Uphold isn’t a bank, and it’s aiming to disrupt the traditional financial services industry. But traditional FIs are an essential partner for the firm.
Last week, Uphold announced a partnership with India’s IDFC Bank, a move that allows Uphold’s business and consumer customers to conduct cross-border transactions to and from the home of the world’s fastest-growing economy. Today, the company announces yet another tie-up in India, this time, with Yes Bank.
According to Uphold EVP of Growth and Partnerships Robin O’Connell, even amid the earthquake of FinTech disruption, the existing banking infrastructure upon which payments has depended for so long is unlikely to go unneeded in the future.
“From a banking perspective, every business is going to be connected into the banking system in some way,” O’Connell said, explaining why Uphold inks partnerships with the very institution — traditional banking — it’s a part of disrupting.
“You have two types of banks,” O’Connell continued. “You have banks that are the ones that feel FinTech innovation is just a nuisance and that hopefully it will go away. They’re really looking to hold onto the stranglehold, if you will, that they have on these businesses and to really seek out as much profit as they can.”
These profits are coming from the 3–5 percent foreign exchange fees that banks can charge for conducting a cross-border transfer, often through the costs that get tacked on as a payment moves between corresponding banks.
O’Connell described this process as a payment entering a “black hole” that bounces around banks, while a payer and recipient are left to wait, in the dark, until the funds come out the other side.
“It’s really the lack of transparency, and the time that it takes, that makes it more difficult to do these transactions,” the executive said.
But there is an emerging breed of FI that understands the need to find new ways to generate revenue as FinTech shakes up the way payments — especially international ones — are done.
“Then, you have another side of banks that are more forward-looking, we think, and that see that things are changing,” O’Connell said. “The demographics are changing with millennials, technology is changing, the way people interact with money is changing.”
He added that this is the population of banks that are helping to legitimize the technologies being developed by new FinTech players by partnering with them — not entirely competing against them.
It’s a shift that has banks being led away from the corresponding banking system that has fueled cross-border transactions for so long, leading to what O’Connell described as “astronomical FX currency fees” for businesses and consumers.
To India, And Beyond
Last February, the latest data found that India is now outpacing China as the world’s fastest-growing economy, with the nation’s Central Statistics Office forecasting 7.6 percent growth this year.
Once the numbers are tallied, India’s economic growth rate is slated to hit 7.3 percent in the three months to Dec. 2015, outpacing the 6.9 percent growth seen during that time in China.
Naturally, this is an ideal time for a FinTech firm to partner with Indian banks.
“If you look at India from a remittance standpoint, it’s the largest market for inbound remittance in the world, and it’s the fastest-growing economy in the world,” explained O’Connell. “It’s absolutely booming. It’s extremely innovative and an entrepreneurial country.”
With such high demand for international payments to and from India, Uphold will be looking to make a fast grab at the market share with its latest partnerships. Its rivals, of course, will be doing the same.
O’Connell acknowledged the increasing population of the cross-border payments services space.
“We’re not the only business out there trying to solve this big problem,” he said.
The problem with this, however, is that suppliers and other business partners are likely to become reluctant to sign on to several different payments platforms to get paid in the way their buyers want to pay. O’Connell, however, said he hasn’t run into this issue — so far.
“I don’t think any one company that’s innovating here has made that big of a dent quite yet,” he said, adding that, at this stage in the game, the biggest competitor and the biggest hurdle to getting businesses to change the way they do payments is the bank.
That doesn’t mean Uphold isn’t anticipating competition, however. “We’re not that myopic and shortsighted,” said O’Connell, adding that “there will be a bit of picking and choosing” when it comes to which global payments platforms businesses and their partners will help to succeed.
Expanding into new corridors — like India and, soon, Mexico, Central America and other parts of Latin America — will be Uphold’s strategy for beating out the eventual competition. O’Connell said he also hopes to convince businesses not only to use the service as a cross-border payments tool but as a platform to hold funds in varying currencies, rather than cashing out their funds into their own bank accounts.
Such a business model, again, calls into question whether FinTech firms like Uphold are competing against the banks or working with them to change the global payments system.
O’Connell stressed that while Uphold has considered pursuing its own banking licenses, financial institutions that embrace industry change have been open to partnering with innovators, meaning Uphold can stay within regulatory bounds.
“It’s interesting,” O’Connell said. “We’re innovating and disrupting in banking, and the fact is we’re playing in an area that’s highly regulated.”
It seems to be give and take for FinTech players and banks today as industry players look to solve the costs, time and friction linked to cross-border transactions. But, as companies like Uphold take away some market share and revenue sources for FIs, O’Connell argued that they are also introducing another revenue source for the industry — if they’re willing to get on board with the shakeup.
“To say banks aren’t innovative would be incorrect,” O’Connell said. “There are a lot of banks out there that want to learn.”