This week, our CEO, Daniel Webber, sat down with TransferMate CEO and Co-Founder Sinead Fitmaurice to talk payments. Below are some highlights from the interview.
On how banks will survive
The traditional banks have significant customer portfolios and, those that are quite innovative are moving and evolving with the times in terms of wanting to ensure that their customers have a good experience, not only on cross-border payments, but on other aspects as well, not just the FX. Those are the banks we are seeing quite active in the collaboration space. In particular for us those are quite interesting because they want the usability of a fintech, they want the speed of which fintech has evolved technology and they want their customers to have access to that.
On the challenge of conquering the US (in the payments world) versus other countries
There’s quite a difference. You will have the top-tier banks that are focusing on providing their customers with an entire banking ecosystem user experience. Then there’s the other banks focusing on core services within their customer experience. International payments may not be one of those, in terms of whether a particular bank has a strength in for example, lending but wants to add international payments but perhaps doesn’t want to pursue that themselves. So there’s a whole spectrum of different attributes within different banks but that comes down to their size as well and their overall corporate strategy within the organisation.
On building trust as a fintech with established banks
That’s really what the banks need to ask themselves before partnering with fintech. In my view, they need to partner with a fintech that is extremely compliant and has demonstrated their commitment to compliance at the core of what they do – they have an operational infrastructure that can be tested, because a bank’s due diligence is quite significant, not only on an investments side but also on a partnership side, and that takes time for banks to ensure they are comfortable with the attributes of a fintech.
In particular, in my experience, that’s what we spent quite a few years investing in, which makes us quite differentiated from other fintech players. I think that’s quite an attribute to attain in the industry, because if you look fintechs in the industry that are funded from day one, a VC firm – they have different focuses.
One of your questions was why is it so difficult in the US – it took us five years to achieve that US regulatory platform. And if you take any venture backed entity – not just in payments, a venture backed entity is focused on customer acquisition, marketing the brand. A venture firm would be slightly less interested in backing a fintech that says I want to take your investment and actually for the next five years develop a regulatory platform, because the VC’s whole mentality is to acquire customers and exit.
That’s what made us quite different, we didn’t have that strategic alternative pressure at the table and we followed our own strategy, which was to build a robust compliance platform that had direct market access in each market, particularly in the US, which was a five year journey. We knew going into it that it would be a five year journey. We knew that once we secured that, that we would be able to cross quite a significant barrier to entry that demonstrated a highly compliant vehicle that would be very attractive from a collaboration point-of-view.
On compliance as an investment
It’s a competitive advantage but it’s not just about knowing your customer. From a regulation point-of-view, the regulators cover all aspects of your business. They look at your risk management profile, they look at your corporate governance structure, they look at your business continuity, your fiscal resilience. To me, the regulations are all encompassing – it’s about knowing your customer but from our point of view, what goes in the system comes out and that’s bona fide and monitors files and so on, but it’s also about systems resilience.
Having that audit on all systems of our business provides the benchmark to scale globally as well because you have to invest in technology on the back end, data ventures, all those kinds of aspects of what regulators look at in terms of your system access, your business continuity, your recovery – all of that comes up in the regulations, that’s why it’s so complex. You know a lot of people look at it and think it’s just your program for anti-money laundering or counter terrorism – that’s a critical aspect of it, but there are a host of other dynamics at play.
But to me that speaks volumes in terms of having robust platforms that have the ability to scale across the globe, having a risk management framework, in times of volatility, etc, we were one of three fintechs in Europe that actually traded through Brexit. A lot of the other fintechs had to actually stop trading. A lot of that comes down to your risk management strategy/framework, so having put the effort into all of those attributes, that’s been the asset to me in terms of it’s not just about onboarding the customer it’s having that solid business infrastructure that’s risk managed in the right way. You know that your systems are quite resilient.
On being freed from the venture capital model
I wouldn’t say we overinvested, but there are core attributes of us in terms of sustaining the long term value of the business. A lot of our fast expansion, resilience, we’ve been leaning toward the point at which we scale. You’re correct, we concentrated on areas where others didn’t because they’ve taken on funding.
It’s widely known that any funder or venture capitalist, have a core objective in mind and that core objective resonates in the business strategy. We were lucky to resist approaches from venture capitalists over the years and pursued our own strategies which obviously speaks for itself now in terms of, we’ve secured our first strategic funder, which was interesting because of the strategic angles that arose.
On going public and TransferMate in 5-10 years
It’s an interesting one in terms of being public. From our point of view, it’s operation “scale the business now” so we are not looking to exit. When I think about IPO, rather than an exit strategy, I actually look at an IPO as the next stage of raising finance, rather than an exit strategy.
Right now we are focusing on scaling across the globe, I’d be hesitant to put forward our strategy, but obviously the opportunity is immense for any company in the cross border payments sector, particularly for TransferMate. We built that market out, we are growing at a significant pace and we are at an exciting phase in business and focused on building out our five year plan.
TransferMate’s unique value proposition
Going back to the user experience and the customer experience, what we want to do is build tools for our customers where they/their business benefits from using us. They benefit from the speed and the cost, which is the regulated platform and us controlling the transaction end-to-end. We know the cost at which we can provide that to the customer and we can control that quite leanly – that provides a cash flow benefit to the customer.
But not only that, the really interesting bit about Transfermate is the Integrated Solution Platform where either a partner or a customer is on our Integrated Solution Platform. The amount of time and man hours that saves for the customers is always commented on in feedback. You’re saving on the speed, you’re improving cash flow, and if the receiving funds are an exporter, and you’re presenting funds to them, it’s probably two days earlier than the normal traditional bank and they’re not experiencing any receiver fee, deductions. They’re not experiencing any vendor fees, the exchange rate is very keenly priced and always cheaper than the high street bank.
That’s a particularly powerful message, but then when you add in the administrative savings, that the integrated technology platform provides not only the administrative savings but the transparency. Everything is auditable through the integrated system. We get a lot of comments from our customers that it has saved them a huge amount of man hours of inputting and decentralised bits – to have it all in the one core platform, everything transparent is of huge benefit.
Building your own payment rails
It is obviously closely linked to the regulations platform as well. A lot of other companies will talk about building their bank rails, but to have a truly owned bank rail, you really do need a licensing platform in that jurisdiction as well, which provides you the basis for conducting that activity domestically.
That sits nicely with our regulation platform, and those that haven’t gone to the trouble of getting regulated despite having access to the domestic market, they will be penetrating that access through a partner.
Even that is quite different, whereby when we talk about regulatory reach from an execution point of view, what we want the customer to feel is as if they are making a local payment. So they will make a local payment to a local regulated entity in the jurisdiction, which we will ride on our own rails, so we will cut out all of that banking in between.
If a fintech or a bank isn’t regulated in the local jurisdiction, approved to trade directly, they will have to leverage off a partner, which is in a sense no different than the correspondent banking chain. So we are different in that sense because we cut out that relay in the middle.
If you take India for example, we have an approval with the RBI to collect locally on the ground and that experience makes us completely different for a customer.
An easier market to focus on is the US, when, as you say, why have so many people not entered the US? Well even for executing payments into the US, there are certain regulatory obligations that a fintech should be adhering to. And we went to the trouble of getting regulated in every single state which provides us with local domestic market access, not only from a regulatory point of view but from a banking point of view as well.
What a real “global rails network” is
When companies say they have rails without the infrastructure behind it, it’s absolutely no different than a traditional banking model. For access into that market, they’re essentially using either a corresponding bank or a corresponding partner.
A lot of the pricing at which they’ve entered the market is not sustainable because their model leans on correspondent banking or partner banking, which they have to be paid, obviously, which generates losses and penetrates a business model that’s hard to correct as we scale.
I think blockchain is a very interesting concept. It’s a very complex technology product. I think it will evolve but it will take a number of years to do so, because it’s really in testing mode. So from a payments point of view, we’re very in tune with the technology. We see anything that enhances a customer experience on a cross border solution speed to be good for the industry and good for the customer obviously.
I believe what is most interesting at the moment is regtech. That is an area that is not being covered nearly as much as blockchain but could have a major impact on how payment companies are run.