If there is any industry where being the middleman really pays off, it’s the cross-border payments industry. Global trade relies on global payments, but those funds often flow through not one or two but several banks or financial institutions on their way to the recipient. And each takes a cut of the pie.
“Not a lot of people know how cross-border payments work, but they know it is clunky and painful,” explained Cecilia Tamez, chief strategy officer for Euronet Worldwide’s money transfer division. “It’s like a piece of dirt in your eye. You know it’s there, but you can’t get it out.”
Euronet is a global financial company founded in 1994 with a single ATM in Budapest, Hungary. The company, based in Kansas City, Kansas, has evolved along the way and now handles all types of financial transactions in 190 countries. Its business now includes Dandelion, a modern payment network that uses a single API connection to speed the process of cross-border payments to near-real time. Those transactions include payments to bank accounts, mobile wallets and cash.
Tamez said that Dandelion is not a new service, but it is new to the market. The technology that drives Dandelion has been used internally by Euronet to handle transactions for nearly 30 years. In November 2021, the company decided to open up the Dandelion network to outside companies after receiving numerous inquiries from competitors to gain access to the technology. Tamez likened it to what Amazon did with its Amazon Web Services.
“Cross-border payments are facing the most transformative evolution they have ever seen,” she said. “We are probably seeing the most radical digital evolution we have ever seen before, and mostly because emerging markets [are changing banking].”
Tamez noted that about 20% of the people in the world are “unbanked” or “underbanked,” which means they don’t have access to banks.
“It’s about the same around the world,” she noted. “And there are some countries like Mexico where 50% of the population is unbanked, so they have a very strong cash culture. When we look at remittance and look at the payments we make to Mexico, about half of them are cash pickups.”
Those pickups in Mexico could be bodegas or other businesses, including banks. But in Kenya, Tamez said about 90% of the households use mobile wallets instead. And it is a similar story, to various degrees, in countries around the world.
Tamez said that two-thirds of the world’s global GDP growth is in emerging markets, but with the traditional approach to transferring money around the world, many businesses may be missing out on opportunities because of the inability to quickly make payments.
“Everything is interconnected and supply chains are the optimum of that connectivity in the world,” Tamez said. “Payments are the financial [rail]. The pandemic was a complete disaster when it came to supply chains because we woke up one day and realized that we had a large dependence on a single point of failure in the supply chain, and that is China.”
As companies looked to shift supply chains to new countries, payment processing became a barrier. Traditionally, cross-border payments are conducted between banks using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) platform. SWIFT allows global banks to connect with each other.
“If I’m a bank and I want to send a cross-border payment, I would use SWIFT, but all it does is send a message to the other bank,” Tamez explained. “When a bank joins SWIFT, they still have all of the work to build settlement agreements of those that are to receive funds.”
For many cross-border transactions, especially to emerging countries, the funds may flow through several banks or financial institutions, each taking a fee, and can take days or even a week or more to reach the end recipient.
“We don’t have a connected value chain that [tracks these transactions easily],” Tamez said.
Dandelion is using its API to make those connections easier and faster, cutting out the multiple middlemen along the way. Tamez said the company has about 60 “real-time payment schemes” around the world and direct agreements with thousands of banks, making Dandelion payments a “direct-to-local” connection in most cases.
“If a bank wants to expand its cross-border payment operations, they come to us and it’s one API connection,” Tamez said. “We can enable real time payments in 90% of our payments we make.”
For supply chain businesses and those involved in e-commerce that may source products from one country and send them to a third, this ease speeds the entire process, ensures cash flow is not disrupted and opens up new markets.
“Businesses and consumers both have an increasing need to [access] these financial markets,” Tamez said. “And while [businesses and] financial markets are not seeing the amount of money they are losing because they have never served these markets, they are losing out on [growth opportunities].”