Hank Uberoi, chief executive officer and executive director at Earthport, a UK-based financial institution providing clients with access to a global payment network, discusses how the company affects cross-border payments, and its aim to adopt efficient ways of delivering services to its clients.
Here is the transcript:
Hank Uberoi (HU): In our Earthport, we are changing the way international payments work. Historically, cross-border payments were fundamentally done through corresponding banking, banks have relationships with each other all over the world and they have accounts with each other all over the world and they do payments on behalf of the clients, that model was created 40 years ago and it worked pretty well when they were a few countries and large-value payments that was happening. You fast forward to today and you got 200 countries, 150 regulators, thousands of banks and billions of payments, and a typical payment goes through many different steps, so it become quite inefficient, expensive, lack of transparency and for many companies it actually doesn’t work very well, so we’ve created a capability where instead of everybody having to have relationships all over the world, you can have a single relationship with Earthport. We have the largest payment delivery network in the world today, that doesn’t go to correspond in banking, where with one connection into us, we can deposit money into any bank account in the world faster, cheaper and completely transparently, the sender knows upfront in real time how much money will arrived. And that model is now starting to become very much accepted, five years ago when we started it was a novelty, today I think nobody argues that the existing correspondent method is the right one, the only question is how will it change and many of you talking about different models that might come in the future. We are one of the few that is actually doing payments into 190 countries for some of the largest banks in the world and we just cross a million payments a month and we are starting to expand geographically just like you said, we started off in London and in North America and nowwe will be opening up in Singapore, we’ve launch in India, DBS has become a client, many of the Indian banks are becoming clients, so we’re really looking to become a utility for cross-border payments.
I don’t think we do the same thing as SWIFT, and I don’t think we compete with SWIFT or don’t compete with SWIFT. You know SWIFT is a secure messaging utility that is owned by the banks and has a very, very important role to play.
We are members of SWIFT, for certain elements of moving money around the world, we actually used SWIFT. Having said that, there are certain types of payments for which you will knew SWIFT, so for example if you want to send money from my mobile account to your mobile account within one country, you’ll never use something like a SWIFT, because there’s no logical reason to do it. Similarly, in the international space, there are some high volume more-value payments that really benefits from aggregating rather than basically going through corresponding processing one step a time and that’s the market we are focusing with and that’s avery, very large market, but we view ourselves as working with partner’s around the world including SWIFT.
The thing to keep in mind about the cross-border payments is there will be no one system that going to solve everything, people like to think about blockchain will solve this, or telecom companies will solve this. Our view is, we are not betting in favour of any particular approach or against. It is a model, our core competence is a model where we have the largest validations infrastructure, where we understand our payments done around the world, we’re the largest delivery network andwe interconnect all the existing different delivery systems.
So, if the best way to deliver payment into one market is through ACH, we’ll do that, if in another market it’s faster payments we’ll do that, if in the third market is SWIFT we’ll do that, in the fourth market becomes a blockchain technology we’ll do that. The benefit to our clients is they connecting to us, they don’t need to worry about, all of those things, they don’t have to invest in it, and they don’t need to worry about it, as new ways of delivering payments more efficiently come along, we will adopt it and all our clients with get the benefit of it.
So,our model has really four main elements, the first is our platform, which is global, it is single platform everybody uses the same platform, the second is our validation infrastructure, where we understand exactly how payments are done in every country, so we can tell upfront in real time which payment are likely to fail, not three days later, they go there and bounce back. Third is a compliance infrastructure, we have the most sophisticated compliance infrastructure for international payments, we think that anybody has, where we do transactions monitoring, moment of checking, all emailed screening, PEP screening, all the different elements of algorithmic checking and against all the different lists from all the different parts of the world.
The third is our network of partner banks, so this is what you’re talking about where we have a one or more partner bank in every country that we basically delivered payments too. But we don’t connect to them through the corresponding channels, we connect to them through a direct host to host connection, where we can deliver the entire follow up payments that is already been validated and formatted for local delivery.
The liquidity is in the account already so they can go out there, there are no steps between us and deliver there no steps which are the failure rights are very low. All our accounts are the equivalent of segregated cross accounts, which means we don’t create any counter party risks. You can imagine, if I just say I’m going to become, hub in the middle and I’m going to do so is clearing for large banks. If I became a counter party risk, nobody will ever use it.
We deal with the clear funds model; the money is always sitting in a bank account somewhere and it doesn’t sit on our balance sheet. We own and operate the accounts, but it is basically cleared fund money belongs to the clients. We don’t add any settlement risks; we don’t take away any settlement risk from the existing model. So, what you can imagine is just a much more efficient version of the existing process, where our client gives us money, we then position the money in the right location on behalf of the client and when the payment file comes we deliver it out.
We have multiple payment models, where they can do just-in-time funding, some of our clients because they want to deliver the payments faster they pre-fund us and we manage the liquidity distribution for them and as we start to grow what you’ve got to start to see is we’ll have bi-directional flows. So, if some of our clients are sending money from Europe to Asia and others are sending from Asia to Europe we will have natural liquidity so we will be able to offer even faster payments using the natural liquidity without taking any balance sheet risk.
It’s very important in our model, many international payment players use balance sheet, they charge you more and they use balance sheet to deliver faster that is the scale of the model. We tried to build something that can be scalable for the entire industry. So, it’s accelerating quite fast, so we can deliver local payments into 65 countries, we can deliver payments into over 190 countries because like I said we’re part of the SWIFT network so we can deliver them. Within the next six months we’ll be having over 80 countries, we’re launching several countries in Africa over the next six months and we’ll keep adding countries, it’s pretty entirely client-driven. But our network is already the largest there is for local delivery. Most of the banks, some countries you have some specific situations and requirements but almost all, our preferences and our clients’ preferences to work with one or more bank partner in each of the market to be going.
Foo Boon Ping (BP): Okay, and your mission is the high volume low valued payments
BP: And how do you get them, is financing we can (8:05) the propositions?
HU: Very much so, I was in the Washington DC last week, we’ve been speaking with IMF panel, World Bank panel and an IEF panel with various regulators to get foundations to several of the people in there. When you look at financial inclusion, it is about which, it is about transparency, it is about low costs and our model is basically starting to allow people to do all of those. So, people can start leveraging this infrastructure that we built to get better reach. Complete transparency, low cost which is why people like the IFC, our investors in us. So, not only do we have largest institutions investors, but we also have bodies like that who find that our model can bring down the cost of remittance on a global basis.
Typically, no, we work with aggregators, so we work with banks; we work on money transfer companies, we work with large scale e-commerce companies and we don’t work with consumers because that’s a different business. But consumer payments do go through us, many of our clients’ service consumers. The other thing that I think important to sort and keep in mind is that we are also layering on additional product over time, so currently we deliver payments into bank accounts and I think we’re now looking at a road mapwhere we deliver payments into mobile wallets and into prepaid cards. Our long-term view is we will deliver payments from anything to anything other than cash, the only element that for the foreseeable future is we don’t intend to touch is cash because that is from a regulatory stand point has a different characteristic and mixing those two across the entire utility can be quite challenging.
Well I think GPI is a very good initiative, I think it has a lot value and anytime it can bring clarity and transparency to any process, it is very useful, I mean SWIFT is a very complex and large organisation so bringing something like that. And then getting it, full scale adoption can take a quite bit of time but it’s getting good traction so we’re quite impress with it. Having said that it doesn’t change the model, right? For certain payments where the SWIFT model of corresponding banking delivery is the right model and GPI has a lot of value and we intend to join GPI and use it and offer it to our clients. Having said that, if you want to do 57,000 low valued payments to 29 countries with an average value of between $500 and $20,000, I think GPI will, there’s only one small element of the inefficiently, you still have to send all the payments, one payment at a time there’s no ability to net, aggregate across different providers into different locations for that you will need a model like ours.
So, like I said, I think the world where we live in for international payments is going to be a heterogeneous world, there’s not going to be one size fits all and our intention is to play and work with and partner with all the different incumbents that solve different problems, we don’t believe that we will single handily solve the world of payments. I think it’s changing, I think it’s changing, I think if you look back three to four years ago, there was a question of whether we need a new way of doing it, is it safe? You’re a non-bank company, is there are additional risks that we don’t understand? I think all of that is behind.
I don’t think anybody today argues that existing correspondent banking model is the right model for high volume payments, that’s now I think accepted. Only question is how will it change? And when will it change? Different banks in different parts of the world are using, starting at different places, some banks are saying let’s solve it for the consumer first, so we have a client in Canada that has launched a consumer payment across the entire network and that uses us. You saw press announcement from Kotak (Mahindra Bank) in India, saying they’re launching “Kotak Remit”, which will be offered to anybody with an Aadhar number and a PIN number that’s going to run on our network.
You have large global banks like Bank America in the US that are creating solutions for e-commerce companies, which are clients of theirs, they’re basically using that. We have clients in Europe that are creating different solutions for both consumer, businesses and SMEs. So, we work with them to create the capability where they choose to start with and what they focus more depends on their priorities. We have multiple instances of every one of those, use cases and sometimes within the same bank. I think one of the opportunities and challenges is that international payment is a very large space.
So, the limitation is not how big is the market? If you do, it is huge you know like if we had 10% of the market we could end up being one of the largest financial companies in the world. So, the question is how do you grow from a smaller base to this and I think our view is we’re going to go organically, we will look at inorganic opportunities, we will look at strategic partnerships, where because we are realistic, we are not going to capture the whole world growing one bank at a time, so we will look at partnerships with some larger players where they can embed our solutions and offer it to the market.
So, I think there’s no limit to how big this could become over the next five years. We will be a heterogeneous connector, so we connect into our, what we bring to the table is a new model on how to do it. It’s not about the technology; it is a model, a platform with data, with validation, with compliance and all. How we connect depends on what’s the best way to do it.
So, if the best way to do it is to connect it to the local ACS system we do that, faster payments comes along, we do that, if there’s a blockchain ecosystem in a particular region that develops we’ll connect into that, we’re already doing it with one of our clients where we’re delivering payments using blockchain. We are not betting our company on blockchain, we are not betting against blockchain. We will connect into whatever, there’ll be technologies that will come along that people haven’t even talked about today,so they will be all relevant.
They don’t take away from our model. I think what you will not have, and this is something I feel strongly about, I don’t think you will find any technology come along and say, well once everybody interconnected using this technology you don’t need a hub in the middle, because the problem is not the technology problem, it is actually a model problem because there will always be a countries, there will always be a regulators, countries will always control their own compliance and regulations, which means you will have to cross through barriers, you can either do it one person at a time. I open an account with you, so we have to cross it bilaterally and if we got three thousand of us that’s three times, three thousand times three thousand connections it’s too complexly. If you have a model, hub in the middle its three thousand and one connection, and that’s the model that we are going and we’ll use one of the best technology that will adopt some technologies early on, if our clients wants to do it, we are doing it by our clients.
We are, I think we would argued that we are actually bringing a huge amount of value to that space because by being a single platform that has a portion of space that is very regulated and that is very, very complex, but we do one thing and only one thing, we are able to provide a much more sophisticated level of algorithmic checking, so we do all the basic stuff like screening, KYC and PEP screening where we can start implementing other things that other people can’t do. We can start a new predictive PEP’s screening where we do media searches and identify who might become a PEP list, we can do an algorithmic analysis, where we do matching patterns. So, if we understand the business of our client, let’s say you are a market place and you’re paying your supplier and the norm is that you pay your supplier once a week, right, and it ranges $5,000 to $50,000, suddenly a payment from $500 million goes through, or $5 million goes through, it will get flagged.
If 50 payments of $5,000 goesthrough, it will get flagged. In the existing correspondent model, that’s very difficult because the payments go through so many different stops along the way and a typical bank has issue one technology, so I understand the complexity of the banking and ecosystem, there are lot of legacy systems and is not the lack of intent, but if they want to start putting in a sophisticated system like we have, they have to do it on many platforms, on many locations and many countries so that’s very, very expensive or they can plug into us.
I think Alipay and Ant Financial are very, very attractive partners for us, so I’m hoping to meet them sometime soon, I was in Washington DC and the CEO of Ant was there and we got introduced, so my hope is you know, they are doing many, many, many different things to the extent that we can provide capability for moving money internationally which is bring about a certain level of efficiency and they don’t need to invest around the world, they can still build out their business and offer all the capability to the consumers and their clients and merchants.
So, we don’t do that, we’re not never going to be in that space, we’re just providing the rails and so, we are hoping that we can partner with them and others like them. I think payments are starting to pick up pace now, I think over the last five years you’ve seen some very interesting innovation come into domestic payments within countries and now that is starting to apply to cross-border payments, it is much more complex.
The analogy I like to use is people think while if can do domestically you just extended one step and you’ll be in international the reality is like driving a car and you hit the border, you will get out and walk. Because each border add that much more complexity and that’s what we’re specialising. Because every payment we take from international standpoint and deliver it locally. Can we do it? Yes. Do we add any particular value there where if somebody asks to do board some domestic and international but sometimes they do, we’ll do it! Our real core competence is in the complexity of the international payments. We’ve delivered local payments within the UK, in every market, every market we go in to, we deliver some combinations of domestic and international markets but that’s not what we focus on, we don’t go sell ourselves on domestic payment suppliers.
Sometimes people have entire group of payments they need to do some of them are cross barrier, some are local. We don’t tell them go to somebody else for your local payments, we’ll just say will do them. DBS is an announce client, they’re alive, they using us to deliver payments into multiple countries and that’s public and we are hopefully talking to many others. Yes, so there are two parts to our payment network, one is our network delivery partners and two is our clients to whom we do payments, so we are the clients of our bank partners and they are our clients when we deliver payments for them. For clients we don’t have exclusivity, we work with everybody who wants to use our network to deliver payments anywhere in the world. For efficiency reasons, to deliver payments into a particular country we will typically have one, two or three partner banks who we use to leverage, it’s not about the exclusivity of the arrangements, it’s just about volumes, concentrations and managing liquidity and all but we are obviously happy to work with many banks.