[00:00:00] Pritesh: Hi, everybody. Welcome to our fourth episode of Talking Edge. I’m your host Pritesh Ruparel, Chief Executive Officer at ALT21 This afternoon I’m honored to introduce our guest today, Mike Laven, the CEO of Currencycloud. Mike has almost 30 years’ experience at the helm of a number of high growth FinTech and technology businesses, and is well known for his ability to build venture-backed organizations and lead them to profitable growth.

Mike, welcome. Thanks for joining.

[00:00:37] Mike: Thank you. Happy to be here.

[00:00:39] Pritesh: We’ll start off by giving everyone a little bit about your background.

[00:00:45] Mike: Thank you to you and to Barry and to ALT21. I’ve known Barry for quite some time, as a partner with the Currencycloud. I’m certainly happy to help you out.

I started with the Currencycloud to raise the initial funding 10 years ago in 2012. I think as everybody probably knows, we recently concluded a deal with Visa where there’ll be acquiring a company, and that’s currently being approved by the regulators. Prior to Currencycloud, I ran a company called Traiana, which those of you in the FX world may know. We connected pretty much the world’s hedge funds to their prime brokers for the purpose of effectively settling FX in the back office. We worked with CLS bank and every major FX bank in the world in terms of the foreign exchange technology and back office.

Prior to that, I had a pretty long career in FinTech in Silicon Valley and in London. 30 years is generous, but in terms of myself, I’ve been in the financial technology world long before we called it financial technology. In the capital market side and the infrastructure side, not as a trader, always as a technologist in the financial technology world. As you can tell, I’m an American, but I live in London.

The Currencycloud journey

[00:02:10] Pritesh: Lovely. Well, I think everyone in FX knows Traiana and the touchpoints it has across the market. We’re pleased to have you on board.  We could begin by talking a little bit about the beginnings of Currencycloud from your journey.

[00:02:25] Mike: The technical founders of the Currencycloud, Nigel and a couple other people, came out of a trading background and had an initial vision that businesses were not being treated fairly, particularly small businesses in the world of cross-border payments. When we looked at that, in a sense when you do a remittance payment all of those payments look the same, but when you look at a business payment all those payments are different. The payment by a wealth manager that’s cross-border when they are, say, settling an account or taking an investment; and the payment by remittance firm or the payments to do accounts receivable or accounts payable, those are all cross-border with FX, but they have often very different workflows.

The vision was then to make effectively the money transfer system, or the receipt of the money, its conversion and the payment, accessible by an API that could be built into the application or the website of the other firm. The initial thinking has stayed pretty much the same. The business has evolved dramatic. Accessing FX by an API is table stakes for a lot of things these days; it’s a very common thing to do. When we started, it wasn’t a common thing to do.

The product vision of Currencycloud has grown dramatically since very simply receiving and converting, to now where we have a collections business. We work with issuers, we work with acquirers, we work with banks. We provide, for example, Starling Bank, Revolut, Monzo – the whole series of neo-banks, Bunq in the Netherlands – all are users of the Currencycloud for if not all, for parts of their flows.

The business has evolved from accessing an FX rate and a transaction via an API, to a much richer provision of services, but all around the world of FX. We are all about and only about cross-border and all of the things that have to go along with it.

[00:04:31] Pritesh: It’s an amazing footprint that the company has built from the stages of series A all the way to the billion-dollar acquisition that you have at the moment. What are the key milestones that you feel you’ve experienced through that time?

[00:04:48] Mike: That’s a really good question. Of course, there’s raising the money. Number one of the principles behind a venture backed business is that you lose money until you scale. The cost of building the infrastructure, if you can think of it, the number under the curve, is what needs to be financed. If you’re some firms these days, then you need to finance more and more. You’re reading these days about many $100 and $200 million financings along the way.

I think the big thing for us is when we got to our first billion dollars of money transfers. The next thing is when this year we’ve got to our second billion during the month. I’m talking about billion during a month. We’ve now over well over 2 billion and close to 3 billion per month in terms of money transfer.

One way to is to measure it in terms of the kinds of customers we serve and the amount that we transfer. That’s a huge milestone. Then the financing is very important as well. The infrastructure to scale has to be built well in advance, and essentially you need money in the venture model to be able to do that. We’ve never been afraid to take the money in terms of servicing our clients.

I think the milestones themselves are the flow that we have. We’re now at over 500 customers, though there are millions of end-users behind that. Remember, one of the important things for the Currencycloud is I’m not a direct to end user company. I’m selling to Starling Bank, and Starling Bank provides the services to their customers. We’re having the service to Freetrade, Freetrade provides the service to their customers; to Mercury in the US and they provide the service to their customers.

We have over 500 customers. We just hit our 400th employee. During lockdown we’ve hired over 200 people. Everybody pretty much interviewed via Zoom, and also onboarded into the company via Zoom, which is a big milestone as well.

I think that the milestones themselves are the growth, which is measured in the flow that we take, the number of customers, and the number of employees that come into the company. It’s been quite a journey. We expect that journey to connect with Visa, where we can be able to tap into Visa flow and Visa clients as we grow the company.

[00:07:16] Pritesh: Amazing. Would you say that ALT21 itself works on a partnership model and B2C? Would you say that that was one of the key learnings that you picked up through the Currencycloud journey? Did you have an evolution in that business model?

[00:07:32] Mike: We have a B2B, we call it B2B2X, because it’s B to B to B, or B to B to C. What we see with companies who are around our space, who start out as very good companies in a direct to end user business, and try to move that model to a partnership model, they find it very difficult. The fact that we are a partner company means certain things have gone slower, and some of the viral nature that you can get in the consumer business is harder to get in a partner based company, since you’re selling through people and you’re really dependent on them and their businesses to be successful.

If you think of it, we started with the FX conversion accessible via the API. But to be a B2B2X company, different firms will take different pieces of the product. Some care about managing their beneficiaries, some care about sub-accounts and managing collections. Some care about one flow rather than another. The product itself had to be accessible in many different components, and had to be far richer. In addition to which, remember anytime you’re making payments, one of the major drivers is compliance. One of the confusing things of the cross-border payments business, as I’m sure you and all of your customers know, FX is an unregulated market and payments is a heavily regulated market. We’re in a business where an individual transaction has a massively, heavily regulated component; and a massively, heavily unregulated component as part of the same time.

We’ve had to build all of that thinking into what we do. At certain points in development of the product, there were conflicts. If you did something well, that didn’t fit FX the way the world looked at FX. But if you didn’t do it, it didn’t fit the way the regulator looked at the world of payments.

In the end, with a company like us, where in the UK we’re regulated by the Dutch National Bank and by a whole series of US states and a variety of other people, how you do regulation and you manage compliance becomes a huge driver. All of that has had to been built into the product, because we often deal with unregulated companies, but we have to provide them a regulated service. The product is pretty rich in regulation and compliance. That’s had to be a major driver of what we do.

[00:10:03] Pritesh: I can relate to that in the same journey that we’re taking. Would you say the regulation has been the hardest thing about scaling, or has it been tech, people, funding? What do you think?

[00:10:15] Mike: The thing is, regulation is a given. I often hear people complain about, this is difficult or that. It’s just a given. We’re making payments. The regulator’s interest is protecting the customer and protecting the infrastructure more than what we’re doing. There’s no getting around that. One just has to do that. I don’t look at regulations as difficult or not difficult. I just look at it as the air we breathe and the thing that we have to do.

The hardest things to do are to get the attitude towards the customer; to understand the customer’s business problem. When you’re doing a money transfer for an individual, and what they’re trying to do is to pay their mother on a monthly basis in India, the business problem they’re trying to solve is fairly straightforward. They want mom to get as much as they can, as fast as possible, for as little a fee. But often the business problems we’re trying to solve a much more complete. In a business transaction, often a lot of data has to move along with the transaction. We’re integrated to a data system.

For example, if a payment is going to release inventory, it’s then going to be shipped, then the timing of the payment becomes incredibly important. But often if an invoice is coming out net 30, then whether the payment has to be instant or not is not really the issue. The issue is whether the data and the money get there at the same time, so that that can be synced up.

The challenge for us has always been understanding a customer’s requirements. The system has the adaptability because it’s access via the API, but so that we can provide that service and understanding of customer. In the end, we’re taking in money, we’re converting and we’re paying it out. But how people use that is very different in very different cases, and helping understanding that has really been the strength of the company.

[00:12:28] Pritesh: I think that’s right. You’ve really understood the journey and brought that to market in so many different ways.

[00:12:35] Mike: Different markets segments or different kinds of customers have very different journeys. Lately we’ve seen a lot of activity in European wealth tech companies as they’ve started to invest in the US. You’re effectively collecting money from European customers in pounds or euros, converting into dollars, sending it to some intermediary firms in the US, who then invest it in the US markets and send it on the journey coming back. That’s a very different workflow and timing than paying your mother the $100 in India. Understanding that and how people do it has really been a key part of our success.

The European FinTech Ecosystem

[00:13:18] Pritesh: That’s great. Speaking about the European FinTech ecosystem, what do you feel is the current state of that? How do you think it compares versus Asia and the US?

[00:13:32] Mike: In Europe, many businesses historically have always thought this cross-border, though the Euro created a larger market. But even then, with the countries on the periphery who are a part of Europe but not part of the Eurozone, all those Scandinavia in Eastern Europe and of course the UK, there’s a consciousness inside European companies that you will be cross-border from the beginning. Very much the same in much of Asia. You don’t have that consciousness in the US. In the US, you can build a world-class large company and not think about cross-border at all. You can do that in China as well.

The markets are very different and the customers are very different. The US is the largest international trade entity in the world, but it’s also the largest economy. It’s a smaller segment of the economy. The challenge in the US is that FinTech firms drive their domestic business first usually, and then drive their international business. When you look at a European business or even an Asian business they’re often cross-border from the beginning. The ecosystem in Europe, whether it’s ourselves and cross-border, there’s a whole series of firms that sell banking as a service product. There’s another series of firms that sell open banking products, there’s FinTech firms and receivables and payables. It’s a much richer cross-border ecosystem than it is in north America. Not that there aren’t those firms in north America, but they don’t necessarily have to be cross-border to start. It’s quite a different business.

Asia in that sense, from an infrastructure play, is not dissimilar. If you’re a Singapore company, you’re probably selling in multiple currencies all over Asia to start when you set your business up, not only in SNG dollars. A lot of the thinking and the kinds of things that we talk about to firms in Asia resemble those in Europe. But the US is totally different in that, just because of the size of the economy.

[00:15:45] Pritesh: That’s great. What do you think about the UK FinTech ecosystem post-Brexit? Is Amsterdam the new London? Why not Dublin, or Berlin?

[00:15:55] Mike: I’ve spoken about this a number of times, though I haven’t addressed the Brexit issue in a long time. Nobody is the new London. London stays as London.

As I said, I was in the FX market long before Brexit and long before Currencycloud. I don’t know the number anymore of what percentage of world foreign exchange London carries. It used to be about 40%, in New York 40%, and everybody else 20%. I’m sure that’s changed, but I don’t know what the current number is. But the depth of expertise in London, in not just FinTech, but in lawyers and accountants and marketing firms and every kind of security firm and infrastructure that goes along financial markets, way outstrips what you get in any other European capital.

There are great firms in Paris and great firms in Germany and Amsterdam as well. We certainly had to move and relocate part of our solution to Holland, so we could have a new setup. But none of those countries – though they experience real growth, and Berlin particularly is experiencing real growth – will supplant London is the capital. We’ve had here the advantages of one, that depth of technical expertise, plus a particularly innovative regulator. The FCA has encouraged innovation, which has really helped to make the UK a FinTech hub. I don’t see any change in that at all. We have the people, we have the expertise and it’s very deep, and we have the sources of capital to fund the companies.

Other places will be good, other places will be interesting, but neither Amsterdam, Paris nor Berlin will be the new London when it comes to that.

B2B vs B2C vs B2B2C

[00:17:47] Pritesh: I think even in our own company’s roots, emerging from the sandbox is a clear sign that the innovation that’s encouraged by the regulator in the UK and to bring new products and businesses to market is a great sign. I know there’ll be plenty of our listeners that will be keen to get your view on the B2B, B2C or B2B2X dilemma, as you said it. What do you think are the challenges when you’re executing each of these models?

[00:18:17] Mike: As I said, B2B2C is quite different than B2B2B. You’re often now getting third and fourth party services as well. The pure remittance market, which is a critical market, whether it’s a market from the UK or an island in Eastern Europe, or it’s a market from developed countries to the global south, our critical markets – and you’re dealing with important flows, macro flows for those individual countries – doing those in a way that benefits migrant communities is incredibly important.

We have some role in that with some firms, though there are bigger firms where we service people who are in the migrant remittances, principally the Eastern Europe. But more often than not, we’re servicing the B2B2C market, where it’s a company like Revolut where they’re both paying out the card, which we’re not doing, but they’re paying out to account as well.

There will always be companies like TransferWise, which is a great company, and Remitly in the US for the Philippines in India, as MO in London and a whole variety of other companies, that do a tremendous job on the consumer side of remittances. We have a much more difficult task on the B2B2X of the B2B2B side, in terms of getting the data of understanding what our customers are doing, in terms of onboarding, in terms of dealing with non-regulated entities, in terms of dealing third and fourth party with people. The challenges in building the B2B2X flows are very different.

I think what you’ll see going forward, especially now that one can’t be just regulated in the UK and passporting is gone (and UK firms still needs to be in the continent, the UK itself is big enough to start, but if anything is cross-border, it’s going to have to include the rest of Europe), you’re going to need a lot more infrastructure to be able to do that. The challenge in the B2B market is multiple sources of regulation, multiple sources of compliance. To the extent that the UK diverges in its regulatory models, whether Europe diverging or the UK is diverging, it doesn’t matter. If they’re different, they’re different. That will just cause you to have more overheads at when dealing with business customers than you had before.

We’re finding little hidden corners of Brexit that nobody had thought about – banks, particularly on the continent, who hadn’t thought about different flows, how they’re charging through different flows. I would say we’re by no means at the end of seeing the disruptions that came from a changing regulatory systems from the UK to the EU. I think the big issues people understood. It’s the little issues that we’re getting to now. Those little issues could be very confusing for people.

We’ve also seen a lot of UK customers who weren’t ready. They didn’t think it would be real, or they didn’t know that their business would grow in the EU and that they wouldn’t be able to service it. We’ve had to work with a lot of our customers, particularly new customers as well, to help them using our infrastructure and our regulation to find a solution for their business outside of the UK, which they just weren’t prepared for. I think people weren’t prepared, many weren’t prepared. There’s lots of ins and outs that are working themselves out right now. We’re not by any means done.

[00:22:02] Pritesh: Sure. In these different business models, do you think it’s open banking that’s to some extent merging maybe B2B and B2B2C and X?

[00:22:15] Mike: Open banking itself hasn’t totally played out yet. Our friends at Visa also require tick in terms of open banking. The uptake at open banking has been not as great as the uptake in the number of companies who are providing it. There’s a lot of companies who were providing open banking solutions and products, but the uptake on the consumer side isn’t as great as one would know. We don’t know how that plays out right now.

One of the things in FinTech is sometimes you think that people’s banking is more important than it is to them. It may not be in the end.

[00:22:56] Pritesh: That’s a great comment. From your perspective, is infrastructure the new VC darling?

[00:23:03] Mike: I don’t know infrastructure as VC darling. We like to think of ourselves as infrastructure.

The first way, if you think of companies like TransferWise and Remitly and WordRemit, good and big companies and they service to consumers, because the B2B part and the enterprise part is harder that often comes later. That’s no different than a whole variety of other markets as well, whereas consumers can move very quick and very nimbly and respond incredibly well to discounts and efficiencies and lower prices. Businesses are harder. Businesses are different. They have longer policies; they take longer to make decisions. Then the infrastructure comes after that.

The banking as a service concept or the distributed finance concept, or let’s call it the embedded finance concept, is that when you look at the delivery of financial services, right now for the most part they’d been delivered by banks. The first step of that desegregation is a series of FinTech companies who then take pieces of that financial flow away from the bank and then deliver those in an optimized fashion. Then those have to be put back together for the individual consumer. The next stage of that, the embedded finance part, is firms like ourselves, banking as a service firms, open banking firms, put together a range of services so that Tesco or whoever it is can become a bank and offer more specific financial services.

In the end, consumers and businesses don’t want complexity. They want it to be simple. There’s always a tension between optimizing individual components and then re-aggregating those components to make it simpler for the client. Again, the way Currencycloud has thought of that is, we do one thing, which is we do cross-border payments. The may be delivered to a customer by a bank, it may be delivered to the customer by remittance company, it may be delivered to the customer by banking as a service who bundles that with them, it can be delivered by a trading company. But we’re specializing in something that we think would fit in to everybody else’s infrastructure plays.

In that sense, when you start to move to business and enterprise, infrastructure becomes important. You’re seeing a lot of investment that goes through into that kind of infrastructure on the bet that the financial world will start to look different.

Future of payments

[00:25:39] Pritesh: That’s great. I’m sure a lot of the people that are tuned in would be very disappointed that I didn’t get chance to ask you about the future of payments. With more and more payment formats, how do you think the system will cope?

[00:25:54] Mike: The world has to be 24/7 in an instant. A lot of the business payments that we were doing, if you’re building a customer net 30, the concept of instant is very different. No one’s getting paid instant. But once the payment is executed, then it has to be instant. But the concept of instant is ambiguous in a lot of the business things that we’re doing..

Nevertheless, once the payment is initiated, it has to move right away. One of the things is that things will move in an instant fashion on a global basis. Where there isn’t an accessible faster payment scheme, one has to do that. Also, there’s a lot of discussion right now when you look at the BNPL companies or companies like GoCardless, that will the card rails start to change or will the payment rails start to change?

On the other hand, we see that in a couple of different ways. We see a lot more payments in card. Because after all, what is the card except a virtual wallet in some ways? The sense of virtual card, if you’re paying to a virtual card, how different is that from a virtual account? Hard to say. But I think you’ll see much more wallet to wallet transfer, a lot more account transfer, and a richness of where money is held that moves away from a simple card rail to a very different sense. You can see that with the huge growth of BNPL. If you have a BNPL as a mechanism for financing rather than your credit card balance, that’s a huge play right now in Europe.

[00:27:32] Pritesh: Definitely, we’ve seen the boom there as well. I’ve had a couple of questions come in that tie into this area. The first one is, how do you see the stable coins and e-wallets versus bank accounts and SWIFT?

[00:27:47] Mike: The first question is always a crypto question. Remember that in the US, the CFTC is now going to heavily regulate stable coins, and from there will move into the crypto market. Banks that we deal with still will not process crypto as a payment mechanism.

Crypto as investments, whether it’s direct or by a CFDs, is incredibly important globally. We’ve seen that in the growth of not just Bitcoin, but Ethereum and Fetch and a whole series of other coins that have come up. But generally those are investment areas. If China will clamp down on crypto within China, and it affects the price globally that day, that volatility makes crypto not useful in some ways as a payment mechanism.

The said, the world of instantaneous settlement when you can do it, is incredibly important. We, Currencycloud, would like to work with a lot more crypto companies than we can. If you’re living in a crypto only world, that’s not a cross-border world or a cross-currency world. It’s a closed loop. When you come out of the closed loop, which means that you’re coming from Fiat into crypto, or you’re coming from crypto back to Fiat, then you’re back into a regulated FX world again. We can do that job, but we haven’t done it because we can’t touch the crypto asset. We can load the wallet and unload the wallet, but even that we’ve had to stop doing, pressured from our banks.

I think there’s a massive business there. As you know, some of the crypto world believe that they would be better off getting somewhat regulated now, because that would then approach adoption. We have a deal with Ripple; particularly when we deal with a whole series of banks outside of the major currencies, crypto could be a real benefit to us. Right now it’s tough. Right now the central banks, as we’ve just seen in China and in the US, and the commercial banks, the major commercial banks are not there yet. They’re using it as a mechanism for commerce.

We’d like to be, but right now we’re constrained from doing it. We’ve thought it through, we’ve had various customers, and unfortunately have often had to offload them. When we thought they were legitimate, we thought they did the right KYC, we thought it was all fine, but our banking partners are not there yet and so we can’t be there. We’d love to be there. I think there’s a huge future in whether it’s stable coins or other kinds of crypto assets. But from our perspective, that has to do with the degree of regulation. It will then make it acceptable to banks. Maybe less acceptable to the crypto community but make it acceptable to banks. Then the business problem that we solve, which is effectively the cross currency, will become a major problem in terms of loading and unloading your crypto wallet. We think there’s a huge opportunity for us to do that efficiently, but the world’s not there yet.

[00:31:08] Pritesh: You do feel that they will co-exist with Fiat. It’s just a matter of regulation and things like that, which needs to evolve in the space.

[00:31:19] Mike: Fiat currencies will always continue to be there. National currencies are not giving up their position. Whether the US treasury or the EU will issue stable coins in their own digital currency, and give every individual their own digital wallet, we don’t know how that market will evolve. I think digital currencies are here, but they’ll coexist with Fiat currencies in a world going forward for the foreseeable future.

For companies like ourselves who deal with the friction between those two items, that friction will always be there. It really is a regulatory issue right now, and we’re not there yet.

[00:31:59] Pritesh: I’ve had another question coming as well. Looking at the payment’s fragmentation, do you think it’s increasing or decreasing?

[00:32:07] Mike: If we go back to the prior discussion, you can pay the card, you can pay to account. You can pay faster and you can pay slower. The mechanisms by which one pays, I’m an American, I certainly settle some bills in the US by Venmo. On the other hand, when I’m in Europe, I can’t download the Venmo app from the US app store onto my European account. I have to have a US phone to use Venmo.

To the extent that if Facebook, for example, build payments into what they did, then you’re starting to get multiple different payment rails all moving with lots of reconciliations between times. I think it fragments long before it comes back together. As we see, money can move in lots of different ways. That’s good for efficiency, but it often can be pretty confusing for people who just want it simple. The individual consumer just wants it to be simple. Again, firms like ourselves and plenty of other firms who provide interfaces so that it makes it simple for the consumer, will always have a role.

[00:33:17] Pritesh: Do you feel that there’s going to be a consolidation that brings it back to the world, like the super app for payments that does everything?

[00:33:25] Mike: I don’t know. This is a huge world of a huge market, and there’s not going to be one major person who dominates it. You’ll get big firms that have larger chunks of the market, but I don’t see there being a super cross-border global app overwhelming the world. New Zealand will continue to like New Zealand dollars, and Argentina will like their pesos.

You have never lost betting that the world will continue to be diverse and that there’ll be multiple requirements, whether that’s from a macroeconomic basis or a cultural basis. That persists. For ourselves, for example, paying in multiple countries, they’re multiple different regulations, multiple data requirements, multiple interfaces to banks. No individual bank optimizes everything. Crypto isn’t going to be there. It’s going to be a messy world for a long time.

[00:34:32] Pritesh: Mike, I’d like to thank you for joining the podcast today. It’s been great to hear about the Currencycloud journey, your views on the European FinTech ecosystem, and the future of payments. I’m sure many of our listeners have found that very helpful.

Was there anything else? You have any final thoughts for our listeners? Otherwise I’d like to thank you for joining me today.

[00:34:50] Mike: No. Thanks for the opportunity. Best of luck to ALT21, you’re a valuable partner. I can get some important service. That’s about it.

[00:34:58] Pritesh: That’s a great validation for us, thank you. Thanks a lot, Mike. Take care.

[00:35:02] Mike: Thank you.