The cross-border payment space is a significant opportunity for value-unlocking for the banks, and therefore a white-label platform can be the expressway for the banks
The Russia-Ukraine conflict has brought cross-border payments back into the spotlight. Sanctions, depreciation/ revaluation of certain currencies, currency preferences for oil payments – the series of events emanating from the Russia-Ukraine war has brought conversations regarding cross-border payments back into the mainstream.
Cross-border payments have been a critical area for the banks as they tap into the economic engine of the developing world — riding on remittances. With the years gone by and a flatter world emerging, cross-border business has been enriched by investments, business payments, education spending, and trade – spanning every country. With a large South East Asia based bank recently filing its intent for unlocking the value of its international money transfer platform through a potential IPO, the cross-border platform has set a chain in motion. However, while the goal is well etched, the road remains largely cluttered and unexplored.
Large banks missing opportunity
Global cross-border transfers were growing and accounted for $148 trillion in 2021 and are estimated to reach $155.9 trillion in 2022. Large banks can capitalise on this opportunity and increase revenue by offering a branded remittance service to their retail customers.
Not too long ago, ATMs were expected to be an in-house function at the banks until the same was successfully outsourced. The advantages far outweighed the concerns. The banks then had the opportunity to focus on their core business while leaving it to the experts to deliver the best possible customer experience. A white-label strategy can be one such gamechanger for the banks exploring cross-border business.
The banks can accelerate their cross-border payments platform capabilities and integrate their payment systems with their international partners for smoother transactions with rapid go-to-market and Go Live in 30 days –- using a white-label technology platform approach.
The white-label platform comes pre-integrated with the payment ecosystem. This includes payment gateways, regulatory technology products, and license and disbursement, partners. Thus, banks can build the complete international payments infrastructure for their unique business needs with a single integration point. Given the critical nature of the solution, only a handful of companies globally offer such a platform – assuring complete compliance with domestic and international regulations.
At the same time, the speed of implementation comes with a high degree of control and agility with reconfigurable, plug-n-play architecture. Banks with a white-label platform can also work with multiple partners in different payment corridors, dictate terms of partnerships, and change partners with a click of a button.
The product development model
Developing a cross-border payments solution internally can take several months or even years. It will cost millions of dollars plus delayed go-to-market. There is no cash at the tills until everything is in ship-shape order – meaning the cross-border payments revenue can’t start until the product is fully developed—possible blind spots due to a lack of domain expertise. Maintaining an internal team and adding new corridors can escalate costs and result in low profitability. Even after spending excessive time and huge costs, there is no guarantee that the system will work the way it was envisaged.
Launching cross-border remittance via Money Transfer Operator (MTO) has its demerits.
As far as launching a usable, market-ready payments set-up is concerned, time is of the essence, and the MTO partnership delivers on this factor.
The cross-border payment space is a significant opportunity for value-unlocking for the banks, and therefore a white-label platform can be the expressway for the banks. Such readymade solutions seem very desirable but come with their pitfalls. As a solution that hopes to tie together banks and major financial corporations, its compliance matters must be on point. In comparison, it needs to be a profitable solution for a sustainable future and provide effective de-risking opportunities against counterparty risk and concentration risk. To sum it up, tie-up with MTOs definitely may have short term benefits but can result in low control over pricing and FX margins, regulatory risk, concentration risk and counterparty risk.
The writer is the founder and CEO of Fable Fintech, a leading cross-border payments technology company. Views are personal.