Modernizing The Cross-Border Payments Platform … And Process

The latest investment news in the B2B space shows that cross-border transactions are shaping up to be big business — especially for the firms that operate the networks across which payments travel.

As reported Tuesday (Oct. 18), PayCommerce, which operates a platform across which more than 90 banks interact across 75 countries, has received a $22 million Series B investment from Tritium Partners. The money will be earmarked, in part, toward geographic and user expansion.

In an interview conducted by PYMNTS’ Karen Webster with PayCommerce Chairman and Founder Abdul Naushad, he noted that the market for cross-border transactions on a B2B basis, as measured by Deutsche Bank, is large and growing, currently estimated at $1.2 trillion and projected to grow to as much as $2.4 trillion by 2019. And, said Naushad, “95 percent of those transactions are serviced by banks, and as we all know, the majority of revenues go the biggest banks. That is because the smaller to midsize banks do not have the means and technologies available to them” to be able to serve as intermediaries in these cross-border transactions. So, PayCommerce, said the executive, is enabling a network of members that can be vetted to make sure Know Your Customer requirements are satisfied.

PayCommerce, he added, operates through a closed-loop network. “This enables a lot of transparency with cross-border payments,” said Naushad, “and also with FX rates, [answering the question of] ‘what is the status of the payment’ once it is originated?” As it stands now, he said, the cross-border payments industry is a fragmented one, with messaging and other components tied to transactions effectively split into numerous functions. “There are many parties in the supply chain, including the intermediaries,” continued Naushad, extending across originators and beneficiary countries. With so many links in the chain, it can take a couple of days to get a status on a payment.

PayCommerce, said Naushad, pursues a direct model, where solving for three problems remains among key goals: transparency, pricing/fees and settlement. He noted the inefficiencies in this last step, adding that “the settlement should be between two parties: the originating and settling.” Acknowledging the similarities to the blockchain model, Naushad stated that the ledger tracking employed by his firm stretches across three parties: the originator, the receiver and the commerce ledger in between. “We call this the ‘federated ledger,’” he said, and it uses both centralized and decentralized functions that help speed transactions.

As for security, the technology used to move the messaging, “every message that is originated … we validate the key of the signature that comes in. If Bank A is sending instructions to Bank B on the PayCommerce Network, Bank A sends to PayCommerce that key, which is required to authenticate that it came from Bank A through PayCommerce [to Bank B].” Thus, there are several layers of authentication. Only parties involved in the transaction can originate, receive, modify or read the messages.

In reference to Webster’s questioning about competition with SWIFT, Naushad said that SWIFT actually can and does connect with PayCommerce.

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