Innovation and Regulation: Building Better International Payments

International trade and commerce are a major piece of the payments industry, with volume only increasing year over year as digital options further connect the globe – and yet, many of the systems that businesses and retail consumers alike rely on to make these payments remain too slow, too complex, and expensive.

There’s a growing need to fundamentally rethink the payments operating model on this international scale, not just in terms of routing payments, but also in handling and processing along the chain. In most cases, international bank payments are routed through the SWIFT network, taking anywhere from 1-5 business days to actually transfer.

While some faster payments rails have made speeding this process a priority, solving other challenges that can slow things down will require specialized solutions. And it’s no easy task; even beyond the technology challenges, which require finesse, the complex regulatory hurdles in the U.S. can pose a real challenge to any business, even before adding in the additional layers of complexity for individual sets of regulations in other countries.

And that’s the core of the challenge for anyone looking out into international waters in the space: how do U.S. banks stay innovative when pushback against anything out of the old way of doing business is so intense? Bob Steen, CEO at Bridge Community Bank in Iowa, and Robert MacColl, Head of Network Partnerships for the Americas at the FinTech Rapyd, have been part of the initiative to a more forward-looking approach. Each offered insights on their differing approaches at the March 3 meeting of the Chicago Payments Forum.

Bridge Community Bank’s taken a look into adaptation of existing payments solutions, building a program around the Open Payment Network platform in combination with faster payments rails like TCH to build a supplemental payroll program for international remittance.

“That’s one thing we’re trying to do,” Steen said. “We’re hoping we can get to the Mexican Consulate people, their employees, people they want to send money home to. The bigger picture for me is this: I live in a very small community – 1,200 people if everyone’s home that day.

“My minister’s from Nigeria, my local priest is from Uganda, their supervisor is from Kenya, and we have Hispanic people in our community that still have some English challenges. I try to tell my peers: look out your window, this is the world we’re becoming and we have to serve this community. I’ve talked to each of them about how they send money home. It’s a struggle for them, and I just think we can do a better job.  It’s not the primary market, but it’s a market we need to serve.”

Bridge Community Bank’s solution by funding a digital wallet through the Sendmi application, then sending instructions for remittance to a pre-funded account on the other side of the transaction to make a local transfer; essentially turning the process from one SWIFT payments into three transactions, with the two local-to-local transactions the only ones that the consumer directly interfaces with.

The technology works, but there are still complex regulatory hurdles to overcome.

“It’s interesting,” MacColl said. “I’ve seen both sides of the shophouse. I began my payments career at Mastercard; I was there for 10 years, part of the IPO. I spent years consulting and working at small FinTechs, probably for the last four years focused on being a fintech banker. I spent two years trying to create fintech banking solutions. I love what the banks are trying to do, but again, it’s hard.

“Then I look on the fintech side, and I see a lot of technology, and a lot of bright people trying to push the envelope — but in the U.S. being held back by the banking relationships. It’s difficult times. I started at Rapyd three months ago, really diving in headfirst to the international payments go local business.”

And that’s the core of the challenge for anyone looking out into international waters in the space: how do U.S. banks and FinTechs stay innovative when pushback against anything out of the old way of doing business is so intense?

Rapyd focuses on building local commerce experiences in any market worldwide, as a network for merchants, fintechs, digital platforms, and a number of use cases therein. The basic concept is simple: empowering companies to expand locally or globally by connecting to local payment methods wherever they’re operating through a single platform.

“To do this right, you need hands on the ground on a local level,” MacColl said. “In terms of how it’s done, it’s kind of like peeling an onion – there’s a lot more that goes into it than appears on the surface. We’re trying to reach 4.5 billion consumers without a credit card; trying to create connections to all the local surfaces. In the U.S. we’re working on the ACH platform, push to card, and have real time payments stuff going on. All of it has to be put together and put into a seamless package.”

What that looks like in detail is a service built around handling the aspects of transactions that most merchants would prefer not to think about; operating a large cash network, and generally pushing for as much simplicity as possible for the end user.

“We manage local licensing, handle those regulations, and compliance for our customers,” MacColl said. “The only way we get to continue to do this and exist as a licensed entity is by having zero tolerance for non-compliance, and zero tolerance for people who don’t care about the regulatory environment.”

— Jessica Purdy