Key trends that would shape the future of open payment networks.

1. Mobile Evolves as the
Universal Payment Proxy
A proliferation of payment instruments -- bank
accounts, mobile wallets, debit and credit cards
prepaid cards has created the need for a
standardized way to address multiple payment
instruments. As user experience becomes
central to digital payments, service providers,
are beginning to explore the use of the mobile
number as a global virtual payment address.
In 2016, the European Mobile Proxy Forum,
influenced by PayM's success in the UK market,
kicked off a work stream to evaluate the use of
the mobile number as a proxy for transactions
across the Eurozone. Cross-border payment
service providers including TerraPay are gearing
up to launch services in Africa and Asia in 2017.
The ability to send monies to payee accounts
directly, using a proxy (mobile phone number)
instead of a bank account number creates a large
base of connected customers, generates
network effects and drives higher volumes
through improved transaction convenience
and ease.
03
Money Transfers Become Programmable
02
04 On-Demand Payments
are the New Normal
In an on-demand economy, the ability to make payments in real-time will be the new normal. A
new breed of digital natives with expectations that money moves as fast as email and growing
regulatory support for nationwide and regional ubiquitous immediate payments systems are
accelerating the move. Over 22 markets across the world are upgrading national payments
infrastructures, improving speed, cost and security for consumers.
Immediate payments networks generally use a central “switch” system to which all institutions
submit payments. Although the bulk of schemes are confined to domestic transactions, on-
demand payment networks can make a material difference to international money transfer
providers via dramatically improved scale efficiencies. By partnering with a single service
provider, remittance service providers, in turn, would be able to terminate transactions to all
participants in the payment scheme.
05 Regulators - New Hotbed for Fintech
Regulation, rather than technology, has posed a major barrier to market entry for many
FinTech innovators. Regulators are reeling under an avalanche of revolutionary ideas and
technologies, struggling to stay apace and ensure regulation remains relevant and fair. In a bit
to stay ahead, progressive regulators in several countries including the UK, Canada Singapore,
Australia and the UAE has adopted an open approach to regulation. The regulators offer a
“sandbox” to Fintech service providers to test innovative ideas that do not fit into long-
standing existent regulatory frameworks. Moving forward, new collaborative frameworks will
allow regulators to tailor the regulatory approach, improving overall transparency.
New entrants in the remittance service space would benefit as it would help create a level
playing field and dramatically accelerate the concept to market time. International remittance
is a prime target for fintech innovators. As an example, BitX, a cross-border money transfer
service, powered by digital currencies and blockchain technology is part of the cohort of
companies selected by the Financial Conduct Authority UK for its first regulatory sandbox. The
model will be rolled-out in other countries, as many more regulators become strategic about
future regulation and encourage experimentation with new technologies and business models
to develop vibrant payments ecosystems.
Regulators are also embarking on a digital transformation journey and quickly adapting and
exploring the role of technology to make payment systems better, more efficient and effective.
For international remittance firms, reg-tech in the long-term can potentially improve quality of
remittance data, result in informed decision making and improve time to market for new services.
The inherent simplicity of block-chain transfers compared to the complexity of the current
correspondent banking model makes international remittances a popular use case for block-
chain technology. Several Bitcoin remittance players are beginning to offer services along
several corridors.
The growing support for Open Ledger and Ripple by the Bank of International Settlement
leading global corporations and banks suggests, adoption of digital countries by several
countries including the West Africa Monetary Union and regulators setting-up sandbox to
test new innovations points to rapid acceptance of the technology.
08 Distributed Ledger Technologies Make Headway
ChatBots Liven Digital Experience09
Global payments systems are the primary target for cyber-battles, given the massive
volumes of data and money that can be stolen. Now, with the introduction of mobile apps,
online payments, the cloud and other new technologies, criminals have greater potential
routes to breach an institution's cyber defences. It's not enough to just implement new risk
controls and technologies to safeguard one's service.
In 2015, the Group of Seven (“G7”) industrial nations agreed to coordinate efforts for
proactive policing and information sharing and continuous learning to counter the threats
according to the G-7;
“Entities in the financial sector should establish cybersecurity strategies and
frameworks tailored to their nature, size, complexity, risk profile, and culture. Informed
by the cyber threat and vulnerability landscape, a jurisdiction can also establish sector-
wide cybersecurity strategies and frameworks that outline how cooperation occurs
between entities and public authorities in the financial sector, with sectors upon which
the financial sector depends, and with other relevant jurisdictions.”
From an international money transfer perspective, the guidelines catalyse efforts to devise
collaborative approaches to counter and mitigate risk. For an industry spending between 4%
and 20% of annual revenues on compliance and security initiatives, risk and threat sharing
will help regulate costs, secure customer assets, and preserve service integrity.
07 Collaboration - New Frontline for Defence
In the long-term experiences will outlive money transfer products. As consumers embrace
digital channels, service providers will increasingly rely on the ability of voice bots to mimic
human interactions to deliver cutting-edge services experience. In the future money transfers
could be as simple as instructing a virtual assistant -- “Send USD 100 to Mom”. By embedding
payments directly into bots, the service eliminates conversion-killing steps from the purchase
journey to enable a seamless consumer experience.
Whilst transactional services may appear futuristic, early adopters are exploiting chat-bots to
deepen customer engagement and rationalize the cost of service. Consumers can interact with
virtual assistants for basic service queries related to rates, delivery methods, transfer status,
transaction history, as well as direct senders to the mobile app or desktop when they're ready
to make a transfer.
Rise of RegTech06
Contrary to the de-globalisation headwinds, openness and greater industry collaboration
is central to the future of international money transfers In the last few years, a perfect
convergence of forces – the entry of nimble digital entrants, the introduction of innovative
business models and the development of new technologies such as Blockchain – have
intensified competitive pressure for incumbents and challenged existent service models.
Trends Transforming Cross-Border Payments
A Brave, New Open World
The ecosystem for payments is deeply fragmented. Several initiatives
to interconnect multiple payment services at scale and make
payments between countries as easy and affordable as they are within
countries have been launched.
The GSM Association is at the forefront and published its Mobile
Money APIs to facilitate cross-border interoperability between mobile
wallet service providers. Given, 471 mobile money services cater to
500M users globally; interlinking services could create a far-reaching
transfer network covering 85% of the world’s poorest and unbanked
territories. Similarly, in a first of its kind move, outside the European
Union, the South African Development Corporation (SADC) is trailing
a regional interoperability initiative, interconnecting banks and mobile
wallets, for small-value money transfers.
The sizeable market opportunity has also given rise to a new category
of payment aggregators offering “interoperability as a service.”
Service providers need to plug into the central platform to gain access,
in turn, to all participants. Payment aggregators assume responsibility
for compliance, foreign exchange management, and clearing and
settlement; removing operational complexity and mutualizing critical
costs. The ultimate goal is to create a scalable model primarily driven
by the low cost of customer acquisition and offer superior value by
delivering frictionless payments.
Interoperability-as- a-Service
Gathers Pace
Open money transfer networks and collaboration between entrants and incumbents would pave
the way for a new growth paradigm. TerraPay has identified key trends that would shape the
future of open and collaborative money transfer networks. Market wide transformation would
take time. Collectively, for an industry, that is historically complex and dominated by a few large
players, the trends indicate a significant transition is afoot and point to a future that is open,
digitally powered and truly customer-centric -- enabling customers to send money to any corner
of the world – simply, affordably and safely.
01
As a corollary to interoperability, Open application programming interfaces (APIs) are a rallying
point for digital transformation and can unlock a wave of innovative services one can't even
imagine. APIs received a massive push in 2015, driven by regulation that promotes consumer
choice and competition. The advent of European Payment Services Directive 2, mandating the
opening of banks' APIs to third party Fintech providers would catalyse the development of
open platforms and business ecosystems. This is sure to be good news for every business that
needs to make regular international payments, as increased competition will almost inevitably
lead to lower costs as well as increased choice and ease of switching.
Given the multi-player, multi-jurisdictional nature of the industry, there is no single player that
will dominate the payments chain. Several specialist players have emerged and are exposing
APIs -- externalising various aspects of the transaction workflow – customer authentication,
risk management, forex and settlement.
API development is still at an early stage, with most service providers exposing APIs to select
partners or participants in a payment scheme. With each service provider initially attempting
to build an individual ecosystem, achieving global scale will be challenging without API
standardization. Industry bodies such as GSMA have published APIs to bring common
standards to harmonize cross-border transfer processes and reduce complexity and
fragmentation in this fast-paced industry. We would also see payment hubs take on a dominant
role in setting as well as driving rapid adoption of standardized interfaces.
85%85%
270
85%
500 M
Non-Bank Financial
Global Users
Territories Lacking
Financial Institution