The platform model -  A revolutionary way to run your cross-border payments business

Power of Platform - The Happy Paradox

Going to market quickly with a winning cross-border payments solution need not mean a trade-off between rapid go-to-market and freedom from risk.

You need not lock yourself in with one money transfer partner like Western Union, Wise, or Remitly. You can choose to work with all of them and benefit from the freedom of having multiple partners in a risk-free ecosystem that is customized as per your business needs. This is the true power of the platform model, the freedom of choice which gives you more control.

The platform model empowers your cross-border payments business with technology to operate in a happy paradox – where more choices don’t mean higher costs. In truth, it reduces costs as you scale.

The volume of remittance business, which is a proportionate function of migration numbers itself, has been on an upward trend. The total value of remittances in 2019 was $ 706 billion, a milestone high in itself according to the Visa Economic Empowerment Institute’s report, The Rise of Digital Remittances: How innovation is improving a global money movement. According to the Migration Data Portal, the inflows into low- and middle-income countries (LMICs) were projected to fall by about 7.2% in the following year due to the COVID-19 pandemic. But in reality, the remittances only declined by 1.6%, a much smaller fall than the global financial crisis of 2009 (4.8%). This unbending trend in cross-border payments can only strengthen in terms of user penetration and application in the coming years as the world becomes more and more of a global village.

The possibilities in cross-border payments as a business opportunity are indubitably plentiful and steady. What’s more, digital remittance systems aid the flow of funds through safe, contact-less models of remittance thanks to technology. To harness them and build a cross-border payments business that gives you a competitive advantage, you have manifold criteria to consider. The cross-border payments solution you create should not compromise on your business priorities or compliance factors; you require a mature, time-tested solution that reduces risks while ticking all the boxes that deliver on the best business case.

Criteria for a cross-border payments solution

The criteria that set you apart in your quest to build a bankable cross-border payments solution are:

• Speed of go-to-market (GTM)

• Compliance with regulatory requirements

• Financially viable solutions

• Technology expertise

• Domain expertise

• Risk mitigation

These important factors amp up the user-friendliness and the effectiveness of the solution. For financial institutions intent on leveraging the growth opportunity in cross-border payments, there are familiar routes available.

Popular go-to solutions for cross-border payments have been:

Each of these solutions has its own merits. But a careful examination reveals that opting for one of the two options leads to a compromise on one or several of the above criteria, leading to an obligatory trade-off between the goals that your business values the most. When measured up against the all-important criteria listed above, these solution options stack up in a variety of ways. Here’s an evaluation:

1) The Money Transfer Operator (MTOs) partnership model

MTOs are popular choices as cross-border payment partners. They are present in the target domain and geographical location. They also have the technology and licenses set up to provide a fast go-to-market (GTM) option. The business solution is viable and available from day 1 – and this is a big deal when you’re entering a business opportunity as huge as cross-border payments which scaled the $ 700 billion mark not too long ago.

Pros:

• Rapid go-to-market (GTM):

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. MTOs have in their possession an operational technology to launch a cross-border payments business. For you, the boost lent by the partnership with an MTO is ideal in terms of getting the project off the ground. MTOs are licensed to operate in various geographical locations. Hence, the probability of finding a partner that can provide widespread access to your business is high and you have an array of choices. In the MTO-way, your partnership hits the ground without delays once the business decision is made. You can reasonably expect rapid GTM straightaway from the partnership.

Cons:

Such a readymade solution is every bit desirable, but it comes with its own pitfalls. As a solution that hopes to tie together banks and major financial corporations, its compliance matters have to be on point, it should be a profitable solution for a sustainable future, and it should provide effective de-risking opportunities. Observe where the MTO partnership model leaves room for improvement:

• Low profitability:

Profit margins are compromised as MTOs take a major share along the entire remittance value chain. Profitability also impacts your plans for scaling and expansion - which may conflict with the MTO’s plans. Your control over profitability and the various elements of the value chain is minimal and there is little room to negotiate as you are too dependent on the MTO for their network to oppose their restrictions. At the same time, this isn’t an arrangement you can exit at will in the interest of the continuity of the business. The flipside of the MTO partnership is that you can’t reap the benefits of scale, as with every level of growth, you would have to part with equivalent profits.

• High risk:

Where additional partnerships are brought in, some amount of risk is introduced at multiple levels. Not all risk items can be addressed by you – since the MTO partnership introduces an imbalance of power into the arrangement.

Let us elaborate on how the key aspects play out:

• Risk of regulatory changes:
  
  The partnership with the MTO introduces a single point of failure into your model. They are your only partner and you are locked in with them for the continued operation of your cross-border payments business. This means any failure on the part of the MTO translates into failure for your business too. If they lose the license to operate in the corridor, your business comes to an abrupt stop. In the event of changed rules, and if the MTO makes operational changes to cede with regulatory matters, you cannot distance yourself from these changes. If they get suspended, your business has to pause abruptly, even indefinitely, as they figure out the way forward. Even after parting with the majority of your profits, you are still not inoculated from their risks.

• Risk from fund-handling:

  This is an inherent risk of borrowing technological know-how from entities that also handle funds directly. The technology comes with many strings attached. It becomes useless if the business side of the partnership runs into a roadblock. The fortunes of technological competence and handling of the funds are banded together – this is a sizable amount of risk and an inessential one for your business to run.

Taking all these varying grades of risk into account, you might consider keeping technology in-house and independent from business partnerships. There is surely a case to be made for the control that the product model affords.

2) The Product Development model

Developing a cross-border payments solution relying entirely on your business vision is possible and exciting! It can be done two ways – by designating an internal IT team for the task or hiring an IT consulting firm to deliver a customized solution. Creating your own payments product from scratch puts you in the driver's seat quite literally. You enjoy control over each task and function in the entire cross-border transactions and operations workflow. But developing this vision into a reality can take several months or even years. Being in the driver’s seat also means you must keep your eyes on the road all the time. All the decisions rest solely on your shoulders. Let us examine how this solution fares against our key criteria.

Pros:

• Lower risks:

Complete control over the end-product is a given in this case. Your developers are able to put in the time to understand the various nuances of your requirements and create a product suited entirely to your needs. The technology efficiency becomes a reflection of your subject-matter expertise. Since you are the whole and sole owner of the IP, you have little to worry about risks from outside influences on technology.

• More control on technology:

In hiring known expertise such as the internal IT team, you are very much in control of the outcome. The project and progress can be modelled as required and you also enjoy operational flexibility.

IT consulting firms bring their process and technology expertise to the project. They have known strengths and cross-functional expertise which they can turn towards your project and its outcomes.

That said, being your own technology provider introduces questions of upgrades and keeping obsolescence at bay – these factors become your responsibility when you consider sole ownership of the technology framework.

Cons:

The technology-first focus on the development of payments solutions can take your attention away from other factors. But the viability of your payments business depends on the other criteria too – and these following factors continue to make or break it:

• 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. Delays due to teething troubles and long turn-around times go alongside projects in which the product needs to take shape from scratch. Revenue is paused until everything is ready and the investment of time, funding, and energy is considerable.

The same goes for the envisioning stages, test, and launch of each emerging feature. Regulatory changes or a business decision to launch into new corridors call for fresh development efforts. The entire cycle to launch has to be traversed several times before profitability can be realized.

Integrating with each new partner leads to a repeat of this cycle - development, integration, and testing all take time and make you postpone your profits.

• Possible blind-spots due to lack of domain expertise:

Cross-border payments, as a domain, bring with them a complicated value chain with multiple entities involved. Technology partners may be well-placed with the knowledge of the tools and processes that bring the best outcomes to the finished IT product. But they will need extensive guidance in terms of domain expertise. Their contributions become limited when it comes to the nitty-gritty and your expertise becomes their sole guideline, often causing multiple iterations in development and testing. The need to incorporate multiple countries, regulatory frameworks, changing central bank rules, etc. can turn into increased development costs or extending project turn-around timelines.

• Low profitability:

Hiring IT experts is straight-up a costly affair. The project management plan and milestones must be evaluated from beginning to end by a competent authority so that neither the quality of the end-product nor the budgets depart from the optimum path of resource utilization and outcomes achieved. Still, course-correction midway is all-too-common, and this does mean additional costs.

Iterations in development and testing can spiral into overshooting of budgets – both funding and other resources such as critical timelines can go for a toss in the process.

Adding new corridors of operation, or additional features specific to a region are treated as fresh projects and billed as such. These are hidden costs that are difficult to calculate at the start of a project but are inevitable in the lifecycle of the development of a remittance business.

In summary, both the familiar solutions leave much to be desired when building a business case in the cross-border payments business domain.

The Money Transfer Operator model and the product development model forces you to make expensive trade-offs. The compromises between GTM and risk put you in a difficult position, making the cross-border payments business look deceptively more unattractive than what it could be.

The ideal situation is to go to market at the earliest while mitigating risk so that you go live in a safe fashion. This is made possible by a third option for you, the Platform option.

The third option that side-steps the cons and retains the pros.

3) The Power of Platform model

The platform model brings the best of both worlds. It allows you multiple partnerships – meaning it never forces you to rely on a single revenue stream. On a single platform, you can integrate multiple partners as per your evaluation of the options and your business judgment. The platform is your ready-made solution that brings results from day 1. It allows you to collaborate seamlessly with as many partners as you prefer – existing partners can be added straightaway and new partnerships that you sign can be made live without additional development efforts. You have the freedom to implement the best business model without worrying about technology. Let us see how it stacks up against key decision criteria:

Pros:

• Rapid go-to-market:

The platform is ready to go from day 1. It is a functional solution that already has successful implementations running live in 9 countries. It can integrate with internet banking portals, payment gateways, or MTOs. Whichever revenue stream of cross-border payments you wish to add in the future to expand your business horizons can be configured into the platform within weeks. The platform is built to work with both established partners and upcoming technologies i.e., you can launch a platform that is compatible with the likes of SWIFT automation as well as blockchain-enabled RIPPLE integrations. With a platform model, you can go to market rapidly with an extensive range of well-designed features and a wide network of disbursement partners, payment gateways, compliance partners and other partners from day 1.

• Excellent risk mitigation:

The platform maintains low risk as it decouples technology and business partnerships. You can swap partners, collaborate with multiple partners over time, and implement individual models without risking your operations coming to a standstill in case of isolated failure, partner suspension, or change. The technology that runs the platform stays clear of the risk of handling funds. Delinking from funds handling covers your business from any partner failure arising from the movement of funds.

• High compliance with regulatory standards:

As a platform that is operational in 34 deployments, the regulatory compliance is versatile and in-built. Fable Fintech is cognizant of changing regulatory reforms and it is possible to make changes to the platform on the fly. Your internal compliance teams can be assured of a platform that is configurable to meet all the wide-ranging, diverse needs of compliance and security. The platform is a suite of functions vetted against ISO27001 and GDPR standards.

• High profitability:

It is a low capital-expenditure option for developing a cross-border payments solution since your technology and development are not drawn up afresh. The modules of compliance, promotions, and support are in-built and intuitive.

• High technology expertise:

The platform is built by a team of experts well-versed in the technology infrastructure of the cross-border ecosystem. This level of specialized expertise made Fable Fintech create a platform that is able to support cross-border operations globally and at scale i.e., a platform that supports upwards of 8 million transactions to date and growing. A platform model ensures that your technology gets regular updates and improvements in time, unlike with the product development option where each update consumes enormous resources in time, money, and manpower. With a platform model backed by technological foresight, every new business opportunity is just a simple configuration away.

• High domain expertise:

A team of business experts and support teams maintain the platform for 23 clients. This includes up-to-date domain expertise, an eagle-eyed watch over global watchlists and sanctions lists by integrating with regulatory technology partners. The continued watch by domain experts over your cross-border payment platform optimizes the service and allows you to deliver value at scale consistently. The platform has empowered upwards of $ 11 billion worth of cross-border payments to date and continues to grow exponentially.

The “cons” discussed in the first two models of payments are done away with in the platform model. The platform is robust in all the criteria that spell success for a payments solution. It is set up for de-risking by its very nature and backs up the domain expertise it brings with valuable insights into staying competitive and profitable.

Further, the platform model has a vision trailed firmly on being future-ready and agile.

The following characteristics of the platform make it a technology-enabled value proposition:

• Freedom of choice:

You know your business best - and you will be able to define your way forward for collaboration or competition with the business goals in mind. This is what the platform enables, keeping you well-placed and protected on legal and compliance matters with the collection and disbursement partners in each country. Multiple collaborations are possible and seamless integrations keep accuracy, delivery times, and efficiency optimal.

• Pre-integrated networks:

The platform is a repository of integrations for each region, reducing development and go-live times. Also, you do not pay extra for each new partner that you add or change. Nor do you spend the precious man-hours of your internal teams in these maintenance activities. This makes the integration and maintenance of this platform efficient. Further downstream, these capabilities of the platform reduce your incremental marginal cost.

• Technology decoupled from the operator:

Not being the holder of funds enables this unique technology platform to shield you effectively from transaction failure. You can make quick strategic decisions to sign on more suitable partners or experiment with different ones in different corridors. With no single-point factors of failure, you can stay in control of your transaction success rate and customer experience. If compliance rules changed etc., you maintain agency, and therefore more control, to toggle, and even experiment, with multiple partners. If a partner changes their pricing, you are in control of your profit margins. You can optimize and have full efficiency with partners.

• Better transparency:

Being in control of the entire transaction flow, and with well-placed APIs to give instantaneous responses, the platform provides real-time status updates for each transaction and stays efficient throughout the workflow. This also makes for a better end-user experience.

• Experts team with exponential benefits of each development:

Thanks to hands-on experts with years of experience in core-banking, global remittances, and financial markets in general, seamless integrations are refined scrupulously across multiple implementations and the learnings from each are built back into this stable platform. This level of expertise is unique, and the knowledge base gets stronger with time.

• Reap the benefits of scale:

An eye on future expansion and scaling can be a well-informed, data-led decision using the diverse reports the platform makes available to you.

In short, while partnering with an MTO for technology or developing your own are both familiar options, for true cross-border payment growth, you can be served well by the power of the platform fuelling your business. You will never miss out on a growth opportunity, and you steer clear of risk.