I am in Barcelona, invited to speak at the GCF 2022, an event held by the currency production and management industry association. I couldn’t catch my breath going from our great CROSSTECH LATAM conference in Sâo Paulo, Brazil last week to come to this exciting event where I have never been invited before. Besides all the technology that goes into printing, distributing, and managing cash, the GCF explores all the issues surrounding cash use, policy, and regulation. From an excellent lecture by Professor Bill Mauer on the Future of Money to many breakouts – one on Crypto and Cash, where I was invited to participate. The event explores the relationship between cash and digital. Like any financial services industry (like ours, the cross-border payment space), digital is in every corner of our daily existence, and technology breakouts are held daily at this event. The cash industry heavily relies on digital technologies to exist. And the probability of CBDCs (Central Bank Digital Currencies) being implemented was a big part of the discussions here.
The big question for me is why are the challenges to any financial services industry that uses cash predominantly so demanding? As I pointed out in my panel, not only is the management of the use of cash by most of the customers we serve with our remittance products – mostly migrants — challenging but the destination countries we serve are deemed risky. Every effort in KYC, risk management, AML, CTF, etc., does not seem to get us closer to a financial ecosystem that we can depend on. At a breakout session here on the humanitarian uses of cash – and the challenges charities and international agencies face, we hear the same stories on how important cash is to the poor and how difficult it is to partner with banks that serve the institutions that serve them. We do understand that banks don’t want much to do with cash, and they fight its use while at the same time not letting go. There is an expression in Spanish used by one participant: “Ni come, ni deja comer” (they don’t eat, and they don’t let others eat). Why can the cash be handled by cash management companies improving the logistics behind the use of money, its collection, and distribution? So, what is the solution? None? Are Regulators not acting because they feel that cash must be gone? Cashless also seems to be part of their policy. There is a massive war on the use of cash, sometimes with not so clear motives.
Derisking & Debanking: A new season is out.
A new season is streaming as I write this blog. New episodes are added weekly. Few banks are willing to serve the cross-border payments industry, and the few ones willing must be brave enough to face the regulators. So, new alternative methods to survive are being implemented to find ways to skip the use of banks in sending countries. In contrast, their bank counterparts in the developing world have become more active as remittance distributors. Regulators voice their insistence on banks in the US, Europe, and many other countries, to provide services to license payment entities that they regulate, but nothing seems to improve. How do we get out of the cash vs. digital dilemma and understand that it is very important for our societies its coexistence and intimate partnerships? Not only for our own sake (yes, freedom, independence, democracy, and other values we believe in) but for the right of our customers to use the paying methods they prefer without being severely penalized for their choices (yes, the poor, the unbanked, the migrants, the elderly).
For years, as a consultant, I have helped companies build partnerships with banking institutions. Recently, I have been advising banking institutions on working with cross-border money transfer and payment companies. I participate in workgroups set by regulators to communicate with industry players as well as board associations and trade groups. I am still an optimist, even with all the setbacks and the closing of the banks that have served the industry or the debanking measures taken by so many of them. The banks, to us, become the villains, and my banking colleagues, in turn, blame the examiners, the correspondent banks, the fear of reputational risk, the shifting regulatory demands, etc. We understand the issues, but the solutions seem to trickle down slowly. Very slowly.
The lack of banking services and banking rails for the cross-border payments industry is increasing when more and more firms enter the sector. Yes, digital players, fintechs, and serving established corridors are having an easier time accessing banking channels; that is undoubtedly happening. It increases the digital divide in many communities, and the use of remittance apps excludes many ethnic retail businesses from the customers they use to serve. Some of these ethnic agents use digital payment systems to serve their local clientele. This is new and expanding.
Brett Scott, author of Cloud-Money, a book recently released, used the following simile in his panel at the GFC on the relationship between cash-based companies and banks. “Some parents might say that they are neutral to their siblings’ relationships. But if one of your kids is repeatedly bullying their sibling, the parents need to intervene. Most of us will agree on that. Central Banks and regulators in many countries are aware of the bullying that is taking place in the financial services marketplace and refuse to act, and hence, letting the bullying take place”.
So, the cash-based cross-border payment companies are being pushed out of the ecosystem. And we are talking about 70% of the remittance market! The shift to digital is happening, but it is being manipulated. As a consultant, a large portion of my engagements help industry players in their digitalization journey through partnering and innovation.
The Reserve Trust Company: a sad affair
There is not much I can mention about everything that has been going on with RTC in the past months and all the notices received by their account holders – many of them that we helped introduce to RTC with the assistance of my colleague and friend Rob Ayers. This mostly political issue, which has nothing to do with our industry, is related to President Biden’s nominee for Vice Chair for Supervision of the Board of Governors of the Federal Reserve System (the Fed), Sarah Bloom Raskin. Republican Pat Toomey of the U.S. Senate Banking Committee has been questioning the involvement of Ms. Raskin in obtaining the connection of RTC to the Fed in 2017 – that was previously denied, and so many fintechs are seeking. In 2020, Ms. Raskin received nearly $1.5 million by selling her shares in RTC to QED Investors, where Amias Gerety works; Mr. Gerety was one of Raskin’s subordinates at Treasury before. You can google the whole affair and draw your own conclusions; we will watch what will happen next.
We are trying to help the companies affected with new banking partners as well as the banking institutions that are willing to serve them. I hope this case highlights the need for the Fed to make an effort to accept more banking fintechs’ connections, as this sad affair clearly shows the urgent need.
The MoneyGram and the CFPB
Most of our regulatory and compliance colleagues have carefully reviewed the little information available about the case that the CFPB has brought against MoneyGram this past month, and I have heard their comments as we prepare for our CROSSTECH COMPLIANCE 2022 event on June 21-22 in Miami. I don’t plan to analyze the case in this blog, but I want to point out the very well press release by the company on May 2nd. The press release has been very well received by the industry, which, same as MGI, stands for consumer information transparency and the fight against fraud protection for our customers. I hope you read the press release from which I have extracted just one sentence: “a search of the CFPB’s Consumer Complaint Database shows that in the nine years that the Remittance Rule has been in place, only 351 complaints were made to the CFPB against MoneyGram for failing to deliver money when promised. These complaints represent 0.0001% of the over 325 million transactions subject to the Remittance Rule that MoneyGram processed.” This case will go on for months. As we have seen in the US and other countries, sometimes it takes a brave company to stand up for the industry’s good as a whole.
Cash & Crypto: My panel at the GCF
I must thank the organizers of the GCF for their invitation to this event and the engaging sessions that I attended, and the outstanding colleagues I met for the first time. I hope the recordings of the sessions are released soon, so the cross-border payments industry watches/listens to some of them. From different angles, panelists Robert Kopitsch Thamim Ahmed and myself, Hugo Cuevas-Mohr, were masterfully moderated by Carola Ferstl. The question was simple: How can cash and crypto coexist? The answers were very complex.
My take was that crypto is a solution for cross-border settlements for the cash-dependent remittance industry, where access to banking channels is scarce. There are some successful ways the systems in place are working, and the ones being piloted can surely help the industry. There are also ways to serve some corridors and countries where other methods are expensive or do not work at all. It takes creativity, the creation of independent verticals – even with parallel banking partners, and companies willing to think outside of the box. B2B is also a segment that can be served with crypto, especially with the use of stable coins. Colleagues from the crypto sector are indeed helping us advise companies seeking solutions and seeking to serve crypto-interested customers. Now that regulation seems to be getting implemented and best practices worked out for the sake of transparency, compliance, and regulatory needs. CROSSTECH WORLD on November 15-17 will have panels on these and other subjects.