The End Of Cross-Border Payments?

We don’t talk about sending emails cross-border, even though that is what we are all doing when we send emails to our pals in India or Turkey or the U.K. It’s just point, click and send — and away that email goes.

In this week’s episode of The Matchmaker Is In series, hosts Karen Webster and David Evans, economist and author of “Matchmakers: The New Economics of Multisided Platforms,” were joined by Jeremy Allaire, founder and CEO of Circle, to discuss what Circle is doing to make sending money between parties as simple — and immediate — as sending an email.

Changing The Movement Of Money

We live in a time where open networks and software platforms have enabled interoperability of communications, media sharing, content and information discovery. People are utilizing web and messaging platforms to connect in new and innovative ways, and as a result, many tasks that used to come with costs and friction can now be enjoyed freely and without complication.

But when it comes to the movement of money, both senders and receivers are often met with complexities and costs that only increase as those payments move across borders.

But in creating social payments platform Circle, Allaire said the goal was to create a new kind of consumer spending account built and serviced digitally — and not via traditional brick-and-mortar infrastructure.

A vision that builds new rails that are emerging for value exchange globally and starting with the most natural network of all to ignite — people sending money to other people in their social circle.

“Fundamentally, [Circle] set out to build a new global consumer finance company, and our starting point is a focus on social payments,” he explained. “We want to come up with an expression of value exchange between consumers that is a delightful experience, that works anywhere in the world, that works across currencies, is instant and, for the consumer, free.”

Through Circle, a user can connect the bank account they have to fund payments, and the recipients then receive those payments instantly. This can be across the table in their own currency or through the blockchain to send value globally, Allaire added.

Circle’s Secret Sauce

Circle is a cloud-based, multi-currency global real-time clearing and settlement platform that essentially takes on the risk for every transaction to ensure it can be sent and received instantly.

“For the most part, whether it’s county by county or globally, moving value with the existing [payment] rails is not instant … because money doesn’t move instantly. Today, with rare exception, we have to take risks and essentially provide credit to people in order to move those funds instantly,” Allaire said.

Doing that meant that Circle had to build out an AI-powered risk engine that allows it to make 90 percent of its risk and compliance decisions with machines rather than relying on compliance people.

This allows Circle to take on the credit risk of transactions to make money move instantly. The company’s interest with bitcoin from day one, Allaire noted, has always been to determine if blockchain technology can be a protocol that sits behind existing systems of money for faster (and interoperable) settlement on a global scale.

While consumers and businesses may not know it, Allaire suspects that they ultimately want the benefits that come with a blockchain-based digital asset transfer.

“They may not articulate it that way, but they certainly want the benefits. They want speed, low costs, security, openness, global reach — these are the same kinds of things that other internet protocols have brought,” he said.

Circle also takes advantage of blockchain technology to support interoperable payments across currencies all around the world.

But the bitcoin and blockchain technology is only used as the interoperability layer of the social payment platform, which means it only comes into play if funds are being exchanged with a digital wallet in a market where Circle does not operate.

“Any market where we are launched in a regulated capacity and where we have the native currency in our transaction banking system, that all just happens natively in our own ledger,” Allaire explained.

Overcoming Onboarding

Peer-to-peer is Circle’s first usage case, a segment that Allaire says is a huge wide open playing field. In the Western world, social payments is still a young category, Allaire noted. Despite Venmo’s lead in the U.S. market, he remarked that its volume still pales in comparison to the total volume of P2P transactions that are taking place globally.

“In China alone, there are over 500 million active users of P2P and social payments,” Allaire mentioned, “while, in the U.S., the number of active users might just be in the single-digit millions and, in Europe, it’s even lower.”

Driving that usage upward is a function, he believes, in seamlessly integrating into these core consumer apps that people use — in other words, contextualizing how and where instances of sending and receiving money naturally happens. That, he believes, is in the social messaging space, which has the added advantage of leveraging the “built-in network effects” that social payments yield.

“Creating those onramps and user experiences that delight people is a big part of what we do to keep driving usage,” Allaire added.

The more people who use it, the more useful it becomes and the more people use it — which keeps the ignition flywheel cranking.

No More “Cross-Border”

At a high level, Allaire said that he believes the entire concept of cross-border payment or a remittance for consumers will soon be an anachronistic thing of the past. Just like there’s no distinction of a cross-border email or international web browsing sessions, the same will one day be said for global payments.

In five years, he imagines that there will be significant regional companies, as well as global companies who operate with a similar model of open protocols to make global payment experiences more seamless and integrated with how people already interact, such as through messaging and other communication platforms.

“Our vision doesn’t end just with social payments. We definitely want to build out a broader suite of consumer financial payments. Social payments is just our starting point,” Allaire noted. “We’re interested in really re-conceptualizing what a spending account is and what the user experience is for the value that people store in their spending accounts.”

Allaire believes that means that the financial services companies of the future may be the tech companies of today.

“I think the companies that are driven by software, technology and consumers — and can get the benefits of scale and efficiency that come from that — can do a really good job of helping to create a new experience for banking and what might be possible.”