The international remittance of funds–which means transferring money cross-border–has evolved at a different pace than the rest of the financial sector. The financial industry is one of the most eligible for digital transformation for a number of reasons, the predominant one being the troves of user data that emerging technologies like AI, blockchain, and personalization can take advantage of. Across almost every aspect of banking, tech is inserting itself to make the lives of employees and consumers better.
The remittance industry, on the other hand, has seen a much different trajectory. A new option from Interac and Mastercard is looking to modernize the ability to send cash across borders with a new pilot involving National Bank. The bank’s clients will soon be able to leverage the Interac platform and Mastercard’s network to send money quickly and safely to European destinations with one click. An expansion to new regions and new banks within Canada will likely follow suit.
Newcomers in the remittance ecosystem are not necessarily newsworthy, considering fintechs pop-up all the time offering money transfer services. The importance of this launch is that Mastercard’s worldwide network is tapping into Interac, a Canada-only payments system, to meet consumers where they already transfer money within borders. While banks are constantly working on new features to enhance the experiences of both customers and employees, improvements within cross-border money transfers are stalling, largely due to traditional monopolistic competitors and the unique requirements needed to establish infrastructure. This leaves the door open for remittance partnerships between global payments networks and domestic operators.
The market is no joke either, as international remittance is growing fast. Global remittance totals reached $689 billion in 2018, up from $633 billion the year prior.
“International remittance has been such a big focus for everybody—not just the banks, or Interac or Mastercard, everyone is trying to see how they can play a role in this to make these payments simpler.” – Ramesh Jayakrishnan, Director of push payments at Mastercard.
This growing market is forcing the hand of everyone within the industry to find faster, better and cheaper ways to move money across countries. So far, the banks have stuck to the methods that drove consumers away in the first place, and while third-parties have been pragmatic, they lack the decades of trust that the sluggish banks boast.
The global remittance landscape
Whether it’s sending cash as a holiday gift or sending money to family overseas, people from all walks of life and every corner of the globe send money over international borders. It’s an essential aspect of the immigrant experience to send money to family back home, let alone the dozens of other use cases.
In order to move money into another country, most rely on a few traditional vendors. Western Union is the leader, and along with Money Gram, they represent the old guard of the industry. Newcomers like fintechs TransferWise (valued at $3.5 billion USD) and WorldRemit offer streamlined solutions, utilizing new technology to save users money.
An example of a Western Union money transfer location.
Noticeably absent from the top remittance vendors are the worlds biggest banks and payments networks such as JPMorgan, Bank of America, and HSBC. Banks provide opaque exchange rates and transfer times, leaving consumers in the dark when it comes to fees and wait times. This leaves few options, especially if consumers are looking to send money in a modern method—directly from account to account.
“The major trend worldwide is the modernization of antiquated payments systems and the move to real-time funds,” says Peter Maoloni, the VP of product and platform delivery at Interac. “As global markets adapt to models that allow the faster transfer of money, it makes it easier for domestic partnerships to start coming to the forefront. Interac has always helped make Canada a fairly advanced market in this regard.”
The future of remittance will rely on deep domestic partnerships like this one between Interac and the global Mastercard. The former facilitated 371 million e-transfers within Canada last year alone to the tune of $132 billion while also enabling contactless debit payments from bank accounts through their Flash feature.
Domestic partnerships depend on the number of registered with one particular service. Interac currently has market saturation in Canada with 15 million monthly active users—the closest comparison in the U.S. might be the PayPal-owned Venmo, which has 40 million users, or around 12 per cent of the country. Similar to Interac, Venmo allows for real-time money transfers within the country, but because they have limited market collaboration, there’s no real reason to build international remittance into the platform. So consumers stick to relying on fintechs and the traditional players, resulting in higher fees and diminished levels of trust.
“Faster, cheaper, transparent payments—that’s a big deal,” says Jayakrishnan. “In the olden days, if you were to send $100, that gets converted by bank A then goes through a traditional banking network then it makes it to bank B, so instead of getting the money promised, multiple banks are touching it.”
When multiple banks are involved in a transaction, the associated fees begin to skyrocket. Transaction costs mixed with exchange and convenience fees mean customers may end up losing close to 10 per cent of their transfer—a crippling and unnecessary expense for most.
“To put it simply, international money movement is difficult to do based on the number of financial institutions (FI) that require partnership,” says Maoloni. “It’s called correspondent banking.”
As the banks stepped away from offering low-cost remittance services and traditional vendors refused to lower prices and adapt to the tech-enabled society today’s consumers live in, the opportunity for thriving domestic partnerships came into view.
Building a successful remittance platform
International remittance must meet three key requirements to be successful. Firstly, consumers want to work with a trusted name they recognize and preferably have used before. Secondly, it has to be convenient—they can’t be forced to go into a physical location to send money. Consumers want to do it online, ideally from a phone, and from account to account. Finally, the cost must be transparent. Fees are fine, as long as they are fair and clearly stated up front, including the service costs and exchange rates.
“When you look at real-time payments schemes that are popping up all over the world, having a simple singular platform that can take all of those parameters, it can help consumers really access what they have,” says Maoloni.
Expanding this pilot beyond European countries will rely on the partner banks defining parameters, but the network this new platform runs on already supports over 80 countries. Mastercard is using their Send platform to power this project, allowing banks to connect directly to Mastercard’s network via API. Send is “one of the ways we can simplify how FIs connect directly to us,” according to Jayakrishnan.
“We are a fairly nimble market in terms of our tech platforms for banking systems, so when the banks are ready, we’re there to support them,” says Jayakrishnan.
Mastercard’s NYC tech hub.
Mastercard and Interac will handle the actual transaction, while the banks will be left to perform due diligence on the money sender, such as the reason for a transaction and any kind of fraud or laundering protection. Banks will also set the fees—they likely will not be as cheap as the maximum one dollar charge for current Interac e-transfers within Canada, but they will remain competitive to stay relevant against the incumbents.
The international transfers will require a name, address, and account number. These may change but they are the current requirements for remittance to Europe. The transfers will actually resemble an international wire as compared to an account transfer.
“Each jurisdiction and banking network might have their own nuances, but most of the time they won’t have to do anything if the details match,” says Maoloni. “It will automatically be placed into their account.”
Remittance is one of the few places where business competitors can come together to create a platform that benefits each company’s user base. Interac excels at domestic money transfers but needs access to a global network—Mastercard has access to the entire world but is not known for sending money in Canada. Despite the fact the two are transactional competitors that run advertisements trying to sway consumers into paying with their own respective products, they realize this gap in the market a massive one worth collaborating together to solve.
“Mastercard really comes in with huge presence and ability to settle with all of these FIs,” says Maoloni. “They have the ability to aggregate connectivity into all these different banks. That’s really the crux of remittance. Mastercard can derisk those transactions for local networks like ourselves.”
“I think this is the coming out party for the modernization vision of remittance as a whole, and how these payments systems are modernizing,” he continues. “We were in such a good position that we were able to jump on this wave of modernization, and Mastercard is the right partner because they have seen that trajectory and it makes it easier to collaborate knowing you have harmonized access from a global partner.”
Loyalty and remittance
Sending money can be a very patterned experience. Maybe it’s every payday, or perhaps it’s for birthdays or holidays. Both of these examples are relatively static, meaning remittance networks could potentially eye loyalty and rewards if users schedule payments and commit to using a network. Despite best efforts, transparency, convenience, and trust might not be enough to capture the attention of those who have been sending money with one platform their entire lives.
When pressed about loyalty, both Interac and Mastercard are mum about any kinds of rewards, instead of focusing on how choosing their service offers a different kind of benefit: Futureproofing.
“Given that we continue to invest in models and tech that can make cross-border payments simpler, we’ll continue to focus on that,” explains Jayakrishnan. “ We recognize there will be different channel needs and payoff modes down the line. We’ll work on consolidating as much as we can.”
Flags from some of the countries Mastercard works in.
Mastercard and Interac are leaders when it comes to innovation within the payments world, so choosing to rely on their platform for remittance means money transfers will be futureproofed for whatever new advances are eventually released. Examples of this might be depositing transfers directly into mobile wallets like Mastercard’s Masterpass, or even helping to pay down newer options like the Apple Card, given that Mastercard’s network is powering the tech giant’s first foray into the credit world.
Providing international remittance services certainly provides consumers another great option to move money across borders, but it also has a very strategic benefit for Interac. With deeper brand recognition and major partnerships with massive brands like Mastercard, the Canadian payments network can approach innovation in different ways and eye broader horizons.
“Because we have that utilization, and Canadian customers have treated us well, it gives us a seat at the table with these larger global players,” says Maoloni. “They want to work in scenarios where we can bring the economy of scale to them, and without that adoption, it would have been difficult to do.”
“It’s not like it happens overnight, but now that we have it, it gives us an opportunity to be looked like we’re competitors, which might be surprising to some. We can be looked at in a different light and really dive into the access we have in finding opportunities for collaboration.”
Interac has a deep brand recognition within Canada, but outside the country’s borders, they are largely unknown. Establishing a comprehensive and transparent remittance network is a prime way to land on more partners’ radars. There are currently no plans to build networks outside the country, but a partnership like this is the place to start.
“The more you’re successful, the more the international stage will pay attention to you,” says Maoloni. “It’s that simple.”