasons why the B2B commercial payments experience should seem so out of sync with that experienced by retail consumers. It is also the case that the B2B customer experience can vary enormously depending on the nature, size and risk profile of the ‘corporate’ entity. A key area where non-bank Payment Service Providers (PSPs) have sought to differentiate themselves from the traditional, bank-led, cross border payments segment is by targeting and supporting customer segments typically underserved by bank providers - namely SMEs and other businesses considered too high risk and too ‘needy’ compared to bigger (and ‘safer’) business entities. In 2022, it is estimated that UK-based SMEs accounted for more than 99% of the business population, which, according to the Department of Business, Energy, & Industrial Strategy makes them a huge source of revenue and employment. (These statistics apply globally – around 90+% of the global economy is SME-generated). It is, however, a truth universally acknowledged that SMEs continue to be underserved by traditional correspondent bank networks, because they are simply too small to want (or need) the full suite of international banking services e.g. treasury, liquidity, lending, FX, asset management etc., but instead seek more agile and flexible, ‘as a service’ payments and cash management partnerships. Consequently, they very often find that they do not meet many banks’ account profitability models, or are expected to pay a premium for the privilege of being ‘taken on’. Supporting expansion strategies of underserved SMEs Despite apparent resistance among traditional financial institutions to supporting them, SMEs are invaluable to economic growth, both domestically and in terms of their cross-border expansion ambitions and endeavours. SMEs' abilities to expand into new markets is crucial to boosting revenues and to leveraging new business opportunities that contribute to (and support) domestic and regional economies. Yet even as SMEs are looking to expand into new markets, global economic headwinds, regional geopolitical events, domestic inflation-busting and recession-mitigating measures – alongside the perpetual challenge (nightmare?) of thwarting money laundering and wide scale payments frauds - are driving down traditional banks’ risk appetites even further. This reluctance among traditional banks to partner with SMEs leaves many businesses at a loss when it comes to meeting their growing cross border payments needs; they can find that they simply don’t have (and can’t afford) the banking relationships necessary to access a global ‘correspondent banking’ network effectively and efficiently, nor the inhouse technical resources and nous to build such a network themselves using one, or a combination of, today’s open banking apps. B2B banking decisions are also impacted inherently by a shift in consumer preference from big global banks to digital-first providers. While they may not have sufficient internal resources or knowhow to build their own international payments solution, what many of these businesses – and particularly those in the gaming, gambling, crypto and other digital-first business segments - do have is a workforce and customer base that is increasingly au fait with easy and instant access to instant international payments infrastructures. It has to be recognised that the people making major financial decisions at SMEs and other corporations will increasingly reflect ‘next generation’ Millennials and GenZ-ers that have grown up in the ‘digital age’ and with an innate understanding of technology as the ultimate ‘enabler’. As Jamie Broadbent of RBS observed at Fintech Connect 2022 “The reality is that this next wave of consumers, the youth of today, have no relationship with those banking brands, but they’re super familiar with the digital-first players, the digital platforms like [Amazon, Meta, and Google]. And the reality is that if we’re going to keep that next generation of consumers, then we’ve got to make clear the value that we bring. We’ve got to meet them in the channels where they already are and speak to them in the trusted voices that they recognise.” As part of this paradigm shift, the whole concept of having to set up formal business bank accounts to make international payments has also been turned on its head by today’s fintech disruptors. Traditionally, any SME considering operating across borders would be required (at a minimum) to have an official bank account with an established bank, and quite likely additional accounts with other ‘correspondent’ (international) banks. Today, FinTechs offer SMEs the ability to set up multi-currency payment accounts, regardless of whether or not they have a formal business banking account or access to traditional banking services. Instead, and through a single connection, FinTechs like Freemarket connect SMEs to established global banking networks – both traditional financial institutions (FIs) and more modern non-bank financial institutions (NBFIs) – for fast, assured cross border payments, with integrated and innovative anti-fraud and risk management solutions. Fintech disruptors reshaping the cross-border payments ecosystem The rise and rise of fintech PSPs, and digital payment solutions, are reshaping cross-border payments and importantly, driving change in the wider and deeper global banking model. This change to the banking landscape could not come at a better time, given recent bank collapses and dramas like Credit Suisse, Silicon Valley, Silvergate and Signature Banks — that have rocked B2C and B2B customers’ confidence in banking providers to the core. As a result of this diminished trust, fintech providers can not only step into the role of technology experts but can also help to rebuild the broken dynamic between SMEs and banks, engendering greater payments service diversification and overall stability. With so many factors impacting the international payments landscape, SMEs will choose providers that go above and beyond one-size-fits-all payment strategies, instead taking a more nuanced approach that assesses the specific needs of the SME and can map it to the regions into which it wishes to expand. As Freemarket’s Chief Banking and Product Officer, Mike Whitehead, pointed out in a recent C-suite Fintech Connect podcast: “To be able to satisfy today’s customer demand, you need to be quick to market and you need to be able to flex to customer requirements. While this can be challenging with legacy technology platforms, it lends itself to fintech disruptors that are by definition better able to adapt and respond to changing payments trends. At the same time, and in the spirit of collaboration (not competition), FinTechs continue to develop and nurture relationships with traditional banks, banking networks and payments rails, because they understand absolutely that flexibility and interoperability are the most important elements of an effective and efficient global payments infrastructure and a more resilient global economy.” Read more articles like this in The Financial Technologist. Download your free copy here.
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The DEI Discussions: Can AI be Trusted with Inclusion? | Rohan Handa, Ex-Founding Member at Horizen Labs Ventures
SpotifyAppleBuzzsproutThe DEI Discussions is delighted to bring the Artificial Discrimination series: Can AI be trusted with Inclusion?In the latest episode of this exclusive series, Nadia is joined by Rohan Handa, Ex-Founding Member at Horizen Labs VenturesIn this episode, Rohan highlights the challenges AI presents, particularly the "black box" issue where the decision-making process remains mysterious. And emphasizes the need for regulations, transparency, and ethical guidelines to ensure safe and responsible AI use.Looking ahead, Rohan envisions AI taking over mundane and administrative tasks within the financial technology sector, leading to a more global and remote workforce. This shift would allow humans to focus on creative and innovative aspects of their work, fostering a renaissance period of ideation and creation in the industry.
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Candidates: The Market is in Your Favour! | The Financial Technology Salary Survey
UK Sales and Marketing Professionals' Salary Insight: A Comprehensive Survey Revealing Earnings Across the IndustryFinTech companies and teams are rapidly growing, but job vacancies outpace the number of available candidates, driving starting salaries up.2022 saw the highest salary budget increases in nearly 20 years in the Sales and Marketing field. And given the fundamental role salary plays in an organisation’s ability to attract and retain talent, employers plan to carry this adjustment through to 2023– yet remain cautious about how and when they allocate the overall budget.Today, sales talent comes at a premium, especially in this market. Companies hiring in sales are facing shortages.In order to compete, firms are getting competitive with higher bases and commissions, and more attractive benefits/perks.On the flip-side, firms that enforce strict in-office policies are experiencing the highest turnover rates.The need for talent in this field is now so great that many candidates receive 3-5 offers during their job search. It’s a fierce market that swings highly in favour of candidates. It will certainly be interesting to see innovative approaches arise to compete amidst this.Download your free copy of The Financial Technologist Salary Survey here.
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The Great Transition: Personalising Finance and the Future of Banking | FinTech Focus TV with Emmanuel Daniel, Founder of The Asian Banker
YoutubeSpotifyAppleBuzzsproutJoining Toby on the latest episode of FinTech Focus TV is Emmanuel Daniel, Founder of The Asian Banker.In this episode, we explore Emmanuel's book, "The Great Transition," which delves into the transformation of the financial services industry and the individualization of finance. The pair discuss the significance of traditional financial institutions embracing DeFi technologies and explore the potential for government-led initiatives to integrate digital assets.Emmanuel also cautions against exclusively using AI, such as ChatGPT solely to promote banks' own products and stresses the importance of adapting to the expectations of digitally native generations.
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Restructuring for a Stable Future | The Financial Technology Salary Survey
USA Software Engineering Professionals' Salary Insights: A Comprehensive Survey Revealing Earnings Across the IndustryIn 2023, we saw several large banks and hedge funds restructure their compensation models; increasing the bonus component and reducing base salaries. This is due to the surplus of talent we’re currently seeing in the market in the wake of the widespread redundancies. This is proving to be beneficial to firms as they can become more selective in their hiring choices.But when considering top talent, the situation remains unchanged. Highly skilled candidates remain in high demand, and command the highest packages.We’re finding those that have just been made redundant, or entering the job market for the first time, are the ones that are accepting of the new, lower salaries— even accepting less than their previous role.I would caution employers to avoid taking advantage of the current situation. The market may be in your favor now, but when this changes, candidates who are dissatisfied with the low salaries will be the first to seek new opportunities.We’ve reached a new balance for salaries in the post-COVID era. It’s anticipated that this equilibrium will remain relatively stable in the coming months— and potentially extend into next year. But when the marketplace regains its strength, businesses must re-evaluate compensation strategies to retain the top talent.Download your free copy of The Financial Technologist Salary Survey here.
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The DEI Discussions: Can AI be Trusted with Inclusion? | Krishna Nadella, VP, Business Development, Head of Americas at SigTech
SpotifyAppleBuzzsprout"Artificial intelligence is not coming, it's already here."The DEI Discussions is delighted to bring the Artificial Discrimination series: Can AI be trusted with Inclusion?In the latest episode of this exclusive series, Nadia is joined by Krishna Nadella, VP, Business Development, Head of Americas at SigTechIn this episode, the discussion revolves around AI's role in financial technology, emphasizing the crucial need for precise definition in its application. Krishna highlights the significance of trust when sharing data with AI-powered institutions, emphasizing that AI is already an integral part of our daily lives.Additionally, Krishna provides nine guidelines for staying informed about AI, fostering innovation, and embracing continuous learning, emphasizing responsible AI adoption through ethics and collaboration.
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Disruption through Harmonisation: a new era for Sanctions Screening | The Financial Technologist
Does slow and steady win the race? The financial services industry has been slow to adopt new technologies, largely because it relies on legacy infrastructure which thwarts innovation. Over the past ten years, most businesses and governments have partially migrated to the cloud, whereas banks have taken a more cautious approach. Faced with potential fines by regulators, and systemic challenges, it makes sense for banks to treat technology hesitantly and cautiously, given the potential risks involved. Banking CEOs affirm that their companies have a slower uptake when embracing innovation: in 2020, 81% were “concerned about the speed of technological change”. This affects all aspects of banking, and it is especially noticeable when it comes to cross-border payments, where multiple complex systems need to line up for payments to be processed efficiently. According to the Bank of England’s guidelines, “in some instances, a cross-border payment can take several days and cost up to ten times more than a domestic payment.” Moving the finish line But the financial industry is also ambitious. Banks are constantly searching for ways to optimise their services and processes, despite the complicated maze of national, regional, and international regulations they must navigate. Worldwide financial authorities and industry bodies know that systems need to evolve, and they are pushing for a better-connected, safer, and integrated market. There’s also a growing expectation for instant international payments from consumers. The Financial Stability Board (FSB) has set targets to improve the cross-border payments process by 2027, making it faster, cheaper, more accessible, and more transparent. The goal is to modernise a cross-border payment system still weighed down by controls over currency and regulatory compliance, a fragmented market infrastructure, and the individual systems of all banks and intermediaries involved. One of the most significant barriers to instant cross-border payments is the requirement to check payers and payees against multiple sanctions lists. Every bank in the payment chain, including various intermediaries involved, is mandated to carry out sanctions compliance checks before any money can be transferred cross-border. The need for controls like these is evident. However, the current model could be more efficient, as each bank uses different standards and technologies for matching names and details. This can result in numerous false positives and create friction for businesses and consumers. With so many actors involved and no unified systems, how will the industry achieve the goal set by the FSB? Disruption through harmonisation Financial institutions compete on many fronts, but compliance within financial crime and sanctions regulations is not a race where they’re set against each other. Banks are responsible for making their screening processes more efficient and effective, so they don’t delay payments for consumers and businesses. Individual banks can’t improve the global payments system alone. A genuinely disruptive solution that has the power to innovate the sector at an international level can only come from a new approach: a cooperative one. When financial institutions choose a unified, harmonised strategy, they can work together towards the same goal. This creates a beneficial network effect, where the rising tide of better standards and suitable solutions will lift all boats in the global financial system. Ultimately, consumers and businesses worldwide will feel the time and cost benefits. This was the vision of GSS’ founders, a group of experienced financial services practioners who believe in the power of positive change. They would lead financial institutions through the cooperative path, helping them to clarify their shared expectations, align their processes, and agree on harmonised higher standards. On the foundations of this unified approach, GSS would develop technologically innovative solutions to remove friction from the global payments system. Creating common standards Many financial institutions have the same pain points regarding sanctions screening, which is how GSS enabled over 25 banks to work together to agree on common standards for sanctions screening, the GSS Standards. GSS’ direct experience facilitating a partnership between financial institutions on something as specific and complicated as sanctions screening shows how important it is for the right people from competing organisations to come together. Convincing banks to work together was only the first step. Gaining their trust was imperative, and this was achieved thanks to our team’s collective experience, well-developed networks, and knowledge of the sector. GSS wasn’t the first organisation to try this approach – but it’s the first company that succeeded in drafting new industry standards for sanctions screening. After two years of work, with the sanctions screening standards agreed upon by banks and reinforced by positive guidance from global financial regulators, GSS is ready to launch with its first clients later this year. We’re guiding them towards the finish line – a more efficient and frictionless sanctions screening process delivered via state-of-the-art technology on our cloud-based GSS Platform. We plan to show all financial institutions who believe in harmonisation that smart collaboration is the key to completing the race. When harmonisation works, it has the power to disrupt the status quo. Read more articles like this in The Financial Technologist. Download your free copy here.
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Making Digital Asset Investment Safe – How Regulation will Disrupt the Industry | The Financial Technologist
In 2009, Bitcoin, the world’s first cryptocurrency, was born out of frustration following the financial crises that dominated the early days of the new millennium. Trust in the banking system was at an all-time low, and to combat this, an electronic cash system was created, eliminating the need for middlemen. Instead, it relied on immutable, encrypted peer-to-peer transactions that didn’t involve bank or government governance or control, providing an alternative to fiat currency. Over the next few years, the number of cryptocurrencies grew and, with them, the digital assets market. Today there are an estimated 9000 coins in circulation, and the global market cap (current total value) stands at $1.17 trillion. As a comparison, the global market cap for silver is currently around $1.3 trillion. As the crypto market grew, so did its reputation as a safe haven for criminals. The system’s intentional anonymity and lack of centralised control attracted money laundering and other illicit activity. Cybercriminals sought to steal crypto from exchanges and wallet providers, leaving investors with empty pockets. The crypto industry provides none of the safeguards available to those who invest in traditional finance, such as deposit insurance which protects consumers’ money should a bank fail. A series of high-profile hacks and business failures eroded confidence in the crypto industry and attracted the attention of regulators around the globe. Those involved in crypto security have long considered the introduction of regulation to be a positive disrupter that will encourage mass crypto adoption, allowing the industry to mature and achieve its full potential. Increased trust and confidence Providing clear rules and guidelines for businesses to follow, especially around protecting investors’ funds, makes investment a more attractive proposition. Traditional finance organisations will be more inclined to diversify into digital assets if they feel it is properly governed. In the United States, the Securities and Exchange Commission (SEC) has started to make inroads into regulating parts of the digital asset industry. While some of its actions were seen as controversial, they have gone some way towards clarifying the regulatory landscape, especially their decision to classify Bitcoin and Ethereum as commodities, which has legitimised them in the eyes of investors. Risk reduction A framework that requires organisations to put the safety of investor funds at the forefront of their strategy, implement security measures and provide compensation should customers suffer a loss will mitigate risk and provide a safer place for both consumers and businesses to operate. In the EU, the first piece of legislation to bring uniform rules for crypto has been passed. Markets in Crypto-Assets (MiCA) Regulation will provide protection for investors, reduce the risk of lost funds, and ensure financial stability. The rules will also provide clarity for crypto service providers, making it easier for them to comply with regulations. Mass adoption Crypto is no passing fad. While some people mistrust digital assets thanks to sensationalised news stories of hacks and theft (in 2022, illicit activity was less than 0.24% of all crypto transfers) and don’t understand the mechanics behind them, the adoption rate has increased year on year since 2008. With the global ownership rate sitting at around 4.2%, regulation can play a substantial part in helping to increase mass adoption. A secure environment for businesses and consumers will improve confidence and trust in the sector, encouraging the acceptance of crypto as a legitimate investment and payment option. The Japanese regulator, the Financial Services Agency, has established a registration system for crypto exchanges. The result? Increased transparency in the market as investors find it easier to identify and invest with reputable crypto service providers. Japan now has one of the highest rates of ownership in the world. Don’t put a round peg into a square hole More and more crypto service providers are coming out in support of regulation. However, they are united in the opinion that those implementing it must consider the nuances of crypto rather than trying to fit it into current frameworks that are not fit for purpose. For example, traditional financial regulations regulate activity in a particular jurisdiction. Crypto is borderless; transactions can be made anywhere across the globe. This makes it challenging for regulators to enforce and track regulations. The legal status of crypto is yet to be determined and remains unclear in many countries, leading to confusion about what regulatory bracket they fall under, for example, commodities or securities. Many are of the opinion that crypto should have its own category and be regulated differently from traditional financial offerings. Cryptocurrency was itself a disrupter in the world of finance, and, ironically, traditional finance control mechanisms are now disrupting the digital asset ecosystem. Arguments about whether regulation will stifle innovation or protect the integrity of the crypto market will continue for the foreseeable; what is clear, however, is that a middle ground must be found quickly for the sector to flourish and prosper. Read more articles like this in The Financial Technologist. Download your free copy here.
