There’s a great divide in cross-border remittances between send- and receive-heavy countries.
Naushad Contractor, CEO of Fable FinTech, told PYMNTS that traditionally, banks and money transfer firms on the receiving side of the equation operated simply as a form of “dumb pipes” as money earned in one country made its way into another country, where the funds were ultimately spent.
“They would get a service fee to process that transaction,” Contractor said of the receivers, “but they would never get to participate in any sort of value chain.”
However, with the aid of platforms, such as those on offer from Fable, banks can make the leap beyond “dumb pipe” status — launching money transfer services of their own, with their own brand, while staying compliant with each country’s rules and regulations in a corridor-specific fashion.
In that way, and through the use of application programming interfaces (APIs) and other technologies, financial institutions’ (FIs’) cross-border efforts can get faster, less expensive and — critical in the global economy — interoperable.
Contractor was quick to note that some trends are universal and immutable: Even given soaring inflation, the war in Europe and other economic pain points, most FIs will continue with their digital transformations.
“They will all need that same technology, whether money is going to Russia or not,” Contractor said.
Depending its size, a given bank can conduct money to from as few as five to as many as 120 countries. However, for those building out cross-border payments businesses, partnering with money transfer operators or building everything in-house has its drawbacks, particularly around compliance and risk issues (not to mention technological expertise).
As for digitizing cross-border money flows, he said, “Everybody wants to start running tomorrow morning, but they’re not even starting to crawl. So, that’s the gap between people’s wishes and people’s actions.”
The platform model, he said, sidesteps some of the key pain points of innovation. Sometimes, he said of technologists and executives in general, “Focus more on the technology and put the logic on the back burner.”
Setting clear goals before building or buying the tech, and collaborating with partners that have the right expertise, is the critical component that gets future-proof designs to market. Fable, for instance, categorizes its banking offerings under four areas: growth, processing, management and APIs.
Contractor stated that the platform’s construction can be likened to a series of navigable Lego bricks that allow banks to plug into discrete services as needed.
“We try to give them a sense, or flavor, of what’s good for them on our portal,” Contractor said. “And they can dive into things a bit more deeply rather than spend a half an hour in locating those services.”
Of the platform, he said, “It’s your responsibility to tell [client firms] what they will want to buy in the first five minutes.”
Contractor added that even though the buzzword of the day might be speed, transparency can matter just as much, if not more, when it comes to cross border fund flows — and in many cases, companies will pay a bit more for speed.
As for some of the advanced technologies that might remain top of mind for FIs, Contractor noted that there’s a place for blockchain, depending on the use case.
Some banks will use blockchain for cross-border transactions specifically on the trade side, where a significant amount of documentation needs to be upload, uploaded, tested and verified before the transaction can go through. That documentation includes bills of lading, proof of delivery, insurance certificates and the like.
“That’s where the ‘big play’ for blockchain is,” Contractor contended. “In the short term, it’ll be less impactful for person-to-person transactions.”
Looking ahead, Contractor said the pace of change for transactions will likely quicken.
“Whether it’s a personal transaction, domestic, cross border, whether it’s API-driven or not, we won’t come back to the old ways of doing things — and that’s a win-win for everybody,” he told PYMNTS.