Using technology to define e-payments

John Sharman is chief executive of Tuxedo Money Solutions

The current international payments market is hugely fragmented, with multiple networks and mechanisms operating independently of each other and it is clear that new market entrants have the opportunity to shape and define the future of this industry, writes John Sharman

At present, the £316 billion cross border payments market is dominated by large banking groups, which  typically make international payments slow, inefficient and costly for businesses. However, Banks are increasingly losing market share to specialist and disruptive providers, which are moving in to take advantage of the global migration from cash to electronic payments. The advent of new electronic payment technologies and providers suggests that the market is poised for a dramatic overhaul.

The global migration from cash to e-payments creates opportunities for payment providers. By 2022, it is anticipated that the value of non-cash transactions will reach $712 trillion from today’s value of $377 trillion. When this figure is compared with revenue estimates from the traditional payments and transaction-banking revenues ($1.1 trillion), it is clear where the attraction lies.

Currently, transferring money overseas through the traditional legacy institutions is expensive; banks can charge $25 or more to send money over a border and charge fees of between 2-3% when changing currencies. This creates an unnecessary financial burden for corporations making these transactions.  Indeed, volumes of cross border payments are being driven upwards by corporations paying overseas suppliers, employees and overseas customers.  Although the industry is on the brink of dramatic change, it is likely that this change will materialise in varying ways across continents.

New market entrants are taking the spotlight and developing ways to overcome challenges to deliver vastly improved cross border payment services, however no one provider operates across the entire value chain, across multiple markets, which the market demands. Local banking infrastructure, customs and culture mean that banking and payments are used differently in each market. For example, countries such as Dubai with large migrant populations are now beginning to move away from a heavy reliance on cash to plastic card and electronic money solutions, while many countries in Africa have transitioned directly from cash to mobile payments.

Digital technology means that providers can engage with their customers on a daily basis and therefore continue to evolve the way in which payments are made according to need, providing additional benefits. This is where established technology companies, for example Apple, which already engages regularly and extensively with its customers can use this established relationship to develop products such as Apple Pay. Customer demand and how well payment providers respond in turn will prove integral to the future shape of the market.

Flexible payment platforms also offer the opportunity to integrate payments for merchants and consumers. Internet shopping, or e-commerce, has only been in existence for 20 years but the rate of expansion has been rapid. Indeed, worldwide business-to-consumer (B2C) e-commerce reached $1.25 trillion in 2013. The internet is connecting consumers and businesses across borders and beyond, there is huge scope for designing tailored payment systems for small merchants who need to mitigate exposure to foreign exchange and payment charges. There is big consumer appetite for this too, for example in 2011 Singapore experienced a total increase in payments made by non-banks by 27.7% over 2009 levels. China had the second largest growth (24.6%) followed by Saudi Arabia (18.3%).

While much of the investment in digital solutions has been in consumer-related businesses, there is also significant opportunity in the business-to-business (B2B) realm. Large multinational corporations will often have a treasury function that is well-versed in moving money around the world and can take a strong negotiation position with the more traditional providers. The big opportunity in the UK and overseas is in supporting mid-sized corporates that do not have the expertise but nevertheless make up a significant share of the market. These businesses are paying far too much to transfer money overseas .

For a sector worth over £500 billion and growing rapidly, businesses undertaking cross-border payments have suffered for too long with poor service, inefficient products and a lack of choice. However, the market is changing rapidly as technological development drives innovation and entrepreneurial firms like Tuxedo are able to offer credible, cost effective alternatives for businesses of all sizes across the globe.