Yesterday, two of the world’s payments processing giants announced a strategic partnership that will enable them to move money around the planet among consumers with a focus in frictionless remittances, strictly identical to what Ripple promises. Visa’s head of push payments, Bill Sheley, explained to Karen Webster how Wester Union would adopt Visa Direct speeds so that international payments across borders and currencies can become faster, more comfortable to settle, especially using mobile technology.
We’re still not even halfway through the current year, and we’ve already seen many new mega-mergers and partnerships in the international payments business. The industry is thus creating links between networks, services, products, and institutions.
The dominant motives for such movements are to increase value for the customer and to lower costs and settlement times for both the institutions and the people they serve. Visa issued the announcement yesterday in that context. So it’s joining forces with Western Union, a remittance services giant so that their new service is quicker and digital thus facilitating the movement of money in the planet while also providing many new use cases for the technology. We can sense the involvement of Ripple here from the look of things.
Within the agreement, Western Union will take advantage of Visa Direct, which is the credit card company’s real-time payments settling platform, in such a way that its end users can expedite their global payments experience through push-to-card technology. Both partners issued a press release in which they said that their new collaboration will help real-time cross-border payments in 200 countries and territories of the world and 130 fiat currencies.
The new partnerships support both Visa’s and Western Union’s recent movements towards becoming more global activities when it comes to settling international payments. Hikmet Esret, Western Union’s CEO, was recently interviewed by Karen Webster, and he also talked about the company’s sale of Speedpay to ACI Worldwide. So Wester Union is trying to expand its cross-border services with a specific focus on global P2P and B2C payments.
Last month Visa did its own homework on the same subject by buying Earthport, another payments gateway, and platform which works with banks, remittance services, and other institutions. The company’s mission is to bring higher value to low-frequency enterprise B2B payments. Earthport is a Ripple client, and they have reportedly integrated XRP into their software already. Keep connecting the dots.
The new partnership created by Visa and Western Union is all about getting rid of all the red tape, which is the rule rather than the exception when it comes to international payments. The market is worth USD 80 trillion yearly. But the process is not quick nor transparent.
The current standard requires several days to settle every operation, and it’s not cheap because it doesn’t charge a fixed fee but a percentage of the money sent. It’s all made worse by the amount of capital that the service providers need to put aside so they can complete these operations.
Western Union is still the world’s leader when it comes to remittance services, according to Mr. Sheley in his interview with Mrs. Webster. Only last year, the company processed 800 million deals for both individual and institutional users.
Mr. Webester went on to explain in further detail Western Union’s workings. They have the infrastructure to move money all around the planet and can permute fiat to digital and vice-versa because their cash network can handle all that work very well. There is a shift going on in which digital to digital transfers are becoming more common, and that’s a process that Visa Direct is going to help along.
It all comes down to added value provided by both companies. That’s why they’ve decided to create a joint brand. According to Mr. Sheley, both companies will be able to offer together with service working in real time, which he considers being “a key element” in the partnership.
Talking more about Western Union, Visa’s executive said that the company said that it has “an amazing network in terms of digital assets, mobile platforms, and their cash agent network.” Visa has been working hard on this matter, developing Visa Direct, which is focused on digital systems, outreach, onboarding, safety, Forex conversion, and other services that enhance Wester Union’s own.
Both companies will benefit. Western Union will be able to give its costumers real-time transfers, account-to-account. Quicker, a lot more cost-effective. For Visa, on the other hand, its network keeps expanding, and it also puts it in the FinTech market. That makes a massive difference in emerging economies in which fintechs are more critical than traditional players in Mr. Sheley’s own words. Cross-border payments settled through Visa’s digital technology (like prepaid Visa cards or bank accounts) increase efficiency, and they’re safer than cash transactions.
“As we work together, there are going to be inherent friction points [in cross border] that we are going to take out,” added Mr. Sheley to Mrs. Webster. “We understand the complexities that are involved, whether you are trying to go from a [brick-and-mortar] to digital distribution,” or whether firms need help with settlement, acceptance handling or licensing.
The future and use cases
Visa’s man made it clear that technology has a broad variety of use cases. Visa direct transfers are “embedded in cross-border transactions” of all types, across B2B, P2P or “even me-to-me [transactions].” Visa Direct serves these transactions at high volumes, high speeds, and low costs. That better quality in service incentivizes developers to create apps that take advantage of this technology to serve end-users.
The world’s average remittance is at USD 500,00. Yet, Visa Direct can do business at the tune of USD 100.000,00. That’s a better option if you’re doing payrolls, insurance payments, pensions, and bills. Visa is there already.
There’s an extra advantage in the Visa-Western Union service. It also allows for domestic transfers, which is a big market in countries where the traditional financial system is not very well developed. So the system can take care of transactions overseas as well as operations to rural areas within the same country. If you’re a worker who needs to send money to your family in a rural town not too close to your own city, you can use this service as well.
The roadmap is not as clear as it usually is in the financial world. They will have to “learn by doing. … We’ll get to work straight away.” The first priority will be to create economic corridors between Europe and the rest of the EU countries as well as the Asian Pacific basin.
“When scale-on-scale companies get together,” such as Visa and Western Union, according to Mr. Sheley, “interesting stuff happens. And that is the case here.”
We don’t know the role that blockchain technology plays in this partnership yet, but it’s quite probable that either Ripple, Cardano or Stellar Lumens are involved in some way, as under-the-hood technologies.
We will have to wait for further announcements that provide more detail about the specific technological choices involved in this partnership. But they could very well be there if only because that’s their cup of tea, and they do it better than anybody else in the world.
For the time being, the most essential point is that traditional companies such as these two realize that the SWIFT system can’t do the trick anymore. If the international transfers market is going to thrive, it will need innovation and leaving the old paradigms behind. And this is a good step in that direction.
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