Barclays decision to cut off its services with UK remittance companies this month has sparked fears that this will sever a ‘financial lifeline’ for many people. Imogen Rayfield asks international payments platform The Currency Cloud what affect this move will have on consumers and the industry
According to the World Bank, the remittance trade was worth $530bn worldwide in 2012, and $2bn in the UK.
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The majority of remittance payments in the UK go through banks. Despite there being a multitude of international money transfer firms such as TransferWise, Azimo and Western Union, people find them expensive and short of coverage in remote areas.
Fears that these smaller firms might be used for money laundering and terrorism funding prompted Barclays to remove its banking facilities.
Consumers have now been left with an uncompetitive and possibly unregulated remittance market.
Chief executive of The Currency Cloud Mike Laven speaks to Electronic Payments International about the possible solutions.
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By GlobalDataEPI: Could you tell me a bit about The Currency Cloud?
ML: The Currency Cloud has been in development for a while and we started creating from January last year. Our business is a cross-border for international payments for other businesses, and our customers are firms that make payments for other firms and individuals. What makes us different from other companies is that our pricing is transparent; we tell everybody how much we’re buying the currency for, how much they’re paying and what the mark up between the two is.
We’re very clear about the fees. We are also highly automated; the technology platform that we have has been invested in by ourselves and our venture backers. It processes the tracking and making of currency payments, assembling them in a simpler and more automated fashion. Automation allows us to scale the business and provide a higher level of service to the customer.
We are also cheap. Today, we have approximately 100 customers and those customers are serving thousands of small businesses and consumers. We’ll process around $2bn in payments this year which is quite a lot in the world of payments. In the world of foreign exchange, we’re still a medium sized firm, but considering we started last year in January it’s progressed quite a lot.
EPI: How does this Barclay move affect The Currency Cloud?
ML: HSBC was the first bank to exit the money service business back in January because of a significant problem with the US authorities over payments that were made in Mexico. At that point I think all of the banks including Barclays, took a look at their business and began to think we don’t want this to happen to us, to get caught in that regulatory vine. Barclays was the primary bank involved in the cash business; it was concerned with pretty substantial firms, ones that accepted cash and then paid out cash at the other end which were often small payments.
One of the reasons there’s been a lot of focus on immigrant communities or those kinds of communities is because a lot of businesses were in that area. The press reported 250 small firms, principally cash firms and some of which were our customers, had been dropped by Barclays. Barclays said there’s a level of regulatory scrutiny that has to be met, and after a lot of these firms were dropped that level was increased. Firms, such as ourselves, were told we were doing a good job of scrutinising our customers, the beneficiaries of our customers and the people who were paying money in. Regulatory scrutiny has been upped dramatically and this is the practical change that has happened.
EPI: How can Currency Cloud avoid having to pull out for the same reason that Barclays have done?
ML: In the market there are policy issues and practical issues. On a practical basis this means that the paperwork that’s necessary to make a transfer, even a simple one will increase. This will involve indentifying conclusively who you are and identifying physically who you’re sending money to. There will be thresholds that may result in the size of the payment going down. Regulatory scrutiny basically means more hoops to go through.
The practical matter is that it’s going to be more difficult for everyone, and if firms like ourselves are not highly automated, we won’t be able to do it. One of the issues with the banks is that they generally have older systems, and the idea of having the capability to identify and scrutinise hundreds or thousands of customers is not something that they can or want to do.
The policy issue is that the UK government wants to open up the payments market. This means making the channels open so there’s increased competition, so that access is easy and that the prices go down for the competition. Ultimately, the payments that leave the UK, whether it’s a remittance payment or a business payment have to go through a foreign bank and the UK isn’t allowed foreign banks.
After HSBC exited the business, Barclays began to reduce the business which then puts pressure on other people. The government wants to see an open market, however the number of banks that are servicing that market goes down, so the competition actually decreases, and we would hypothesise this means that the ability to compete on prices, the ability to be open and the ability to gain access gets constricted.
There’s a dialogue that needs to go on at a client level with the focus on the communities that send remittances home, for example to Pakistan, India or Sub-Saharan Africa. As the clearing banks are reduced, that narrows the pipe and the whole concept of openness and competition bringing down prices goes out of the window. These kinds of decisions made by the banks will make practical things such as, sending money to parents or paying school children harder and more costly for individuals.
EPI: Who are you working with on this?
ML: Ultimately the industry group are either working with parliament or legislators or other industry people to come up with a solution that benefits consumers, and yet understands that the banks are being pressured by regulators. In some ways we need to find a solution for both; consumers are being hurt, banks are responding to pressure from regulators, they put pressure on the transfer firms, the transfer firms become unavailable, prices go up, and that circle has to be broken.
What we’re trying to do right now is to just publicise the issue; it’s appeared in publications like The Guardian, and there’s currently a discussion taking place in parliament on the remittance market. The Currency Cloud is very involved as a supplier to firms who have to now exit the market. Firms who come to us and we have to tell them that we can’t service them, that we think this is a major concern and that we’re trying to look at ways the industry can help. I think there could be options for self regulation, but first there has to be some solution that opens the market in the way the government wanted originally.
EPI: So with regulation, would that be different in certain countries?
ML: Regulations are quite different from place to place. The US has a very high level of scrutiny; they have the Dodd-Frank rules on remittances which are very tough on identifying who’s sending the money and where it’s being sent to. They are very focused on trying to protect the consumer. The issue, in terms of the UK, is different on that basis because of the number of high street banks that actually handle the payments themselves. As there are so few high street banks in the UK who ultimately clear the transactions, when one drops out like HSBC, you’re losing a quarter of the channels, and then when Barclays constricts you’re losing another small number of channels. When the high street banks exit the money transfer business there’s nowhere else to go.
EPI: Will The Currency Cloud be expanding into all of the areas that Barclays has pulled out of?
ML. Many of the firms that Barclays pulled out of, the ones in the cash market in individual communities; it would be very difficult for us to pick up and perform at a level above Barclays purely because of the way we’re structured. There are some firms we’ll pick up who could have gone to another bank but they’ll come to us. On a full scale basis I can’t meet the requirements that Barclays need for all of the firms they’ve dropped. I can’t meet that level of scrutiny they need on individuals who are consumers.
Regulatory pressure on banks is the thing to watch out for. Banks fear of reputational risk puts pressure on firms, which in the end puts pressure on consumers. The industry has to find a way to deal with that because there’s a real need on the part of thousands of people to make remittances home, coming up against banks fear of reputational risk due to regulators putting pressure on them. There needs to be a dialogue between banks, groups or individuals that represent the people who need to send the money and providers like us.
