Finding Innovation’s Place in International Payments

Currently, banks are still processing about 85 percent of all international payments. At the same time, for many organizations looking to gain a global presence, international payments are often too complicated, and banks’ pricing isn’t transparent, says Mike Laven, CEO of Currency Cloud. In a recent podcast interview, Laven breaks down how Currency Cloud, which handles about $7 billion a year in international payments, aims to make the process more transparent and take on challenges that arise from its upcoming expansion into the largest international payment market – the U.S.

Many companies find it difficult to expand internationally because of the challenges that arise from international payments. How does Currency Cloud, an online financial services organization specializing in international payments, help simplify this process for B2B, consumer and e-commerce firms looking for a global presence?  

ML: Currency Cloud looks at international payments in that a firm has many kinds of payments to make. They could be paying payroll, they could be collecting receivables, they could be paying their bills to suppliers all over the world, they could be a marketplace for paying individuals, and more. Each of those places where international payments take place requires a different application and has different providers.

Currency Cloud looks at taking a whole series of providers and making them global. We deal with e-billable, supply chain management, treasury management, and accounting companies. Those firms deal with the end-users. What we do is we take every conceivable kind of place that an international payment could generate inside an organization. Our customers are the payment firms – many different kinds — who are providing services to their customers now. We’re globalizing that whole process.

You’ve recently announced plans to expand your payment offerings to the U.S. market. What gaps are you hoping to fill and what is your strategy for growth here? 

ML: If you think about the world of payments at a high level, there’s been a tremendous amount of innovation in the US in consumer payments, consumer international payments, migrant payments, and many more. They’ve brought a huge online presence to consumer payments, especially when it comes to people sending money home to their families back home in their native countries. There’s also been a huge amount of innovation in the world of domestic business payments, players who work in the mobile market like Stripe or Square.

But if you think about those two areas, the one thing that’s been left out is innovation in the international payments market, where for the most part the payments themselves are still provided by banks – about 85 percent of all international payments. It’s left out because it’s harder, and our strategy is to try and fill that gap by enabling, or empowering, a whole series of domestic providers to globalize their payments for their customers.

In terms of the volume of international payments being made, the U.S. is the largest economy for both suppliers and consumers. Yet the payment system for international payments still lags way behind.

Again, our strategy is to go to all of the places that international payments generate from, and enable all of those firms to treat international payments the same way they treat domestic payments.

With foreign exchange rates constantly fluctuating, how do you provide real-time trade assurance to customers looking to make cross-border transactions? 

ML: Customers want to have both a low price, but perhaps as important, a transparent price. Many people who travel internationally have seen signs at an airport that read, “zero fee” for their own personal payments. When you see that, you know that the price isn’t transparent. It’s not that there are zero fees, it’s that they are charging you a terrible exchange rate.

One of the problems with international payments today is that exchange rates are obscure. Some people who we talk to don’t actually find out what they’ve actually been charged until the end of the month.

So there are two issues in foreign exchange – the FX rate will fluctuate with the market, and there’s nothing we can do about that. It will go up and down. For example, we saw last month in England, when there was the referendum in Scotland, the pound plunged for a week. After Scotland didn’t become independent, the pound went back up. That’s going to happen.

What people really want to know is that, for one, they aren’t paying an exorbitant price – in other words, that whatever that rate the market sets, the vendor is taking a minimal markup, which we do. Second, and perhaps more important, they want to know that the price is transparent – they know what they are paying. When people click on “enter,” if they’re buying a certain amount of euro, they know exactly the price they are paying for it.

We can’t talk about international payments without touching on security. What type of authentication do you use to confirm that your customers’ global funds are transferred securely?

ML: The business of international payments is all about security and compliance. A major component of what Currency Cloud has to do is to meet the compliance regimes of both the U.S. government and a series of foreign governments. That means the checking of every payment for any money laundering restrictions, as well as the information requirements for international payment which are far more extensive than making a domestic payment.

At Currency Cloud, we have a complete regulation and compliance procedure that becomes incredibly important. Right now, we’re handling about $7 billion a year from our customers, so there’s a tremendous amount of customer confidence already in place with us. But funds that we receive from our customers are all secure, and we work with major banks around the world for both the provision and foreign currencies and where the money is stored. All funds are segregated – funds we receive from clients are not mixed with funds of the firm. So we have a highly secure network that we use, segregated bank accounts, and a strong, thorough compliance and regulatory regime.

Finally, we’re all about what’s next in payments, so what’s next for Currency Cloud? What does the roadmap look like?

ML: Right now, as we mentioned, we’re expanding into the U.S. The U.S. is the largest payment market for international payments – but the percentage of international payments as a percentage of the global total economy is actually smaller than that of Europe. Though the volume is very large, it actually has not been that important until now.

One of the things I like to mention is that the international supply chain has totally globalized. There’s more goods produced outside of the U.S., and if we look at, for example, the clothing industry where once a year, shoppers chip the winter line in the winter and the summer line in the spring, the fall line in the summer, etc. Now, retailers like Zara and many others have a two-week production cycle. That means that the number of shipments, and the number of payments, has been growing astronomically. Now, in the U.S., we have international payments coming from farmers, retail, consumers, and all sorts of places with a decrease in the size of payments.

The real issue in serving the U.S. market is just the diversity of where international payments come from, and the fact that they’re not standard between various applications and businesses.

The principle challenge for Currency Cloud is that we’re offering a platform that services all sorts of providers and many different kinds of payments, and we normalize all of that. When I think about what’s next for us now, it’s being successful in the U.S. market with the massive diversity of companies we’re seeing who all have the same problem. The payments they deal with are too complicated, the banks’ pricing isn’t transparent, and that the costs are too high. Solving the problem really involves getting many different kinds of companies on the platform and providing them this service.

Michael Laven
Chief Executive Officer at Currency Cloud

Behind Mike’s avuncular exterior lies one of the sharpest minds in the financial technology industry. Over the last fifteen years, Mike has held leadership roles at a number of a FinTech firms. As COO at Traiana, Mike played a pivotal role in ICAP’s $274m purchase of a controlling interest. Mike was CEO at Infinity Financial Technology, Cohera and Coronet, and Chairman at FRS Global. He joined Currency Cloud in 2011, growing the firm to processing over $7 billion of international payments per annum.

Listen to the full podcast here.