To move a B2B transaction from one market to another, the global interbanking system is far from a perfect strategy, though it remains the standard in cross-border payments. As speed, transparency and security continue to grow as irrefutable requirements in B2B payments, the payments technology players are developing new solutions to ease the biggest global payment pain points.
Many of these solutions are designed to sit on top of existing payment rails, and improve their weak points. Other technologies aim to enable integration and cooperation between various domestic payment rails so that money can move more easily from one to another.
However, there is another strategy to tackling cross-border payments friction and the pain of the interbanking system: build new payment rails from the ground up.
That’s the strategy that bank software firm ATCE Holdings has taken with its newest offerings — the EtudePay Payments System and the EtudeDigital core banking apparatus. The B2B payment and banking solutions made their debut this week, with ATCE announcing that financial institution Credit Nexus would deploy the tools to facilitate corporate transactions for its clients in the agriculture industry.
In a recent conversation with PYMNTS, ATCE Chief Innovation Officer Wade Murray discussed why finding success in tackling global B2B payments friction can come from building new payment rails from the ground up — but only if the technology is designed with the bank in mind.
Legacy Rails’ Shortcomings
EtudePay’s debut in the agriculture industry is strategic, explained Murray, thanks to the industry’s high volume of high-value global transactions. It’s also an industry that experiences significant pain points as a result of its reliance on existing legacy rails, one of the largest pain points being cost.
“So much money trades hands in the agriculture industry,” he said. “How do we help these particular farmers and growers drive down the 4 percent, 4.25 percent they’re paying on every transaction?”
The use of ACH isn’t nearly that high, of course. Yet, for industry participants in particularly challenging fields, like CBD or hemp, access to stable banking relationships can be a challenge, Murray said, even though those products are entirely legal under federal law. As such, many firms are forced to use more expensive rails — like credit cards or emerging FinTech solutions — to move money, which becomes even more costly when transactions occur across borders.
Murray explained that EtudePay is able to lower the costs of cross-border B2B transactions by operating as a “stablecoin, 1:1 asset-backed, closed-loop settlement system.” The technology wields stablecoin virtual currency pegged against the U.S. dollar, with the ability to facilitate settlement and clearing much more quickly than traditional rails.
Building For The Banks
As an entirely new payment rail, the solution is indeed designed to bypass existing rails and the interbanking system altogether to move money from Point A to Point B. However, Murray emphasized that the payments system is not designed to compete with banks.
“One of our points of value is to say we built this for the banks,” he explained. “Not to sit outside, and not to challenge them, but to enable them better.”
To do so, he said, the tool prioritizes security and compliance. It operates in harmony with banks’ existing Know Your Customer (KYC) and anti-money laundering (AML) processes, while deploying proprietary security measures within the rail itself. Those security measures are key to enabling banks to adopt such a solution, particularly in their efforts to service challenging markets like CBD, in which end-user verification is critical.
Murray also emphasized the importance for new financial services products and technologies to not only address pain points for financial institutions, but to actually help them make money. The EtudePay solution, he explained, offers an additional revenue stream for banks, while enabling them to hold large amounts of deposits in escrow.
Not every FinTech solution designed for banks is able to do so, he noted, pointing to the example of Zelle. The money transfer service is designed by and for banks, and certainly serves a purpose in the market, but it can be expensive to maintain, particularly for smaller community banks.
“Are they going to actually get value out of it? Are they building a network that will be useful for them, and are they getting a revenue stream to boot?” he said. “I think the answer is not ‘yes’ to all of those. What banks really need are lower costs and more revenue streams.”
Building From The Ground Up
Developing new payment rails can be an effective way to solve some of the copious amounts of payment pain points that exist today. Yet, convincing banks to embrace a new payment rail, particularly one that deploys controversial stablecoin technology, won’t necessarily be an easy task.
Connecting financial institutions to a revenue stream and a way to bolster deposits will be one piece to solving for that puzzle, and Murray noted that there will be additional deployments in the near future as more financial institutions sign on to the solution. It’s just one of many strategies that the payments industry is deploying to tackle the friction of expensive global transactions — a reality that he said persists, despite recent efforts by the Federal Reserve’s Faster Payments Task Force and players in the ACH arena to address them.
“It’s still fundamentally the case that movement of money is too expensive,” he said. “It’s been held behind some walls with high guards on them by folks [who] really have stopped the process of money moving much faster and cheaper for a long time. It hasn’t been moving faster, and it can.”