Progress in payments, like most things in life, does not come all at once. Or at all evenly distributed for that matter — a situation made starkly noticeable by the different pace of change in consumer and business payments.
If you were to whip out your checkbook to pay at a restaurant tonight, it would look as strange to your dining companions as if you had whipped out an abacus to calculate the tip. However, when that restaurant wants to pay its seafood supplier for the shrimp that went into your shrimp cocktail — the odds are still pretty good that a paper check is going to get written and no one is going to look twice at it, because in B2B payments paper checks still play.
That world, however, is also evolving as the field for helping merchants is getting more crowded with players that want to help businesses big and small make the jump to the digital age. And while that is good news, Currency Cloud CEO Michael Lavin, in a recent conversation with PYMNTS, noted that it is good news followed by an asterisk. One has to be looking to make those payments domestically — because once B2B payments have to go cross-border, things get a lot more complicated, a lot less transparent and a whole lot less efficient and digital.
“When you look at the world of international payments, we are really talking about three things,” Lavin told PYMNTS. “There is remittances — the line from the U.S. to Poland or the U.K. to China for consumers. There is a lot of innovation in that market and those individuals are being well served. When you look at business payments on a domestic level there’s lots of things in the mobile world, Square and Stripe for example, and again a lot of innovation in that world. When you look into the world of international business payments — not consumer and not domestic business — there actually wasn’t a lot of innovation.”
And so Currency Cloud was born, Lavin said, to fill in that hole and bring “the same types of technology and innovation” that was happening across the rest of the payments world into the specialized world of international B2B payments, though they also offer their main technological innovation: the Payment Engine as a white label service that, via an API, powers a variety of other payments services that allow consumers to move money worldwide. Among the better knowns of their 125 or so clients are Azimo, TransferWise and xe.com
Lavin said Currency Cloud’s essential service and guiding principle of the firm is a simple and transparent way to make international payments happen.
“Easy-to-use technology and price transparency are themselves the major — what you have to do behind that might be technically complex, but one of the issues and probably the main issue with international business payments is that businesses have no idea what they are paying,” Lavin said. “If you make a business payment through your bank and you want to pay in euros, the bank makes the payment and at the end of the month you find out what happened cost wise.”
Currency Cloud’s main competitor is traditional banks, which handle about 85 percent of the world’s business payments. Banks are also generally a more expensive option for transfer services and a slower one that is less accessible.
And it is a model that is catching on. When PYMNTS last checked in with Lavin and Currency Cloud in 2014, the firm had just snapped up $10 million in VC funding, and was processing $4 billion in 212 countries worldwide, with its API serving over 100 platforms.
Earlier this week, the firm announced it had picked up another $18 million in VC funds in a round led by Sapphire Ventures, and Currency Cloud picked up a new investor in the form of Japan’s eCommerce giant, Rakuten. Previous investors, including Anthemis, Atlas Ventures, Notion Capital and XAnge Private Equity also jumped back on the funding train.
And those two new names should turn some heads. Sapphire is the now-independent venture division of enterprise software giant SAP. Rakuten, though mainly known stateside for eCommerce, is also in the FinServ business on its home soil, which likely explains why the investment came via the firm’s FinTech Fund.
Rakuten’s foot in finance will likely be significant as Currency Cloud looks to expand its business to Asia.
And Currency Cloud’s expansion ambitions are not only eastward facing. Lavin also indicated that much of the new $18 million the U.K.-based firm has taken in will go toward expanding its reach and depth in the U.S. market.
“The challenge for individuals and businesses is that the compliance and regulatory bar keeps getting raised continually,” Lavin said. “Every time you hear about a banking scandal, regulatory scrutiny goes up. That means you really need to know the complete journey of any amount of money- who’s sending it, who’s receiving it. We take the position that we build our platform to the highest available standard on the theory that even if the bar is lower, we will eventually have to clear that bar. That’s the way the world works, especially when there is a payment made across a border, knowing who is involved really becomes paramount.”
The third week of June saw a notable pickup in investment activity, as total funds flow topped $8.6 billion for the week. That ranged across venture capital and a few strategic agreements, which tallied 88 deals. In terms of total dollars, The June 15-19 period showed a marked change from the previous week, a rather staid period at $1.4 billion.
Much of the most recent week’s activity was dominated by one large transaction, in which financial firms Advent International, Bain Capital and Clessidra bought Istituto Centrale delle Banche Popolari Italiane for a whopping $2.4 billion. That deal is the largest one to date in June, superseding the $2 billion raised by Friedman Fleischer & Lowe two weeks ago in a trade finance deal that closed that firm’s fourth equity fund.
Looking to activity within sectors, 42 percent of all the third week’s deals tracked came from the retail payments side, which again was marked by the aforementioned Istituto Centrale deal. But beyond that, and far below that level, the next highest deal by dollar amount came from the $80 million deals for both a late-stage funding found for Sumo Logic and a similarly sized deal that took Rapid7 public.
The Istituto Centrale buyout helped flip-flop the geographic dominance for this week; whereas Europe has historically lagged the U.S., this time the region led, and the U.S. followed. The European region (ex Russia) accounted for a bit more than half of the third week’s activity.
Turning to retail, looking at all activity in that space, flow stood at $3.6 billion, with almost all of that traceable to banking, data analytics tied to eCommerce, and security/fraud-related transactions.
Turning to the heavy hitters to year to date, the Istituto Centrale agreement takes the top of the list with a few deals in the billion dollar (or nearly that level) mark, which then drops off quite quickly.
The data shows continued dominance of trade finance and B2B, or commercially-oriented transactions, with a grand total of about $41 billion to date across all sectors. The entire month of June has seen $3.7 billion across trade finance, or 74 percent of all the month’s activity, with a followup in commercial transactions via B2B at about $700 million, or 14 percent.
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