Cross-border payments: “It’s like a piece of dirt in the eye”

If there’s one industry where being the middleman really pays, it’s the cross-border payments industry. Global trade relies on global payments, but these funds often pass through not one or two, but multiple banks or financial institutions on their way to the recipient. And everyone gets a piece of the pie.

“Not many people know how cross-border payments work, but they know it’s cumbersome and painful,” said Cecilia Tamez, chief strategy officer of Euronet Worldwide’s money transfer division. “It’s like a piece of dirt in your eye. You know it’s there, but you can’t get it out.”

Euronet is a global financial company established in 1994 with a single ATM in Budapest, Hungary. Based in Kansas City, Kansas, the company has evolved over time and today handles all types of financial transactions in 190 countries. The deal now includes Dandelion, a modern payments network that uses a single API connection to accelerate the process of cross-border payments in near real-time. These transactions include payments to bank accounts, mobile wallets, and cash.

Tamez said that Dandelion is not a new service but it is new on the market. The technology that powers Dandelion was used internally by Euronet to process transactions. In November 2021, the company decided to open the Dandelion network to outside companies after receiving numerous requests from competitors to gain access to the technology. Tamez compared it to what Amazon has done with its Amazon Web Services.

“Cross-border payments are on the verge of the most transformative development they have ever seen,” she said. “We’re probably seeing the most radical digital evolution we’ve ever seen, largely because of emerging markets [are changing banking].”

Tamez found that about 20% of the world’s people are “unbanked” or “underbanked,” meaning they cannot access banks.

“It’s about the same all over the world,” she noted. “And there are some countries like Mexico where 50% of the population is unbanked, so they have a very strong culture of cash. If we look at the transfers and payments we make into Mexico, about half are cash pickups.”

These pickups in Mexico could be bodegas or other companies including banks. But in Kenya, Tamez said, about 90% of households use mobile wallets instead. And it’s a similar story, to varying degrees, in countries around the world.

Tamez said that two-thirds of the world’s global GDP is generated in emerging markets, but with the traditional approach of moving money around the world, many companies could miss opportunities because they can’t make quick payments.

“Everything is connected and supply chains are the pinnacle of that connectivity in the world,” Tamez said. “Payments are the financial thing [rail]. The pandemic has been a complete disaster when it comes to supply chains because one day we woke up and realized that we are highly dependent on a single point of failure in the supply chain and that is China.”

As companies attempted to move supply chains to new countries, payment processing became an obstacle. Traditionally, cross-border payments between banks are processed via the Society for Worldwide Interbank Financial Telecommunication (SWIFT) platform. SWIFT enables global banks to connect with each other.

“If I’m a bank and I want to send a cross-border payment, I would use SWIFT, but it just sends a message to the other bank,” explained Tamez. “When a bank joins SWIFT, they still have all the work to do to create settlement agreements for those who are supposed to receive funds.”

In many cross-border transactions, especially in emerging markets, funds can flow through multiple banks or financial institutions, each charging a fee, and it can take days or even a week or more to reach the final recipient.

“We don’t have a coherent value chain [tracks these transactions easily]’ Tamez said.

Dandelion uses its API to make these connections easier and faster while cutting out the numerous middlemen. Tamez said the company has about 60 “real-time payment schemes” around the world and direct agreements with thousands of banks, making Dandelion payments a “direct-to-local” connection in most cases.

“If a bank wants to expand their cross-border payments, they come to us and it’s an API connection,” Tamez said. “We can enable real-time payments on 90% of our payments.”

For supply chain and e-commerce companies that source products from one country and ship to a third, this convenience speeds the entire process, ensures cash flow is uninterrupted, and opens up new markets.

“Businesses and consumers both have increasing needs [access] these financial markets,” Tamez said. “And during [businesses and] The financial markets don’t see how much money they’re losing because they’ve never served those markets, they’re losing [growth opportunities].”

Click here to see more Modern Shipper articles by Brian Straight.

Leave a Comment