In 1999, UK payments specialist Earthport
entered the market armed with great technology in the form of its
proprietary global money-transfer infrastructure, Universal
Payments Network (UPN). But while UPN was an ideal platform for
Earthport’s initial service, a prepaid e-wallet for internet
purchases and an online credit card-acquiring gateway, competition
from giants such as PayPal eventually proved overwhelming.
entered the market armed with great technology in the form of its
proprietary global money-transfer infrastructure, Universal
Payments Network (UPN). But while UPN was an ideal platform for
Earthport’s initial service, a prepaid e-wallet for internet
purchases and an online credit card-acquiring gateway, competition
from giants such as PayPal eventually proved overwhelming.
However, the UPN concept was sound and in 2006
a strategic decision was made to refocus Earthport.
a strategic decision was made to refocus Earthport.
“We saw an opportunity to offer low-cost
international remittances to banks and corporates,” Matt O’Donnell,
Earthport’s director of business development, told EPI.
international remittances to banks and corporates,” Matt O’Donnell,
Earthport’s director of business development, told EPI.
“Earthport has now turned the corner since its
troubles in the early days, and found a niche – bank-to-bank
remittances – for which there is a demand,” commented Gareth Lodge,
an analyst with consultancy TowerGroup.
troubles in the early days, and found a niche – bank-to-bank
remittances – for which there is a demand,” commented Gareth Lodge,
an analyst with consultancy TowerGroup.
In its new guise, the UPN has got off to a very
good start and currently links Earthport’s correspondent banks in
60 countries – usually between two and three banks in each
country.
good start and currently links Earthport’s correspondent banks in
60 countries – usually between two and three banks in each
country.
Partners include major global banking groups
Australia and New Zealand Banking Group, Barclays, Citibank,
Fortis, HSBC, ING, Maybank, Nordea, Raiffeisen and Standard
Chartered Bank.
Australia and New Zealand Banking Group, Barclays, Citibank,
Fortis, HSBC, ING, Maybank, Nordea, Raiffeisen and Standard
Chartered Bank.
Cost advantage
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As the UPN links directly into Earthport’s partners’ accounting
systems, it is able to carry out transfers, which are netted at
day’s end.
“The UPN assembles and validates blocks of
requests for money transfers and then draws down the funds from a
corresponding currency reserve in the recipient country,” explained
O’Donnell. “This means that no money is actually transferred across
borders, which keeps costs down.”
To protect against fraud, the accounts created
for the transfers are segregated from the client’s bank
accounts.
for the transfers are segregated from the client’s bank
accounts.
According to a report on Earthport by UK
brokerage Daniel Stewart & Company (DSC), using the UPN to
transfer funds cross-border would cost a customer around a fifth of
the standard fee charged by banks for SWIFT transfers.
brokerage Daniel Stewart & Company (DSC), using the UPN to
transfer funds cross-border would cost a customer around a fifth of
the standard fee charged by banks for SWIFT transfers.
“SWIFT is cumbersome, expensive and sometimes
unreliable, while our system offers Fedex-style tracking,”
commented O’Donnell.
unreliable, while our system offers Fedex-style tracking,”
commented O’Donnell.
“What’s unique about Earthport is not its
technology, but its relationships with big banks around the world,”
said DSC analyst Mike Jeremy. “Regulators are also satisfied by
transaction tracking which enables analysis of transfer patterns as
a means of identifying fraudulent activity or money
laundering.”
technology, but its relationships with big banks around the world,”
said DSC analyst Mike Jeremy. “Regulators are also satisfied by
transaction tracking which enables analysis of transfer patterns as
a means of identifying fraudulent activity or money
laundering.”
In addition, Jeremy stressed that while the UPN
system ensures that beneficiaries are paid immediately the
traditional remittance business model involves a relatively
time-consuming (of about two days) and costly verification
exercise, often with manual data recording, the possibility for
error and a time-related exposure to currency movements.
system ensures that beneficiaries are paid immediately the
traditional remittance business model involves a relatively
time-consuming (of about two days) and costly verification
exercise, often with manual data recording, the possibility for
error and a time-related exposure to currency movements.
Collaboration not competition
Earthport does not see banks, acquirers, PayPal, or Western Union
as its competitors. Instead, they are potential customers and
partners, O’Donnell said.
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By GlobalData“Initially, we competed with PayPal and Western
Union, but now we want to collaborate with them. For example, we
provide a back-end remittance system for Xoom.”
Union, but now we want to collaborate with them. For example, we
provide a back-end remittance system for Xoom.”
A Web-based remittance company founded by
former PayPal executives, Xoom allows consumers to use Paypal,
eCheck or a credit card online to transfer funds. Julian King,
Xoom’s senior vice president, said Xoom uses Earthport to process
transfers for certain routes, but also uses other networks.
former PayPal executives, Xoom allows consumers to use Paypal,
eCheck or a credit card online to transfer funds. Julian King,
Xoom’s senior vice president, said Xoom uses Earthport to process
transfers for certain routes, but also uses other networks.
O’Donnell said the largest market for Earthport
is banks that want to offer remittance services for migrant
workers. While the UPN allows banks to offer cash remittance pay-in
and pay-out, its main use is for account-to-account transactions.
The UPN system currently has the capacity to execute 1 million
transactions daily.
is banks that want to offer remittance services for migrant
workers. While the UPN allows banks to offer cash remittance pay-in
and pay-out, its main use is for account-to-account transactions.
The UPN system currently has the capacity to execute 1 million
transactions daily.
In the United Arab Emirates (UAE), a major
remittance market, three banks – including a big global bank – use
Earthport for remittances.
remittance market, three banks – including a big global bank – use
Earthport for remittances.
“The traditional image of the illiterate,
unbanked migrant wanting to send cash home from the UAE needs to be
updated,” said O’Donnell. “Increasingly, we’re seeing white-collar
workers, for example hotel staff in Dubai, who have bank accounts
and want to remit money back home.”
unbanked migrant wanting to send cash home from the UAE needs to be
updated,” said O’Donnell. “Increasingly, we’re seeing white-collar
workers, for example hotel staff in Dubai, who have bank accounts
and want to remit money back home.”
If a bank wants to offer remittances setting up
a link to the UPN is far cheaper than building its own system,
which is an important consideration given the banking industry’s
current climate of cost-cutting, O’Donnell said.
a link to the UPN is far cheaper than building its own system,
which is an important consideration given the banking industry’s
current climate of cost-cutting, O’Donnell said.
“Banks can try us out and see if they can prove
a business case for a remittance service. They have to pay a
software integration cost. Otherwise, it’s just a matter of paying
per-transaction,” said O’Donnell.
a business case for a remittance service. They have to pay a
software integration cost. Otherwise, it’s just a matter of paying
per-transaction,” said O’Donnell.
Earthport can get a remittance service
up-and-running for a bank in weeks, while building an in-house
system might take two years, explained O’Donnell.
up-and-running for a bank in weeks, while building an in-house
system might take two years, explained O’Donnell.
“In some cases, banks might decide to take the
remittance service back in-house after using our platform for a
while or they might handle the most profitable remittance
corridors, for example US to Mexico, themselves, leaving us with
the rest of the world.”
remittance service back in-house after using our platform for a
while or they might handle the most profitable remittance
corridors, for example US to Mexico, themselves, leaving us with
the rest of the world.”
Other cross-border sectors targeted by
Earthport include providing reloading services for prepaid card
issuers, trade finance, the travel industry, pension payments,
payroll and commissions for agents working for international
direct-sales firms.
Earthport include providing reloading services for prepaid card
issuers, trade finance, the travel industry, pension payments,
payroll and commissions for agents working for international
direct-sales firms.
“We provide a low-cost way for prepaid card
issuers to offer cross-border reloading,” O’Donnell said. “We’re
talking to some prepaid card firms interested in using us to
centralise existing reloading services they operate in various
Eastern European countries.”
issuers to offer cross-border reloading,” O’Donnell said. “We’re
talking to some prepaid card firms interested in using us to
centralise existing reloading services they operate in various
Eastern European countries.”
Under Visa and MasterCard rules, Earthport can
offer prepaid card reloading without having to be a scheme
member.
offer prepaid card reloading without having to be a scheme
member.
“The schemes see reloading as a bank payment
service, rather than a card network issue,” O’Donnell
explained.
service, rather than a card network issue,” O’Donnell
explained.
In May 2008, Earthport agreed to provide
cross-border bank-to-bank transfers for E-Clearing Payment
Solutions, an Australian processor for the Asian travel
industry.
cross-border bank-to-bank transfers for E-Clearing Payment
Solutions, an Australian processor for the Asian travel
industry.
“E-Clearing will use our system to offer travel
agencies the option of accepting payment via bank transfer instead
of cards, which will save agencies having to pay card processing
fees,” said O’Donnell.
agencies the option of accepting payment via bank transfer instead
of cards, which will save agencies having to pay card processing
fees,” said O’Donnell.
In March 2008, Earthport clinched a deal to
jointly develop a trade finance portal with US software developer
Adobe. The portal will enable small businesses to make overseas
purchases with a guarantee that, if goods are not delivered,
payments will be refunded. It will combine the UPN with escrow
accounts provided by Earthport’s partner banks.
jointly develop a trade finance portal with US software developer
Adobe. The portal will enable small businesses to make overseas
purchases with a guarantee that, if goods are not delivered,
payments will be refunded. It will combine the UPN with escrow
accounts provided by Earthport’s partner banks.
“A lot of SMEs cannot afford letters of credit
for their imports, so they make purchases on an open account basis,
which is risky,” O’Donnell says. “Our system will be mid-way
between PayPal, which offers guarantees for buyers and sellers but
is not priced for import-exports and letters of credit.”
for their imports, so they make purchases on an open account basis,
which is risky,” O’Donnell says. “Our system will be mid-way
between PayPal, which offers guarantees for buyers and sellers but
is not priced for import-exports and letters of credit.”
Earthport has a close relationship with
technology giant IBM which supplied the software on which the UPN
is based. Earthport also has several ex-IBM banking systems
executives on its staff. “If a bank prefers to use IBM rather than
Earthport to connect to the UPN, it can do that,” O’Donnell
explained.
technology giant IBM which supplied the software on which the UPN
is based. Earthport also has several ex-IBM banking systems
executives on its staff. “If a bank prefers to use IBM rather than
Earthport to connect to the UPN, it can do that,” O’Donnell
explained.
Earthport’s revenues have been slowly ramping
up since its decision to refocus on remittances. Revenue in the
year to 30 June 2007 was £1.08 million ($1.98 million), which DSC
predicts will rise to £2.51 million in 2008 and £9.81 million in
2009. For the first half of fiscal 2008, revenue rose to £1.07
million from £400,000 in the first half of fiscal 2007.
up since its decision to refocus on remittances. Revenue in the
year to 30 June 2007 was £1.08 million ($1.98 million), which DSC
predicts will rise to £2.51 million in 2008 and £9.81 million in
2009. For the first half of fiscal 2008, revenue rose to £1.07
million from £400,000 in the first half of fiscal 2007.
Notably, in the first half of fiscal 2008,
Earthport’s average monthly transaction volumes doubled, without
any addition to its staff of 36 people.
Earthport’s average monthly transaction volumes doubled, without
any addition to its staff of 36 people.
“As most of Earthport’s revenue comes from
per-transaction fees, growing its transaction volumes is very
important,” said Jeremy. “However, expanding the UPN is not a major
cost. This means, that as transaction volumes increase, they should
translate directly into cash on the bottom line.”
per-transaction fees, growing its transaction volumes is very
important,” said Jeremy. “However, expanding the UPN is not a major
cost. This means, that as transaction volumes increase, they should
translate directly into cash on the bottom line.”
Earthport also comes with another distinct
advantage: it has already gone through the long-learning curve of
developing and refining its system and securing strong banking and
technology partners.
advantage: it has already gone through the long-learning curve of
developing and refining its system and securing strong banking and
technology partners.
“To build a network replicating the UPN it
would be very time-consuming and costly,” stressed O’Donnell.
would be very time-consuming and costly,” stressed O’Donnell.
