Since the dawn of the Internet age, global economies have grown closer – as did the underlying financial systems. Today, we can digitally purchase a product with materials from Eastern Europe, produced in Singapore, refined and branded for sale in Canada, and eventually shipped to Brazil. All countries involved in this supply chain have to maintain financial relationships and this also necessitates numerous cross-border payments.
However, that’s easier said than done. Complying to all regulations, security processes and technical requirements necessary to move funds from one country to the other comes with high efforts and costs for service providers.
For our fintech interview series “Finquiry”, we have asked cross-border payments expert Bogdan Dinu to break down what goes behind facilitating effective and low-cost transfers.
Our Guest: Bogdan Dinu, Head of Product at Thunes
Our interview partner Bogdan Dinu is the perfect expert to lead us through the dense jungle of the cross-border payments landscape. As the Head of Product in leading global payments network Thunes, he is set to support the business through its next phase of global expansion.
With more than 15 years of experience in global companies like Nike, PayU and Ingenico, Bogdan is an expert in building business and consumer products across different emerging markets by leveraging technology in order to solve payments related pain points.
trimplement: “Bogdan, you have been working 17 years in payments. Has there been a defining moment when you thought: ‘This is revolutionising payment! I’ve never paid like this before! This is going to take the world by storm!’”
Bogdan Dinu: “Taking a consumer perspective, I would say, the closest to having a great and innovative experience was actually when I was paying with WeChat in China. Wallets like these are gaining more and more traction. The key factor behind this is their reduced friction in onboarding. It’s very easy for the user to start with WeChat or AliPay and develop a habit to pay with them frequently, as there are no barriers keeping you from using them almost everywhere in China.
On top of that, another consumer payment product I find quite revolutionary is the concept of ‘Buy Now, Pay Later’. There is a great value proposition for consumers, providing an experience very close to that of an offline experience. You can order the product home, touch, fit and feel it. If you like it, you keep it. If you don’t like it, you can just send it back. And you pay nothing for that. Those are the things that changed the world of payments in the past few years, I believe.”
trimplement: “We have talked about the consumer perspective now. How are payment providers involved with these new payment products?”
Bogdan Dinu: “Simply put, payment service providers have to carry over the customer’s preferred payment methods. Whatever preference a consumer has for their transaction, it has to be offered by the merchant.”
trimplement: “Your company Thunes is active all over the world: Singapore, the UK, you already mentioned China, as well. In your experience, how do various parts of the world differ in payment technology and culture?”
Bogdan Dinu: “Thunes has identified the opportunity to close this market gap in emerging markets. With the current fragmented ecosystem, consumer and business transactions are slow, expensive and unreliable in a lot of ways.
Despite this, consumers are given a great deal of choice of multiple payment methods on those markets: They can go to a service station, they can pay with multiple wallets: mobile money accounts or their bank account.
But the problem lies in a lack of interoperability in between these methods. For instance, PayPal is a closed ecosystem that is unable to communicate with another platform like M-Pesa. To move money from your one wallet to another, you need to withdraw money from your PayPal wallet to a bank account first, then find a way to move this money to another bank account in Africa, and eventually use that to top up your M-Pesa account.”
trimplement: “And you have to pay fees for all of that, right?”
Bogdan Dinu: “Exactly. This is where Thunes comes into the picture by filling the connectivity gap. With over 400 partners across the world, we are able to move money around, be it from a bank, a mobile money account, or even an e-wallet or mobile operator.
In addition, regulation in emerging markets brings struggles for partners wishing to operate internationally. For instance, big marketplaces like Etsy don’t have the assets to deal with local entities and regulatory constraints in each country they want to operate in.
If they wish to bring their business model to Indonesia, they would face roadblocks in paying their merchants in the country. Thunes offers to take on the complexity of different regulations worldwide on behalf of these companies.”
trimplement: “Are there regulations that stand in opposition to each other? How does Thunes deal with those?”
Bogdan Dinu: “Every country in the world is different in terms of regulation. If you target one country in Europe, all of the other countries around naturally have similar regulations.
However, in markets like Africa, Latin America or Asia, the situation is very different. Each of them have their own regulations that Thunes will have to adopt independently, implement it and simplify it, in one API.”
Platforms like marketplaces seek sellers and buyers internationally, while the gig economy connects companies and individuals across borders. This places importance on fast real-time payment and revenue – specifically in the users preferred currency and payment method.– Bogdan Dinu, Head of Product at Thunes
trimplement: “What is the biggest obstacle from the product perspective to come up with such an API?”
Bogdan Dinu: “The expectation from consumers and businesses is to move money around in real-time. In order to offer a reliable platform to do so, we need to establish a solid infrastructure to facilitate these transfers.
Thunes is unique as it benefits from new in-house technology as opposed to legacy infrastructure with many limitations – the oldest of which are payment system providers. To avoid that, Thunes adopts the latest technology and builds in-house systems that offer high availability and easy integration.
Another thing that is important is a user-friendly test environment – one that allows them to test the functionalities of the platform and facilitate a large number of transactions with confidence.”
trimplement: “Your company takes emphasis on mass payouts as a feature. In a time where the gig economy is booming, why is this important and what is so challenging about them?”
Bogdan Dinu: “More and more platforms are expanding worldwide. Platforms like marketplaces seek sellers and buyers internationally, while the gig economy connects companies and individuals across borders. This places importance on fast real-time payment and revenue – specifically in the users preferred currency and payment method.
If you are a marketplace targeting Kenya where more than 50% of the population does not have a bank account, you will be unable to send money to service providers. Instead, you need to tap into buyers and suppliers using M-Pesa, a popular local e-wallet.
Here’s an example: Thunes works with Grab to provide a payout-on-demand system for drivers across Southeast Asia providing real-time payout value proposition. A driver will be able to withdraw money from his daily earnings from an ATM, a local cash provider or even a convenience store. The money he earns will be accessible in the local popular wallet of his choice.”
trimplement: “Because they need their money now.”
Bogdan Dinu: “Exactly, they need immediate access to their money. The Southeast Asian market is very different from the Western world.”
trimplement: “Speaking of which: You mentioned Kenya and Indonesia. Are there differences in conducting real-time payments in developed and emerging economies?”
Bogdan Dinu: “There are slight differences between emerging and developing economies. One of the big differences is whether a local clearing house exists. Most developed markets have one, and this enables Thunes to easily move money in real-time to every consumer in that market.
Most emerging markets, however, don’t have a clearing house, which could make payment in real-time difficult. Luckily, in most emerging markets, the popular payment methods are mobile wallets. When you move money from one wallet to another, it’s always in real-time.
Countries such as Kenya don’t have a clearing house. If you wish to make transfers to a Kenyan individual or company, you can instead target their wallets for real-time transfers. ”
trimplement: “Alright, let’s say we have these possibilities in place and money is transferred in an instant: What challenges does that imply for security and anti-fraud practices like KYC, AML and so on?”
Bogdan Dinu: “Security is key when processing payments. All players in the value chain must make sure the transaction data such as personal information is secure. For each of Thunes’ partners, we first understand how they operate with data,and subsequently provide secure ways to send this data to us. They can choose to send it via VPN, or over national transaction systems.
From a compliance perspective, once discussions with a potential customer or partner begins, we do our due diligence during onboarding by assessing their risk using our internal scoring system. To summarise, we conduct KYC and AML analysis for each of the customers in the beginning as well as annually – this is to ensure that the standard remains regardless of ownership changes, country developments or other risk factors.
When we see a suspicious transaction, what we do is stop the transaction and ask our customers to give us all the details about this transaction (for example, invoice, documentation, or paperwork.) This allows us to stay ahead of the game in security and compliance.”
trimplement: “Many economists have raised concerns that we might be approaching a period of de-globalization, with countries becoming more protectionist and a pandemic preventing people from travelling. As a cross-border payment facilitator, does your company feel a move towards more protectionism?”
Bogdan Dinu: “In the past few months, the pandemic and recent political developments have been observed to add momentum to the de-globalization trend.
However, in terms of the cross-border payments market, the annual demand has increased significantly. Thunes has observed the pandemic to have accelerated global trade. More money has been flowing via digital channels: while remittances decreased, business payments have increased. In the 45 to 50 trillion USD cross-border payment market, remittances hold a small proportion of under 1 trillion with the rest belonging to business payments.
It would take more than this to have a major impact on the demand.”
I believe that infrastructure will be increasingly important. As the world develops, the demand for fast, cheap and reliable transfers will increase. The current infrastructure gives us a great position to target all 195 countries and to offer financial inclusion to emerging markets…– Bogdan Dinu, Head of Product at Thunes
trimplement: “Okay, having mentioned the developments in the future, is there a particular development in the realm of regulations or in payment that we should keep an eye on?”
Bogdan Dinu: “The biggest development from a regulatory and technical perspective is the existence of infrastructure that offers interoperability between wallets and banks.
With companies like Thunes in the picture, the infrastructure built has allowed cross-border payments on a massive scale. Few years ago, this was not possible.”
trimplement: “It’s a similar story with banks and fintechs. They used to be rivals, but now both work closely together – because banks realized, they would have to include those services…”
Bogdan Dinu: “Correct, it’s a partnership now. At Thunes, we offer banks value by helping them move money across borders.”
If there is a seller from Kenya that sells his product to Singapore, he would need his earnings to be in Kenyan Shillings. In order to move the money to his bank account in Kenya, we need to partner with local banks.”
trimplement: “Okay, going back, is there something on the horizon that will be important in future years, more important than it is now?”
Bogdan Dinu: “I believe that infrastructure will be increasingly important. As the world develops, the demand for fast, cheap and reliable transfers will increase. The current infrastructure gives us a great position to target all 195 countries and to offer financial inclusion to emerging markets so they can participate in the global economy.”
trimplement: “Banking the unbanked.”
Bogdan Dinu: “Exactly. In Tanzania, to access a global platform subscription today, you face many challenges in terms of payment. This is a problem that Thunes aims to solve on a global scale.
Our mission and vision is clear: We want to bring financial inclusion to emerging markets by solving the infrastructure challenges and growing the payment network we’ve built in the last few years.
In addition, we plan on applying for more financial licenses in places like France, United States, Hong Kong and more. With that, we can prove to our potential partners that Thunes is local, regulated and build up trust and confidence to move their money reliably.
In payments, trust really is the key.”
trimplement: “It is. And we wish you the best of success. Thank you for your time, Bogdan.”
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