“We try to eliminate the intermediaries in the payment ecosystem”

December 2016

Abdul Naushad, chairman and founder of PayCommerce, talks about the plans of the company, including strategies they implement to realise a cost-based model and improve security.

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  • PayCommerce has been working on creating a cost-based model to help banks save costs
  • Naushad shared that PayCommerce has been focusing on large portfolio opportunities rather than work with mid-size to smaller payment service providers
  • The company has spent a lot of time building a standardised security around its networks

Here is the transcript of the video.

Emmanuel Daniel (ED): I’m very pleased to speak with Abdul Naushad, the chairman and founder of PayCommerce, one of the emerging technologies that is transforming the payments landscape and may well change the way in which banks, other institutions, and remittance companies use a platform for transferring money across borders and maybe disintermediate existing players like SWIFT. Abdul, give us an idea of the business you have set up and the payment platform that it created.

Abdul Naushad (AN): First of all, thank you for this interview. PayCommerce is a global payments network, which enables cross-border payments mostly for banks and service providers that enables them to transfer payments into 74 countries. It also enables not just the disbursement of payments but also the acceptance of payments.

ED: How is that different from what banks do today in terms of using SWIFTNet and how banks transfer large volumes of funds across borders?

AN: Traditionally with cross-border payments, the supply chain, as I call it, has so many players in the ecosystem. There is an originator, an intermediary, there may be another intermediary in the beneficiary country, and then finally the beneficiary bank.

ED: And the network.

AN: Right. They use SWIFT, traditionally, to message each other. How PayCommerce is differentiating in many ways is that this is a real-time network, which means the technology on which it is built and how it is built is for the next generation of the payment ecosystem. In the model, we try to eliminate the intermediaries; at least one intermediary in the worst case scenario. It creates less friction in the supply chain.

Creating a cost-based model

ED: The reason I was excited about speaking with you is that, what you are building becomes ubiquitous and all banks and traders us that. There will come a day when payments can happen between two persons in different countries using different currencies. A lot of the charges in the process can be eliminated, especially the foreign exchange charge and interchange charge. How far are we from that role?

AN: Today, the way we have modeled the ecosystem or the supply chain, it can save up to 80% in cost from the traditional ways of how we transfer money today. I think you will see that improve over time.

ED: How many banks are your members right now, and where are you in making that cost-based model a reality?

AN: We have over 90 banks worldwide that are giving us access into 74 countries. From a cost perspective, we currently have significant savings. For the cost-base model, it is a reality today. We transfer over $400 billion dollars over the network. Most of the customers are banks and we are helping them enable this cost for the payments for their customers.

ED: How many banks do you have as members?

AN: Over 90 banks as members in 74 countries.

ED: In the U.S. how many do you have?

AN:About three or four banks in the U.S.

ED:And these are large banks?

AN:They are typical medium-sized banks. We do have some large banks on the network. We are getting more interest from the large banks at this point.

ED: Why would not banks make a beeline to your door if they are going to save a lot of the costs? And I asked this question because at the back of my head, banks thrive on friction in payment, as you would say, because that’s where they make more of their money. Is yours a revolutionary platform that banks will make a beeline to your door or is this something where they are still taking a wait and see approach?

AN: Most of the banks, as you know, are followers rather than leaders. There are few banks that are leaders in their own industries and those banks will certainly take the first initiative. Some of them are already working with us. Some of them are evaluating, or taking a wait and see kind of an attitude. But to your earlier question, I wanted to talk about why are banks not doing this on their own, or why are they waiting around?

I think banks have been traditionally wasting a lot of money in their tertiary platforms and payment solutions. And after a lot of spend, what’s going to happen is that it just enables that one bank to support its customers for a very high cost. So for them to recover these costs, they have to charge high fees.

ED: They have legacy that they need to amortise over time. Then why did not you succeed with the non-banks, the remittance companies, and the exchange companies?

AN: There is a significant entrust from non-banking institutions that is in the payment space. We have already worked with some of the large ones in the industry. Because there is a lot of demand, we are trying to focus on large portfolio opportunities rather than work with mid-size to smaller payment service providers.

ED: So you are only growing as fast as your own servers and your own technologies. How long will that be in terms of being able to scale?

AN: I think that is the fundamental reason why we have recently raised a round of capital to scale the process on how we mode customers. We are trying to make it self-moding. We are trying to automate a lot of the know-your-customer (KYC) processes. So that really can bring scale. It is self-serviced by the banks, suddenly creating a Linkedin type of a model for financial institutions where they can connect online.

ED: You are not the only player of this nature in the marketplace. There are several similar propositions. Am I correct to say that yours is on the web; it is an open platform?

AN: We are an open network, for sure. A lot of companies have their own definition of network. The term network could mean they have their own set of bank institutions that have their own accounts at those institutions.

We don’t touch money. We are not in the money service business, which means we are not regulated as a money service business. That gives us much more flexibility on how we innovate.

ED: Is that an advantage as opposed to other models?

AN: I think it’s an advantage; that’s what I’ve learned so far. A lot of banks typically tend to shy away from partnering with money service businesses and we’re not getting that kind of pushback from banks because we are a network.

Strengthening cyber security

ED: There are two very important issues that I want to explore quickly. Cyber security and payments. Given the amount of fraud that is increasing on traditional networks, is that an opportunity for you? And how do you view security on an open network?

AN: Certainly, it is an advantage for us because we have spent a lot of time in building security around our network. We have the opportunity to enhance our security for several banks in the process because we evaluate every customer’s security and try to standardise or enhance it.

ED: What should cyber security be in today’s world?

AN: If you look at SWIFT, it is within the SWIFT network for securities that is the focus. But outside the SWIFT boxes, there are upstream and downstream processes where it lacks security. That’s the challenge that customers are facing. You have seen events that have happened recently. These are all things outside of that SWIFT box, which is where there are vulnerabilities. In e-commerce, the way it automates security even within the box of e-commerce network, we identify anomalies on any sort of suspicious transactions and on any devices that connect to the network, all these are validated and made sure that it is secure.

ED: In the years that you’ve been in business, from 2007 to today, what were the uptake points that you saw incremental changes?

AN: I think the significant changes from the banks have been in the last three years. Certainly, a lot of larger banks are looking for third party solutions like private networks or techs to solve a lot of these problems. We are significantly seeing that kind of interests from larger banks in the market.

ED: Do you think that the legacy world of SWIFT’s days are now numbered?

AN: I think they have to change. SWIFT has built a network that has sustained over many, many years and I think they have perfected the messaging. There are a lot of things that we can learn from them. But I think as the next generation of payment systems that is emerging and that is required for immediate payments across borders, there are several other features where SWIFT traditionally has not focused. That’s where I think we are making the difference.

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