Episode 219 – Smart Takes on Cross-border Payments with Ryan Zagone, Head of Americas, Wise for Banks, and Joanna Wisniecka, Glenbrook

Yvette Bohanan

September 6, 2023

POF Podcast

Government leaders, policymakers, and a host of incumbent and new providers are focusing on cross-border payments. Innovating to increase transparency, lower cost, and make funds available in near real-time is showing up on agendas and roadmaps across the globe.

Providers are incorporating digital payments technologies into their offerings to support faster settlement, minimize FX conversion risk, and address friction points in end-to-end transaction processing. Central banks are investing in new fast cross-border payment systems or linking existing domestic fast payment systems, alongside pilots focused on cross-border central bank digital currencies. With decades of support for cross-border credit card transactions, card networks are not ceding this space – they now support debit push transactions between countries, and Visa has its Visa Direct platform supporting cross-border business-to-business payments.

Money and resources are being thrown at this problem from every possible angle. Yet friction points persist. Money does not get to beneficiaries with equal speed. Costs remain high and hidden. Compliance screening and due diligence create delays.

Ryan Zagone, Head of Americas for Wise for Banks, and Glenbrook’s Joanna Wisniecka join Yvette on this episode of Payments on Fire to raise a fundamental question: Is technology the whole answer? And if it isn’t, what is?

Yvette Bohanan:

Welcome to Payments On Fire, a podcast from Glenbrook Partners about the payments industry, how it works, and trends in its evolution.

Hello, I’m Yvette Bohanan, a partner at Glenbrook and your host for Payments on Fire. Before diving into today’s topic, I want to remind you about our Payments on Fire livestream event on September 14th. We will discuss the future of fast payments in the US with experts from the Federal Reserve, the Clearing House, and the Faster Payments Council. You can find more information and the link to register on our website, at Glenbrook.com. We hope you can join us.

Okay, now, back to the topic at hand. In this episode, we dive deeper into the cross-border payments landscape, focusing on an increasingly crowded provider playing field. It’s a big playing field. An estimated $156 trillion was exchanged across borders in 2022. Roughly 820 million or 41% of the $2 trillion in global payments revenues generated in 2022 can be attributed to cross-border payments. Innovating to increase transparency, lower cost, and make funds available near real time seems to be on everyone’s agenda when it comes to cross-border payments.

Take SWIFT for an example. Through its GPI initiative, SWIFT has worked with banks to improve transparency and funds availability. 4,420 banks support GPI, which translates to about 79% of SWIFT volume. Nearly 50% of GPI payments are credited to end beneficiaries within 30 minutes, 40% in under five minutes, and almost 100% of GPI payments are credited within 24 hours. These are significant improvements from just a decade ago. But according to the Bank for International Settlements in SWIFT, even with GPI, the processing time of payments on Swift GPI is generally short, but differs significantly between end-to-end payment routes. The average payment processing time is eight hours and 36 minutes with the median at one hour and 38 minutes. When you look closely at the glue that has bound cross-border payments together called correspondent banking, you notice unevenness in the cross-border payments.

Some countries are flush with correspondent banks and fintech providers while others struggle to remain accessible. The Bank for International Settlements Committee on Payments and Market Infrastructure highlighted this in a 2019 report, stating that from 2011 to 2018, active relationships in global correspondent banking networks have declined by 20%, and the number of active corridors has fallen roughly by 10%. This has implications for consumers, businesses, market structures, and the overall economic health of some countries, and it shows up in metrics like transaction speed and fees. Achieving efficient, streamlined inclusive cross-border payments requires more than an efficient message infrastructure. It also requires addressing the specific requirements of each payment domain.

And to do this means that for each domain, consumer and business motivations and needs must be understood. On top of this, banks, providers and networks must be able to work at the speed of the messaging infrastructure while remaining compliant with rules and regulations. Lots of people are trying to solve this problem. It’s a tall order. So how are we doing when it comes to modernizing cross-border payment systems?

Joining me to untangle the innovators’ and incumbents’ dilemmas, and improving cross-border payments, is my Glenbrook colleague, Joanna Wisniecka. Joanna, we are so happy to have you joining us for this podcast. Thank you.

Joanna Wisniecka:

I’m so happy to be here to talk cross-border.

Yvette Bohanan:

Is there a day that goes by when you’re not talking cross-border?

Joanna Wisniecka:

Well, maybe not cross-border, always talking payments.

Yvette Bohanan:

That’s right. Always talking payments. Always thinking payments. We’re delighted to have Ryan Zagone, Head of America’s Wise for Banks, joining in this conversation. And for listeners unfamiliar with Wise, formerly known as TransferWise, Wise was founded in 2010 in the UK and is now a publicly traded company. And for the 2023 fiscal year-end that they just had, Wise supported 28.2 billion pounds in payments volume, for 6.7 million active use, and they closed the year with revenues at 240 million pounds. That is extremely impressive results. So congratulations, Ryan, and welcome to Payments on Fire.

Ryan Zagone:

Thank you. Thank you for having me. It’s great to be here with you.

Yvette Bohanan:

I’ve been looking forward to this conversation since we started talking about doing this. You guys have done some really innovative, exciting things at Wise, and I’m so excited that you’re going to be sharing some of those results, and sort of where your minds are now today, after having been at this for a little while. But before we dig into that, I wanted to start by asking you a little bit about your career journey. How did you get into payments, and what brought you into the role that you have currently at Wise?

Ryan Zagone:

Yeah. My career started at the American Bankers Association. I was there through the financial crisis working on deposit insurance policy and payments, a lot on interchange, which was hot at the time, and moved from there to payment consulting at Deloitte. So the foundation of the career was built around policy and strategy. And then in 2012, 2013, I moved into industry, more of in the fintech space. Was on the early team at Ripple, joined pre-Series A, we had some ideas and we were building out product, was there for five years, and then the past three years have been at Wise, continuing that focus on cross-border payments.

Yvette Bohanan:

I have to say, that’s sort of like you’ve placed yourself in some of the most interesting cross-sections in payments over the last 20 years. Was that intentional? Was that deliberate?

Ryan Zagone:

I think some of it can be intentional, but I think there’s also a bigger piece here that we have so much happening in payments, like generational changes happening in payments. With new technology coming in, with instant payments starting to happen domestically with connections between the domestic instant rails to enable more cross-border efficient flows, there’s so much happening in timing, far beyond anything I could have ever planned on my career path. So I consider myself quite lucky to be at the cross section of tech, payments and policy where so much is changing right now.

Yvette Bohanan:

Yeah, it is interesting. I started in this 20 years ago. Joanna, how long have you been at payments? You’ve been in some really interesting places too.

Joanna Wisniecka:

Yeah, so payments for the last 20 years or so. I started out at the Federal Reserve in New York, really touching on payments from different angles. So supervision of institutions that play an important role in the space, payments policy, so working with industry and a number of efforts, and then ultimately ended up in Fedwire, so the RTGS system. And I was lucky enough to be there at the initial stages of the conceptualization of what has now become FedNow. So this was several years ago, before FedNow had had the name.

And then I did a career path change, and moved to Myanmar of all places, continued to focus on payments, though, but wanted to get closer to the financial inclusion space, and more the aspects of payments that relate to financial inclusion. And so really the world of cross-border payments opened up there, and similar to what Ryan highlighted, cross-border payments have been discussed for a long time, and in particular the challenges in cross-border payments, but there is a momentum that’s here over the last couple of years that’s different. And I think part of that is some of the initiatives that are more hands-on and practical, and proofs of concepts that are taking place are just really exciting. So I share the passion and excitement about what’s going on in this space.

Yvette Bohanan:

So let’s get into this. And there are several contemporary themes around cross-border payments. And let’s start with speed. People have been talking about making cross-border payments faster for a long time, and there’s been some good work done. I mentioned the SWIFT statistics in the introduction. Is speed, and specifically faster funds availability, now table stakes for cross-border payments?

Ryan Zagone:

I think that is the critical piece that’s driving a large part of Wise’s growth. So a key part of what we’ve built in our platform that we offer out to our customers is the ability to make instant payments. So we have instant availability of funds, funds delivered in the recipient’s bank account in 15 currencies today. About 55% of our volume settles instantly. So getting funds there immediately is what is driving growth, both on the retail and the business side, especially when you link that to the ability to make payments more certain. And that’s really coming down to guaranteed delivery amount. So if you know exactly what is being delivered, and you know it will be there fast, if not instant. Linking that certainty and speed together, it’s really a generational change in what’s available for cross-border payments.

Yvette Bohanan:

So if speed has gone from this thing that everyone was after for a long time, and I don’t think we’re completely there yet across the board, there’s some unevenness, right?

Ryan Zagone:

Yeah.

Yvette Bohanan:

If you look at the different payment domains, you have person to person payments, you have corporate transactions, treasury, you have big financial institutions paying each other across the border with lots of money moving around, and you have small businesses. Where do you see the peaks and valleys in the landscape right now from your vantage point? Are we solving this holistically across all the use cases, all the domains? Or are you seeing some areas making really good advancements in solutions around this and others kind of still trying to figure out how to do this for groups?

Ryan Zagone:

Yeah, for Wise, we started out as a retail payment provider for retail remittances, where building a product for retail customers, speed, transparency, certainty, were core to what we offered.

Yvette Bohanan:

And so just for everyone… To keep everyone on the page here, retail meaning retail versus wholesale and payments.

Ryan Zagone:

Right. So you and me sending money back and forth, people sending money back home. So just a regular person.

Yvette Bohanan:

So the person to person cross-border remittance space, right?

Ryan Zagone:

Exactly. So we built this payments platform optimized for speed for the retail market. And about five years ago, we started to expand that out to small businesses, as we started to see small businesses look for the same characteristics in a payment that retail customers were. Instant delivery, guaranteed delivery amount, transparency into fees.

Yvette Bohanan:

We call that consumerfication verification of payments, right?

Ryan Zagone:

Exactly.

Yvette Bohanan:

If I can do this, if I can send an email this fast, why can’t I do this with a payment?

Ryan Zagone:

Exactly. So what we’ve seen, where we’re seeing the spike in interest and instant payments, is in the small business space right now, where small businesses are acting like retail customers. They have the same type of expectations of speed and transparency, now realizing there are providers in the space that can give that to them. Really with COVID is where I see a line in the sand within the small business sector, where they started to act more like retail customers, willing to leave a bank much more openly, to look at non-banks or fintechs for payment services, willing to have multiple financial providers.

So they may do some banking with their primary bank, but they also use second and third providers for different types of payments. So this is a big shift from in the past where the small business would just stay with the bank for everything. So they started to act like retail consumers, and were starting to see the ripple effects of that play out. A lot of growth on the Wise end in the small business space. In financial institutions, now really scratching at how do we improve what we offer on the S and B payment products, which is something that we’ve long talked about, as Joanna said, but now we’re at a point where we’re actually seeing product be developed and move.

Yvette Bohanan:

That’s really interesting, because we say this all the time, right Joanna? P2P is the gateway domain into all the other domains, right?

Ryan Zagone:

Yep. We’ve definitely seen that.

Joanna Wisniecka:

On the point of expectations, just this morning I read results of a survey that I think SWIFT conducted on low value payments, and specifically with consumer payments and SMEs. And the results for expectations of high speed of transactions were almost identical between consumers and SMEs. And interestingly, 75% of respondents said they expect cross-border payments to take less than an hour. And that’s the same for consumers as it is for SMEs. And even more interesting, I think only a couple percent, 2 or 3%, said that they would accept anything longer than a day. So this has really shifted.

Yvette Bohanan:

That is a huge change in sentiment. And sentiment matters, right? Because as you’re saying, Ryan, when people are ready to actually change their behavior, then things start to move. You’ve got to solve that chicken and egg problem, of getting the end parties to offer and accept and use this stuff. So sentiment matters a lot. That’s really interesting. So another key theme is transparency. And here in The States, we’ve had Senator Elizabeth Warren and some of the other members of the Senate, sent a really strongly worded letter, I find this very interesting, to the CFPV. I’m sure they talked before the letter was actually sent, but who knows what goes on in DC.

Anyway, this was regarding an approved loophole in The Durbin Amendment here in the US. It was approved by a former CFPB director, and essentially the loophole allows remittance providers to mark up costs for uncovered third party fees. And that’s without disclosing the markup to their customer, which kind of flies in the face of what Durbin was really trying to do. And it makes it difficult for consumers to know the actual cost of one remittance provider versus another, because of the way the loophole wording is worded. And the loophole was sort of there to give… I think to give providers a little time back in 2008. You kind of lived through this, Ryan, very closely, kind of give the banks a little bit of time, and the providers out there, the third parties, to sort of comply with Durbin.

And it was never intended to be sort of extended indefinitely, I think, if you go back to the spirit intent of Durbin. So in the letter, Senator Warren references the tens of billions of dollars people lose when sending money home. And we’ve seen this highlighted… Mark Zuckerberg highlighted this and other issues on cross-border years ago when he testified to Congress about Libra or what became Diem, and what died on the vine, but he was pretty passionate about this in his testimony if you go back and watch. And there’s a number of examples out there with people pointing to the problem. So from your perspective, how do you address transparency? What should we be doing here in the US? What should we be doing around the globe to close that loophole for good?

Ryan Zagone:

Transparency is near and dear to our heart. It’s why we started as a company. Our CEO and co-founders were sending money home from the UK to Estonia, and what was meant to be a $15 fee turned out to be over $500 once the funds were delivered. So there was this hidden fee baked into the-

Yvette Bohanan:

15 to 500.

Ryan Zagone:

Of 500 hidden in the FX rate that wasn’t disclosed upfront. So the origins of Wise were built around a company that would provide this certainty into the total fee to customers, so they can make a truly informed decision. It is in our roots and it is the driving factor behind Wise, even today, to the extreme point where even on our website, we will show customers the fees charged by our competitors, and we’ll point customers to our competitors if they do offer a lower fee.

At this point, it’s quite rare that that happens, that there’s someone offering a lower fee than Wise, but it’s the focus on transparency and empowering customers to make good decisions. There’s a fire that happens when you’re building a company, when you’re building something you need to survive. And it’s like for people living internationally, people sending money back home, the ability to send money home safely and transparently on fees is a critical part of surviving. And we’re at a point now where it’s also becoming thriving. So it’s like, what do we want to build to help our customers thrive? So it’s like lower cost, instant access, traceability of funds, and when you’re coming at… When it’s built into your DNA to build something like that, there’s a certain fire internally at Wise, we’re quite comfortable questioning status quo or pushing how we could do it better to deliver those things, to deliver speed, transparency, so I found it a really enjoyable experience to work where we’re constantly questioning, how do we improve that?

But looping back to your point on transparency, in many markets, it’s now the norm. In Europe, it’s required by regulation that the full fee be shown to customers upfront. That’s now catching on, the Financial Stability Board has included a fee transparency in their payment principles so that the Financial Stability Board, the global body of central banks, that’s sending a marker or a north star on where we need to go as a payments industry. We’re seeing transparency trickle down to other markets.

What I’m most excited about on transparency, in addition to empowering customers, is bringing transparency to the business models in the sector. Because as different companies’ full fee becomes transparent to customers, you’ll see a shift in the market of where customers are going now that they can make more informed decisions. And I think then you get down to what company is built from a platform level, most operationally efficient, how are they designing tech to enable lower cost to customers, as opposed to extracting more fees from those customers? And so I think this will be a place where transparency will drive better choices from customers, but also more innovation from companies themselves.

Yvette Bohanan:

So I don’t want to put too fine of a point on this, but I’ve got to sort of say this out loud right now, because you’re touching on something that’s kind of sensitive. And you have a lot of interaction with financial institutions, with the banks these days, just in what you’re doing. And large banks have a lot of correspondent relationships. It’s sort of like this wedding cake thing that we’ve gone through for years. There’s a few banks at the top that have all the relationships, and then there’s domestic correspondence that connect into the international correspondence, and there’s a whole provider sort of milieu out there of people trying to help banks, especially in the US where there’s 11,500 banks. But this is true all over the world too.

And we’ve also seen, and it’s been discussed in papers from the Bank for International Settlements, that a lot of these countries where it’s been hard, it’s been expensive, and there’s a lot of fees and a low level of transparency and few correspondence, correspondence have been exiting those countries. They have been leaving. And that’s been a concern, because then you have harder reach. But the banks themselves, when you start talking about the economics of transparency and fees and FX, they’re at a fork in the road, because they can continue doing what they’re doing, but we’ve just talked about sentiment is starting to build that people are willing to leave for fast and transparent. But if they go down the fast transparent track, they’re foregoing their P&L, potentially, or probably. What are you hearing from the banks when you talk with them about this sort of point that they’re at, and trying to figure out their next move?

Ryan Zagone:

Yeah. I see it from a place of enabling… defending your customer. If I’m a large bank, I’m thinking of, how do I defend my customer, keep them at my bank, and how do I empower that customer to do more through me? Does that mean the economics of one business line change so that I can better cross sell into other markets or retain that revenue for the holistic client? Maybe, maybe not. There’s another angle here of, how do we enable more transaction growth? And what we’re seeing with some of the banks we’ve partnered with is that exactly. So enabling a new type of payment that can be instant, low cost, alongside your traditional wires, is unlocking a new payment type that can be done through the bank. So there it becomes very much a growth story.

We partnered with Stanford Federal Credit Union two years ago now, a credit union in California serving the tech industry. They’re in the center of Silicon Valley. So there’s a lot of tech employees sending money mostly overseas, or sending money home. In the two years we’ve been live, they have seen the volume through their Wise integration outpace wires by 15X. So this is unlocking a whole new business line, whole new source of growth, on your international payments business that they weren’t capturing before. So we’re seeing… I think in our conversations, it’s much more a growth story than it is, how does this cannibalize an existing international payment product? The two will interplay like your traditional cross-border business and these new payment products, which is natural, the whole market’s moving, but the ability to unlock growth by new types of payments is the theme that’s coming out much more stronger in these conversations.

Joanna Wisniecka:

There’s a cost element to this as well. So what I mean by that is… Well, a number of perspectives there, but one, there are developments in the kind of rail space. So linkages, bilateral linkages between payment systems, new cross-border dedicated payment systems, the BIS Project Nexus effort, a lot of them focus on reducing frictions in cross-border payments. Why are they so expensive in the first place? There are a number of steps along that cross-border chain that contribute to that compliance screening, AML/CFT. And a lot of those efforts, the industry body efforts are focused on reducing the cost or reducing the frictions that leads to a reduction of cost. So there’s that side of it as well. The costs themselves ultimately hopefully do move in that direction, that the question is, does that lead to end user cost reduction?

And I think bringing it maybe back also to the transparency point, it kind of all fits together. As end users have an ability to compare and to see what’s available there in the market, there will be that pressure, but at the same time, the institutions, the providers will be experiencing lower costs as we move forward with some of these efforts. It’s not a simple equation as I’m making it sound, it’s quite complicated. And these efforts are in very early stages, but they are introducing some promising trends. I think the compliance element is interesting, and would love to talk about some of that and what you are doing there to reduce some of those frictions as well and what you’re seeing in the industry.

Ryan Zagone:

Yeah. To get to instant, it’s not just a tech problem where you have to connect to an instant rail. It’s you as a provider or a bank have to optimize the whole value chain of the payment. Fraud screening, compliance monitoring, liquidity, ensuring you have cash in the local market when you need it to make a 24/7 payout, all of your internal ops, so it has to be a commitment for the full business line to go instant. It can’t just be one piece of the payments business that needs to innovate. The choices, if you’re really a bank in this space right now, is do we want to build all of that? And in many places having to do that from scratch, re-architecting the entire model? No. That’s a model that you’ve built that’s deeply rooted in the bank. The easier path is partnership. Partner with someone who has built the expertise, who has the real connections, and start to enable new payment types.

I think that’s where a lot of my work at Wise is focused on that. So it becomes a… You’re starting to see more of a menu for cross-border payments than just having one option, which is to go through your correspondent or through SWIFT. You’re starting to have multiple options on the menu by different payment types. Top of the podcast we mentioned the SMBs are driving a lot of growth in this space. What’s interesting to see that connects to this is, what are the use cases that are driving that spike in SMB interest? And there’s two that we’ve seen off the charts. Employee payroll for employees that are based overseas, and employee reimbursements to reimbursing corporate expenses.

So these are typically low dollar amount, they’re payment types that need certainty, you need the exact amount of that employee’s reimbursement delivered, and you need the payroll delivered on time. So these are the payment types that I don’t see competing at all with the bank’s existing wire business. It’s a new payment product they can enable, particularly for small and medium-sized businesses that are at a point where there’s international hiring post-COVID much more frequently, and their company, their clients, are needing that type of payment service.

What it looks like to me, it feels this space where there’s new needs coming up, and we can service those new needs in new ways. It doesn’t have to be a story of where I think it was more in the past of, we need to reinvent the whole business line, and unplug what we’re doing today if this doesn’t work. Actually, our view is, no, international payments, they’re deeply rooted in the bank. There’s no need to change that, but there are new payment types you can enable that unlock new growth, and unlock your ability to serve your customer better. And that’s where I see this. It’s much more of a collaborative atmosphere happening in the market right now.

Yvette Bohanan:

And you’re leaning into a lot of complexity. The complexity that you’re bringing up that Joanna brought up, you’re kind of leaning into that complexity and saying, “We’re going to solve the friction.” So your thesis is it’s possible to improve customer experience, enable competition, lower cost, and keep things safe.

Ryan Zagone:

Exactly.

Yvette Bohanan:

You’re going to figure out how to do the calculus around that to come up with the solution, which is a tall order. What’s interesting, and very, very early on, Wise has got… Like any startup, in your early days, you went through a lot of pivots, right? There was one point where you were trying to do all natural hedging to resolve things, and you didn’t have enough volume to do that. And then the model evolved, and you pivoted and pivoted, and you’re pivoting and you’re still creating, but one of the things you did at the very beginning pretty early on that was really interesting is you solved settlement friction. And you did it by basically having an account with the Bank of England. Let’s talk about that, because that at the time was pretty… It’s still pretty novel. Have you done… First, let’s unpack that, and then I’d love to know, are you doing that in other countries now and how’s that going?

Ryan Zagone:

Yeah, so to this theme of we build the things we need to thrive, it’s driving us to optimize all the different aspects of our platform, all the way down to how we connect to payment rails and how we settle. So very backend plumbing that ultimately drive what you can provide customers on the front end service. So the approach we’ve done, the most efficient way to settle, is a direct connection with your central bank where you can hold funds there and directly settle with other financial institutions. And at Wise, we often talk about just direct connections. So directly connecting to local infrastructure so you’re not having to go through an intermediary or a third party bank. To do this, to get the most efficient connection that way, oftentimes will require a change in regulation, particularly for a non-bank. But we’ve put that as our guiding light, our guiding principle, of having the most efficient process in place to deliver the best service. So we’ve taken on what’s been a large investment in both policy change, and getting the right licenses or getting additional licenses, and working to actually enable those types of connections.

Yvette Bohanan:

And that policy change isn’t just for you, that’s for the industry.

Ryan Zagone:

It’s for the industry, yep.

Yvette Bohanan:

Which is interesting. And Joanna, you’ve been around the block at the Fed for a while. We can’t do that here, right? You can’t have a non-bank, a non-chartered institution, a third party just sort of come up, a company, a startup or whatever, and get an account at the Fed. That’s not happening here yet.

Joanna Wisniecka:

No, that’s right.

Yvette Bohanan:

So what other countries… We’re talking specifically about interbank settlement here. So before we were talking about faster funds availability, and people expect the money to be available for use in their account within an hour or less for the most part. Here we’re talking about actually the parties or the participants in the chain that are facilitating the payment transaction, getting trued up. And when you go straight into the central bank in a country, you’re in the heart and soul of interbank settlement. And that money is just basically ledger transactions with the central bank essentially. So where else is this going? And what are the economics behind this? What does that look like in terms of savings, in terms of efficiency?

Joanna Wisniecka:

And I would say also consumer benefit, right? And financial inclusion benefits. You have a lot of countries, end users rely not on bank accounts, but on non-bank accounts. And direct access for non-banks to payment systems, whether it’s settlement and clearing, has some real promise there, placing the non-banks on a closer, more level playing field to the banks.

Ryan Zagone:

While their pain points and payments are pretty ubiquitous, pretty global, how to solve them in each market is very unique. Each market is very different. So the pain points we’d see in one market around say the UK where we want to optimize settlement, it’s going to look very different than the pain points we see in Australia.

So it’s like the way we’ve approached it is very regional, where the solution we’ve taken in one market may or may not be the way we look to drive efficiency in another. The local infrastructure and payments, we’re all little snowflakes, we’re all quite unique, and you have to treat them that way. So for the UK, we’ve done a direct integration to the faster payments rail. And we hold our funds for interbank settlement at the Bank of England. That was a policy change that we pushed to optimize both of those processes. We have five currencies today where we have a direct connection to the local rail. We’re not going through an intermediary. In Australia, we were the first non-bank approved for a direct access to the new payments platform, the new instant rail in Australia, Singapore, where we are also connected to FAST, their instant payment rail. That’s a direct connection as well.

And then we have a couple others in the process right now we’re connecting to, a lot of focus around India. We’re utilizing UPI, their new payment stack there, to allow instant payments to any bank in India, and a couple other markets where we should hopefully be announcing soon. So it’s a focus on… Instead of going broad, we’ve gone broad at Wise, we have broad connectivity, we can pay out to many currencies, now we’re going deep. So it’s like building depth to our connection in the market. It’s like how are we connecting? Is it through a bank? Is it through a third party? Or is it our own direct connection where we control the full payment stack and the full payment flow? That’s the most efficient, that direct connection, it takes a lot more investment. We’re taking that now to improve the quality of the network.

So we have this robust network where we control all of the operations ourselves, we’re not reliant on third parties, and we can provide a much more higher quality service to the end customer. Lower cost, faster payout, in… Joanna, you mentioned what does this mean for customers? And we do all this backend plumbing work. What does this mean for customers? In Hungary, we have a direct connection to the local rail in Hungary, and that allowed us to provide a 14% cost reduction right at launch. So it was like direct cost, operational and actual cost, of paid to third party partners, we no longer have to pay since we’re directly connected. For the UK-

Yvette Bohanan:

That’s significant, yeah.

Joanna Wisniecka:

Very significant.

Yvette Bohanan:

That’s very significant.

Ryan Zagone:

The UK was more… Since we’re optimizing both for settlement and connectivity in the UK, we’re seeing a much larger cost savings internally. It’s 9X cost savings from going through a third party through our direct connection. These are significant changes. They’re investments that do drive fundamental changes in how you operate your business financially.

Yvette Bohanan:

So you’re mentioning a lot of instant payment or fast payment systems that you’re utilizing for the rails for the clearing capability. And then ideally whenever you can, the central bank for your interbank settlement piece and funding of the transaction, is it always fast payment systems? Or are you using other systems too when you’re looking at rails? Not all countries. The US has three fast payment systems, so I could ask you how do you choose, but most countries have one, but not everyone even has one yet. So a lot of work is underway globally, of course. What do you do if there’s no fast payment system?

Ryan Zagone:

We integrate with the fastest option. So we’ll take Europe for instance. It’s an easy one. We’re connected to… We pay out over SEPA instant, the instant rail, we also connect with just regular SEPA for larger value transfers. Most of the instant payment rails have a cap on the amount you can send over it, mostly from a security and fraud perspective. So for us, it’s integrating into multiple rails, typically, when we enter a market. Your regular rail where you can send high value transfers, and your instant rail, which can get there faster, but are typically lower dollar amounts. So for us, when we enter a market, rarely is it just one rail. We’re often integrating into multiple rails to accommodate different transfer types and different transfer sizes.

Yvette Bohanan:

That’s interesting. So you talked about going deep in integration. The other… And you have this prior background with Ripple, right? And XRP. And so you know what I’d call both sides of the tech equation and tech debate here. You have a lot of people in DLT working on central bank digital currencies, stablecoins, crypto, and they’re saying, “This is the way of the future, and it’s got to be digital money on this new tech stack. Brand new stuff.” And then you have what you’re doing here with Wise, with the fast payments integration or the fastest option available, going deep, making these integrations very robust, getting efficiencies, serving a broader group of customers and use cases. Is there a competition here in your perspective? Is there a clear way to go forward? Because both technologies take a lot of investment by countries, by providers, by institutions. Where do you see this headed from your vantage point? Is there a clear best path forward for everybody?

Ryan Zagone:

Yeah, I see all these developments complimenting each other. The pain points are all universal, but why we have those pain points differ so dramatically by market. These markets are all so different that the way to solve the problems in different markets, or the pain points in these different markets, you’re going to have to use different tools. So I think it’s really great that we’re having more tools get developed into our toolbox. A key piece of that will be interoperability. So how these different tools work together. Wise’s approach is, let’s weave together all the existing domestic pavement rails, so existing technology, weave that together into a platform, and we pay out over that platform.

You’re seeing the development of crypto and distributed ledger technology come about. I think there’s applicability of that in countries where you don’t have an instant rail, or you have infrastructure problems that maybe could be solved with this new tech. And then you have central bank digital currency looking at how do we optimize payments even further at the central bank level. So it’s like the more tools, the better, emphasis is on when and where you apply the right tool. So I think this all compliments each other in a way, than competing against each other.

Joanna Wisniecka:

We’ve highlighted this earlier, technology is one element here, but you’ve also highlighted the importance of policy changes. The importance of advocating for non-banks to actually be able to participate in the payment systems and transparency. And another element is building trust and security in the solutions and cross-border payment solutions. And again, whether it’s compliance screening and other efforts, that’s all going to require some harmonization across countries as well, and really major policy efforts and we’re seeing some of that. We’re seeing actually a lot of that at the FSB level. What are you seeing there that is exciting? The conversations at the policy level that you’re paying most attention to? We’re paying attention to all of it, but what’s top of mind for you as a payment service provider at that end that the conversation is taking place? What’s exciting?

Ryan Zagone:

Yeah, what’s exciting for me personally at Wise, just from the Wise vantage point, is a focus on more transparency and fees, which is core to us, access to payment rails, to drive more access to markets, to drive more competition in the space. Those are the two that really jump out to us, is transparency and direct access. Outside of just looking at it from Wise, I think what’s really interesting is a lot of these conversations around transparency have been policy driven. So it’s like regulators driving this to the market.

We’re now starting to see it come from the industry. And I’m talking traditional correspondent banks. Recognizing now that they have product gaps, particularly from businesses, there’s payment types they can’t service well today, they want to retain and serve those customers well. So they are now also thinking, “Okay, we need to provide certainty. I need to provide faster payments. There’s product things I need to develop.” And we’re starting, I think, for the first time in my career, to see the traditional correspondence also move in on innovating to unlock new payment types. So when you have two market forces, like the industry looking to better serve customers with new needs, and regulators also coming at this, there’s a lot of momentum coming from both sides that make this to me an exciting space to see.

Yvette Bohanan:

That’s when things move, right?

Ryan Zagone:

Exactly.

Yvette Bohanan:

We’ve all sat in those big auditorium rooms for keynote addresses from some person at some government agency who stands up and says, “As an industry, please do this so that we don’t have to regulate you into doing it.” There’s been a lot of those keynotes out there over the years, and it’s always welcome to see it sort of happening on its own.

Ryan Zagone:

And coming from, I think, a really good place of, how do we help our clients thrive life? Particularly with these new payment types where… Speaking of the small businesses again, salary payments to overseas employees, their reimbursements, even small dollar invoices, these are like new payment types that a bank can unlock for growth and deeper customer relationships. These are payment types that weren’t really top of mind pre-COVID when employment, was generally more domestic. You didn’t have so many people working internationally or working remotely. [inaudible]

Yvette Bohanan:

Those digital nomads.

Ryan Zagone:

Exactly. So international growth has always been important for businesses, but the payments piece was one of the biggest blocker. And as you start to remove that blocker, you start to unlock a lot more growth, particularly for the small and mid-market businesses. And that’s where I think there’s universal interest, from industry tech players, regulators, to all see that happen. So it’s shifting to me from conceptual to really specific and real. It’s like we have a real product we want to enable, we want to be able to enable faster payments or certain salary types to help our customers grow. That’s a really compelling force. And it’s not just Wise, but every player in the market, big bank down to small tech player, we’re all thinking that.

Joanna Wisniecka:

Yeah, and I think you’re spot on that that’s been kind of the thing that’s been missing. Policy objectives are wonderful, and as a former central banker, I absolutely see the value of the conversation. They’re essential. Not having potential participants in the payment system, payment service providers on board, it’s just not going to lead to change. And so this is music to my ears to be hearing that you’re sensing that. That’s a real shift, and we’ll be paying attention.

Yvette Bohanan:

Fantastic. Ryan, Joanna, thank you so much for being on this episode of Payments on Fire. It’s been a delightful conversation and really illuminating. Really appreciate everything you shared, Ryan. People ask a lot of questions about Wise in our education workshops, and we’ll be pointing them to this podcast, I’m sure, to get the low down on where things are at, at least at the moment. But I’m sure there’s more ahead as well. So thank you very much for being here today.

Ryan Zagone:

Thank you for having me.

Yvette Bohanan:

And Joanna, I know you work in this space all the time with our clients, so it’s great to have your insights and comments here, and questions. So thank you so much for joining.

Joanna Wisniecka:

Thanks for having me be part of the conversation.

Yvette Bohanan:

And for all of you listening, thanks for joining us. Again, if you like this episode, please feel free to share it with your colleagues, friends, aunts, uncles, cousins, whoever you want to educate on cross-border payments, and what’s going on in this space. Keep up the good work and please tune in next time. Bye for now.

If you enjoy Payments on Fire, someone else might too, so please feel free to share this podcast on your favorite social media outlet. Payments on Fire is a production of Glenbrook Partners. Glenbrook is a leading global consulting and education firm to the payments industry. Learn more and connect with us by visiting our website Glenbrook.com. All opinions expressed on our podcast are those of our hosts and guests. While companies featured or mentioned on our show may be clients of Glenbrook, Glenbrook receives no compensation for podcasts. No mention of any company or specific offering should be construed as an endorsement of that company’s products or services.

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