The benefits of tokenization in payments; Is BNPL the solution to affordable credit?; Timeliness of the US Open Banking Ecosystem;

Hey there! Let's talk about the state of our payment systems—it's like they're stuck in the past!

Insights & Reports:

1️⃣ Real-Time Payments: Cross-Border Payments Perspective

2️⃣ The benefits of tokenization in payments

3️⃣ Is BNPL the solution to affordable credit?

4️⃣ How embedded finance has evolved in recent years

5️⃣ Timeliness of the US Open Banking Ecosystem

6️⃣ The rapid evolution of payments in Latin America

Curated News:

1️⃣ BaFin Mulls Lifting Cap on N26’s Growth After €9.2 Million Fine

2️⃣ Revolut to roll out payment terminal for large businesses

3️⃣ Aeropay Announces $20M in Series B Financing

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TL;DR:

Hey there! Let's talk about the state of our payment systems—it's like they're stuck in the past! Transactions take ages to settle, fees are all over the place (ranging from 0.65% to a jaw-dropping 9.85%!), and security feels like it's from another era. But hey, there's good news! New real-time payment networks are stepping up to fix these issues. Take, for instance, the link-up between Singapore's PayNow and Thailand's PromptPay system, promising faster, cheaper, and more transparent transfers across borders.

Now, onto online payments! Ever heard of tokenization? It's a game-changer. Imagine not having to type in your card details every single time you shop online. Studies show that this could significantly reduce cart abandonment rates, which can be as high as 5.57%, with involuntary churn hovering around 1.38%.

Buy Now, Pay Later (BNPL) sounds tempting, right? But hold up—it's not all rainbows and butterflies. It might not be the best choice for everything, like your everyday groceries or those clothes you might want to return. It's all about using it responsibly to avoid getting into any sticky debt situations.

Open banking is on the rise, and it's pretty exciting stuff! Picture this: securely sharing your financial data with other apps. This could totally shake up the financial services industry, giving you a neat, consolidated view of all your financial stuff. But hey, there are still some kinks to iron out, especially regarding regulations, like the recently proposed CFPB rule in the US.

Remember N26? Yeah, they got slapped with a hefty €9.2 million fine for not having strong enough anti-money laundering controls. Ouch! But hey, they're getting their act together, and word on the street is that the German financial regulator might let them take on more new customers soon.

Now, here's something interesting: Revolut, the big player, is making moves in the business world. They're rolling out a shiny new payment terminal designed specifically for large companies. Watch out—they might just snag a big slice of the market.

Last but not least, let's give a round of applause to Aeropay! They just scored a cool $20 million in funding. What do they do? Well, they help businesses set up a "pay by bank" option, making it super easy for folks to pay directly from their bank accounts.

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Insights

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Real-Time Payments: Cross-Border Payments Perspective

Cross-border payment flows continue to grow at double-digit rates, generating $240 billion in revenues for payments providers in 2022, with B2B payments making up 69% of total revenues (on 97% of the payment flow).16 Consumer payments are more profitable and are projected to grow more rapidly over the next 5 years. The U.S./Latin America corridor, the largest in the world for C2C remittances, is expected to continue growing robustly given family remittances and U.S. humanitarian aid.

Despite the volume of capital flows and benefits that RTP could bring, cross-border payments continue to operate on traditional rails or networks designed to handle wires, credit and debit cards, and international ACH transactions. These traditional networks are:

🔹 slow, with wire and card transactions taking 2-5 business days to settle;

expensive, with costs ranging from 0.65% to 9.85%19 of the transfer or payment;

🔹 less secure than new networks operating to the ISO20022 standard as the messaging format of legacy rails provides little information regarding transactions;

🔹 opaque as the long settlement times limit visibility into true liquidity positions.

RTP networks have the potential to address all the issues identified, just as they do in local markets, by linking domestic networks across borders. Singapore connected its PayNow service with Thailand’s Promptpay system to launch the first true cross-border RTP network, and later linkedPayNow with India’s UPI service. The Bank of International Settlements Innovation Hub (BISIH) launched its Nexus project in 2022 and built a working prototype to connect the test systems of three established RTP networks – the Eurosystem’s TARGET Instant Payment Settlement (TIPS) system, Malaysia’s Real-Time Retail Payments Platform (RPP), and Singapore’s Fast And Secure Transfers (FAST) system– across borders. Similarly, the Immediate Cross-Border Payments (IXB) pilot was launched as a collaboration between U.S.-based TCH and Europe’s EBA.20 The pilot linked TCH’s RTP network in the U.S. with ECB Clearing’s RT1 network to process $:€ transactions and was designed to add additional currency corridors after the planned commercial rollout in 2023.

To date, however, no major trading corridors have implemented a commercial solution. Imagine if FedNow, the U.S. Federal Reserve’s real-time payment rail network launched in July 2023, were to link to Brazil’s PIX network to facilitate RTP flows between those countries.

The FedNow rails are not a finished product and currently aren’t interoperable with other networks, but with this functionality FIs could deliver fast, cheap, data-rich, and transparent cross-border transactions.

Source Activant Capital