Visa is using a recently acquired fintech, Currencycloud, to build an Asian hub for cross-border foreign-exchange transactions.
The fintech has since been incorporated into Visa as its cross-border FX arm, part of what the business calls its ‘Treasury as a Service’ offering, says Rohit Narang, Singapore-based vice president of Visa cross-border solutions.
The unit is licensed in the UK and US. It began its Asian expansion in 2022 with a payments license in Australia, similar in scope to its UK operation. Visa (previously as Currencycloud) hubs its global FX processing through the UK, but this creates time zone issues: a client in Asia may have to wait an extra day to settle the FX leg of a payment if the transaction has to route through London.
Now Visa is applying for a Major Institutional Payments license in Singapore under the Payment Services Act to provide cross-border FX services. It intends to build Singapore into a regional hub. This is not just a means of improving its services for local clients, but to also go after a bigger stream of payments.
FX in payments
Visa’s cross-border clientele is licensed financial institutions and fintechs. These may be card issuers, or not. The one client segment that the cross-border solutions team doesn’t serve today is the card-acquirer banks (banks that represent the merchant side of the payments transaction).
Narang’s team’s services are designed to help banks and fintechs serve their own various customer groups, from individuals and small businesses to global corporations.
“Cross-border is the last bastion of high-margin payments businesses for banks,” Narang said. “Everyone’s goal is to facilitate payments in real time for zero fees. But when you do this cross-border, you get into dealing with platforms, regulators, compliance, and all sorts of complexity.”
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Visa’s answer to FX in payments is to move transactions via US dollars. It opens bank accounts for its banking and fintech clients (which they can deploy for their customers). It’s basically an updated version of the existing correspondent banking network, but using cloud-based infrastructure to provide a faster, more tailored offering.
A client in, say, Thailand is selling widgets to a buyer in the US. The Thai company invoices the US importer, which sends dollars to the Thai company’s office in Bangkok. But the company may not want dollars, or it might have a use for them elsewhere.
Visa connects the Thai company’s bank (or fintech) to the US ACH network – this is the Automated Clearing House, a payments network designed for US financial institutions. It does so by offering the Thai bank a nostro account in the US (a nostro account is an account that a bank holds in a foreign currency at another institution). Now the Thai bank can correspond in dollars on behalf of its customers, allowing them to hold dollars, sell them, or convert them to baht. But Visa itself doesn’t touch baht or operate a local bank account in Thailand.
Visa already offered this service to fintech clients. With the PSA license in Singapore, it could also do this for financial institutions.
The biggest use case in Asia Pacific is collections: helping local merchants collect receivables from companies in the West and convert them into local currency. The region’s growth opportunity is small- and medium-sized enterprises – a type of client that was previously too costly to serve this way. It’s Visa’s way to drill down global supply chains.
“Underserved SMEs are the place to be,” Narang said.
As Visa grows this out, he sees the future will be servicing more intra-Asian FX in payments, instead of the primary business today, which is processing those payments from Western buyers to Asian sellers.
Visa is building its cross-border FX hub in Singapore at a time when Southeast Asian countries are knitting together their own domestic real-time payment systems into a regional one. A person from Indonesia or Thailand can now visit Singapore or Malaysia and pay for things with their mobile banking app or e-wallet, and have the payment settle back home in their local account, seamlessly.
Local payment groups say this is explicitly aimed to oust the quasi-monopoly on cross-border payments held by Visa, Mastercard and other global payment processors.
Narang acknowledges these emerging networks are real competition “nibbling at our business”, as he put it. But he says the improvement in local payments infrastructure will be a boon to Visa, not a barrier. It means growing the pie of digital commerce, which will mean both more intra-regional flows by QR payment, as well as more demand for collecting payments from other parts of the world.
Building on top of Asia’s rails
He argues Visa can compete by providing a consistent experience across global markets and currency pairs. A bank in Indonesia might want to stick to local QR codes when dealing with a counterpart in Singapore – but they might want a service that includes US dollars, euros and yen, too.
“Each technology has its own merit, but that’s not the same as ubiquity, the ability to use a single interface for all your needs, and one back end to manage that complexity,” Narang said. “FX isn’t just about the payment, it’s also about regulations and compliance.”
It’s not a smooth ride, even if that use case proves strong. Visa can’t operate onshore for FX payments in markets that maintain currency controls, such as India.
Nonetheless, he says Visa is keen to provide FX cross-border to Asians doing business with other Asians. The pie is attractive because businesses in the region conduct many activities on mobile, and because regulators are building good infrastructure, be in the instant payment connections or friendly regulations in Singapore.
“Serving intra-APAC flows needs work,” Narang said. “It’s going to take three to five years. But the PSA license will be a good start.”