The process for a person in one country to move money to a business is orders of magnitude harder than it is to move money between people cross border – and it’s not only because the amounts of money involved tend to be larger.
For one thing, as Rob Rosenblatt, Chief Customer Officer of Flywire, explained in a recent conversation with MPD CEO Karen Webster, “the needs on the ‘merchant’ side are very unique.”
As are the needs of the sender.
Often, says Rosenblatt, the movement of money is in support of what is often described as “milestone” and/or “emotional” transactions — those “essential discretionary investments” in education for children, the treatment of medical issues, or the purchase of real estate. These high volume/low frequency transactions are, in his words, “truly a payment, not a remittance,” which, he says, means that “the guardrails around that movement of money will vary.”
On the consumer side, there is also a lot of stress given the very nature of the payment. “It’s critical that the payment get made, yet there’s a lot of incomplete knowledge; the logistics can often be complex,” says Rosenblatt. “And there’s the FX component, which is very murky.”
“Everything about this business is different,” he continues, “especially because the government and regulators’ side makes things dramatically different from country to country.” Those special circumstances, he says, require a special solution that is highly tailored for both the sender and the receiving business.
Most people face a process involving a series of tedious manual procedures – which need to happen in person at a financial institution – completely relying on the bank to determine the amount of local currency that needs to be sent, and hoping that the institution transmits those funds in a timely manner and in the correct amount.
That process, says Rosenblatt, is “extremely difficult on the consumer side, and it’s a nightmare on the receiving end.”
“Plus, an institution expecting to receive $20,000 for a student, ends up getting remittance data that shows that they have $18,787,” Rosenblatt said. “It is a lot of work for an institution that may be receiving 150 wires in a morning to match all of that to the right students, plus then communicate back that they need to send the balance.”
That pain point, Rosenblatt observes, is the “shared problem” between the merchants and consumers who gave birth to Flywire. He states that “the beauty of the Flywire solution is that an institution isn’t getting 150 wires from us. The institution receives an overnight deposit along with reconciliation that is available 24/7, that matches (in the U.S.) every dollar to the appropriate payor. That task is no longer the responsibility of the institution. The other thing is that the funds are arriving in the correct amount.”
Meanwhile, Rosenblatt says that the sender in a Flywire transaction enjoys “complete transparency” — knowing the amount they need to deliver from their bank, knowing the FX rate, and being able to “monitor the progress of their money as it’s moving around the world 24/7.”
Saving these global citizens time and money.
Cost and time are two additional pain points commonly associated with the traditional methods of consumer-to-business payments across borders. As Rosenblatt attests, “the model that involved banks really has not changed in a long time, so the pricing had not changed in a long time. Therefore, depending upon the country from which you’re sending and the pricing with which you’re dealing, pricing is both opaque and can be extremely high. The student or family may be facing a markup on the wholesale rate of between 4 and 5 percent.” That’s not surprising, Rosenblatt — an ex-banker himself — explained, given the very high costs associated with their branch systems, compliance and accounting.
On the time side, because the wire system is not yet in a same-day pay environment, for an educational consumer having to determine when they delivered the funds from their bank, when they withdrew from their account and when the funds are ultimately credited by the university all amounts to a timeframe that Rosenblatt again describes as “murky.”
“You’re dealing with a legacy system that really was not designed for a payment that could be very time-sensitive,” he tells Webster, “but also it involves an all-in cost that can be sensitive for the sender. It’s a marketplace that is ripe for disruption and innovation.”
That applies to the elements of compliance and risk management, as well.
“In the case of the legacy rails and the legacy banks,” says Rosenblatt, “their systems don’t necessarily change just because a particular merchant category is more or less risky.”
Ironically, cross-border milestones payments for these discretionary investments are, by their very nature, by and large more trustworthy than other types of transactions, given the diligence that is being done on both the consumer and merchant side.
In the case of educational payments, the sender of the money — usually a parent or relative of a student, if not a student herself — is deeply committed to seeing that the money goes through. And on the institutional side, Rosenblatt explains, “a good bit of the KYC’ing [is being done] without, in some cases, [the institution even] realizing it. It’s not being done for purposes of validating a payment; it’s being done in fact to ensure that a student who is applying is a qualified student.”
The way that Flywire moves money around the world varies by country to country, given the different licensing and compliance requirements. “What we have built,” says Rosenblatt, “is a fairly sophisticated network that — depending upon the country in which we’re collecting — relies on a very secure set of rails. We do have to do, on the sender side, a good job of KYC; we go up against all the databases required to validate that these are senders that aren’t on watch lists, etc.”
If there’s a “secret sauce” to what Flywire does, Rosenblatt believes that part of it relates to the fact that the company is essentially a virtual one (having only about 100 employees), and is therefore more nimble than larger institutions burdened by significant overhead.
Understanding the unique needs of the institutions that comprise the categories that his company serves (medical — which Flywire has recently announced its entry into — and educational) takes, says Rosenblatt, “a certain level of intimate knowledge and understanding to be able to serve these somewhat unique service industries in a way that adds real value.”
Being a relatively small and nimble company allows Flywire, Rosenblatt tells Webster, to “take our platform and flex it in directions that are critical to the success of most of our platforms in these industries” — something not easily done by large institutions the are “only looking for billion-dollar revenue businesses.”
“The intimacy in terms of our understanding of the merchant is absolutely critical, and — let’s face it — on the other side of this business, it is not the same as the remittance business,” he goes on to say. “So you have to be willing to learn what is necessary to move money from around the world and be tolerant of the fact that those procedures may change from country to country. And, again, that’s not always easy for institutions that would prefer that everything be the same.”
“Just by taking what are some fairly simple products and innovating on both sides of the experience,” Rosenblatt concludes, “you can create something that’s fairly unique that solves problems for some of the most important investments that these global citizens will make in their lifetime.”