Tougher regulation may be boon for cross-border payments players

CROSS-BORDER payment companies are facing regulatory challenges as they gain popularity and expand their reach. Some industry participants, however, believe a tougher environment will be a plus as barriers to entry go up.

Last month, fintech company Wise had to pause its e-wallet service in Indonesia as part of efforts to avoid confusion on its services. The company could only offer e-wallet services “for a selected period of time” under a licence for another Wise entity. (See *Amendment note)

Its cross-border remittance service is still accessible.

Fellow fintech startup Nium, meanwhile, is now facing a probe by the Enforcement Directorate under India’s Ministry of Finance.

Its investigations allege that Nium’s network was used in a money-laundering operation in India. Nium said it is cooperating with authorities and will continue to fulfil regulatory obligations in all the countries where it operates.

Like Wise, Nium offers various cross-border solutions including remittances and multi-currency accounts.

Wise is taking a proactive approach to regulatory disruptions, said the company’s Apac head of expansion, SK Saraogi. This means constant engagement with regulators, from consultations to advising them on what the company has done in other markets.

“Because we are dealing with this (on) a large scale, we have lessons from a lot of places and have developed a way on how Wise wants to engage,” he said.

Over at YouTrip, founder Caecilia Chu said the company tries to budget in the time needed for regulatory approvals when launching into a new market.

She thinks regulation is good for the company, which offers multi-currency accounts for overseas spending.

“It establishes the entry barrier for anyone who wants to run this business – competition will dilute your opportunity, but I feel this won’t be the case for fintech,” she said.

Both Wise and YouTrip have been buoyed by a rebound in travel and growing adoption of digital payments.

Wise’s customer base in Singapore grew 26 per cent in 2023; its Asia-Pacific base has grown 60 per cent in the same time period. The region made up 19 per cent of its 2023 revenue of £846.1 million (S$1.4 billion).

YouTrip, which recently secured a US$50 million Series B round, has hit its “profitability goals”, said Chu.

Financial filings for the Singapore subsidiary showed revenue rose to S$17.7 million in FY2023 ended Mar 31, from S$3.6 million in FY2022. Losses narrowed to S$7.6 million from S$10.1 million.

“The market for consumer fintech has expanded over the last two years after Covid,” said Chu. “We are seeing the market perception of e-wallets has turned a lot more positive.”

From their bases in Singapore, both Wise and YouTrip are making moves into other parts of Asia. Wise views India and Japan as potential bright spots, although Saraogi also said all the markets are “very important in their own way”.

For YouTrip, Thailand’s population of more than 70 million is presenting a prime growth opportunity, with its pace of new user acquisition there on par with, or slightly faster than, that in Singapore. The fintech company entered the Thai market in November 2019.

YouTrip is applying for licences in three other Apac markets, Chu said.

Price competition in cross-border payments has become intense, said Zennon Kapron, director at consultancy Kapronasia.

These players are also seeing more competition from digital banks and traditional banks. Digital banks Trust and GXS, for instance, do not charge card users any fees for foreign exchange spend.

Furthermore, the travel rebound that helped power growth for cross-border payment fintechs is showing signs of easing.

Competing for customers then “comes down to value-added services and what else you can do around that”, said Kapron.

*Amendment note: This article previously stated that Wise had to pause e-wallet services over regulatory disruption.