Banks now have a much more intense competition. The digital transformation brought with it an army of new companies that seeks to eat part of the business that has traditionally been theirs.The advance of signatures of smaller structures, flexible and with lower costs (such as fintech) changed the dynamics of the game. It is not just about startups, but also about big players, such as Mercado Pago, which already offers cards, savings accounts, new transactional means and microcredits.
At this point, Argentina's Fintech Chamber assures that almost 30% of the firms it represents are dedicated to offering loans on the spot and tied to far fewer requirements than banks.
Added to that, new contricantes are appearing, that apply their blows in one another sides that also hurt: the companies of credit cards, historical partners of the financial organizations, are advancing without haste and without pause in the lucrative business of the international transfers .
Specifically, Visa and MasterCard are acquiring companies in the fintech sector that develop solutions for this type of operations, based on the use of a technology that, for many experts in the sector, is presented as disruptive: the blockchain system.
This innovation is a kind of unalterable accounting book, with copies distributed in all the nodes of the network (servers) that are the ones that validate the transactions. It is a reliable, invulnerable, fast and more economical record compared to traditional systems (see image).In this way, the giants of the credit card business move forward to lower those costs associated with sending funds between countries, for two fundamental issues:
- Last year there was a new record in the flow of remittances, that is, the money that people send abroad. How much was mobilized for this concept? a whopping US $ 530,000 million, marking an increase of 10% year-on-year
- Global e-commerce also continued to climb steadily (18%) in 2018, to $ 2.86 trillion, which also enhances cross-border transfers
According to Manuel Beaudroit, Marketing Manager (CMO) of Bitex, the purchase of fintech and the commitment to technology aims to "remove intermediaries, provide transparency and reduce costs". "It's not your core business, but your clients use this service through other players, so they start to capture a new segment," the executive points out.
This is another key round for the financial industry, in the context of an increasingly intense competition, with traditional entities that are redefining the way of competing in a "4.0" economy that presents new players with more flexible and eager structures to stay with a large part of the typical banking business.The fight inside
Although the competition to win in this segment started a few years ago, the truth is that in recent months it became more virulent: both companies participated in a millionaire auction to keep a digital currency signature.
At the end of 2018, Visa was the one that "saw first" the possibility of buying Earthport, a British firm that operates as an Automated Clearing House (ACH). That is, it offers the international money transfer. Based on agreements with banks in 87 countries, it enables local compensation of these operations. To do this, use the virtual currency Ripple, created to reduce the cost of sending cross-border money, using the blockchain system.Thus, the number one brand of cards approached an offer of US $ 250 million to acquire it and this produced the reaction of its competitor Mastercard, which a month reinforced that figure to US $ 295 million. Visa counterattacked with US $ 320 million and was finally able to seize the company.
Mastercard did not remain with crossed arms: it added to its rows to the New York Transfast, competition of Earthport, that owns agreements with banks of 125 countries.
What is the interest in transfers based on blockchain? The answer must be sought in that most of the world's banks and financiers use the Society for Interbank Financial Telecommunication World (SWIFT), an NGO based in Belgium, to process almost all transactions between countries.
But the operation, designed in 1973, takes several days and has high commissions, since the process for international transfers consists of the following steps:
- The issuer requests the transaction between your bank and the recipient's
- The entity issues a transfer order to another abroad
- In case both banks do not have a direct relationship in the country of destination, an intermediary entity is used
- The destination bank receives the order and delivers the funds"An international payment takes between three and five working days to complete and its costs are high: a transaction of this style consumes 7% of the amount," indicates a market source to iProUP.
On the initiatives for transfers abroad, Alberto Vega, of Bitpay, recalls that "Santander published a study that spoke of a savings of U $ S20,000 million" in commissions.
In dialogue with iProUP he assures that he fell short of the estimates: "Considering that the focus is to eliminate the problems of the correspondent banks, the potential is 10 times greater".
Having a relationship with all financial institutions in more than 200 countries, Visa and Mastercard manage to eliminate intermediaries, set up their own international transfer network and access a multi-million dollar business.Expanding market
According to US Treasury estimates, the SWIFT network processes US $ 1.25 billiards (1,250 followed by 21 zeros) of global transactions per year. This represents about $ 8,750 billion annually in commissions. Or, more clearly, u $ s240,000 million per day.
The convenience of using blockchain instead of the current system is even explored by SWIFT, which is preparing to launch an operational test of GPI Link, its own platform. At the moment, it is carrying out internal tests with thirty banks, such as JPMorgan Chase, Société Generale and BNP Paribas.This diagnosis is shared by Mark van Rijmenam, international expert in blockchain, although it adds a strategic component in the race to master this innovation.
"Although it offers efficiency and cost reduction, the blockchain technology to handle thousands of transactions per second requires a little more development, however, focusing on this from now and hiring the indicated talent will be clear the competitive advantage that is achieved ", says the expert in dialogue with iProUP.
Although the biggest movement is the corporate one, cross-border consumer payments are another growing business that Visa and MasterCard are betting on with marked enthusiasm, mainly due to the increase in tourism, remittances and electronic commerce on a global scale.
In this way, the international payments market that processed the cards was composed last year by:
- US $ 125,000 million in inter-company collections
- US $ 54,000 million for payments of individuals to companies
Visa and MasterCard revenues grew around 25% year-on-year in this segment. And given the large volume of operations that surround the SWIFT network and similar (estimated at 95%), the firms in the sector find ample fertile ground to expand.Matías Bari, CEO of the virtual currency firm Satoshi Tango, adds another economic edge. "A large part of the costs of these companies are destined to the processing of transactions and subsequent conciliation."
The executive ensures that those blockchain expenses "could be drastically lowered and, depending on the type of solution implemented, fraud will decrease, which is also a black hole in their balance sheets."
This is the main disadvantage of the payment processors according to Alberto Vega, BitPay. "The focus is to use blockchain to alleviate the problem of false documents and the elimination of intermediaries that generate security fissures and higher related expenditures that reduce the profit margin," he emphasizes.Integration, the keyword
Beyond the dispute between Visa and MasterCard, there are some key movements that show that the blockchain has ceased to be a promise to become a reality. In fact, the main firm in the field has already explored the terrain with Visa B2B Connect.
"By creating a solution that facilitates direct transactions, from bank to bank, we are eliminating the friction related to key points of the industry's challenges," Diego Rodriguez, Vice President of Commercial Solutions at Visa Latin America and the Caribbean, told iProup.According to the executive, the service is integrated into the VisaNet processing platform and already operates in more than 30 markets, including Brazil, Mexico, Colombia, Peru, and Panama. The payroll will triple before the end of the year.
"It is a product that will revolutionize international payments between companies around the world and will add a lot of value to our banks in the region," the executive adds, although he indicates that there is still a long way to go.
For its part, Mastercard also integrated blockchain to its MDES platform, although it still keeps it in the testing phase with around thirty entities. In addition, already accumulates 30 patents on blockchain, among which are systems for:
- Identify users, something increasingly important in the face of the advance of electronic commerce and digital payments
- Perform transactions anonymously, to prevent data theft and minimize fraud
- Link digital currencies with a fiduciary currency account (dollar, euro, peso) to facilitate interoperability
"In the KYC (know your client), blockchain is very efficient: it can perform and manage identities very quickly, and internal systems can be interconnected at a global level, such as balances, points and accumulated miles, so that they can be exchanged between clients" , Salama advances.
The strategy of Visa and MasterCard to lead the "money 4.0" is developed both internally and adding companies that are already innovating. Van Rijmenam points out that several of these movements "are acquihires (combination of 'acquisition' and 'contracting' in English), since they are not buying companies but technology, because talent in blockchain is very scarce".
This competition also has a strong enemy to overcome. The same as the rest of the financial industry: the bigtech. And this is not limited only to Libra, the virtual currency launched by Facebook and in which 27 other companies participate.
"Amazon, Google, Facebook, all are mining digital currencies Blockchain is an incorruptible database, which can not be modified because it is automatically replicated in the nodes, they will not leave the base control to third parties", reveals to iProUP an important player of the Argentine crypto ecosystem.
The carrot that moves all market players is that -according to Bari, Satoshi Tango-, "Bitcoin and blockchain are generating a revolution similar to the Internet in the world of transactions". And nobody wants to stay out of the reinvention of the currency.