To blockchain or not to blockchain?
Last week, an iced tea company saw its stock price surge just by putting the word "blockchain" in its name. The very next day, bitcoin — the virtual currency for which blockchain distributed ledger technology was created — lost several thousands of dollars in value.
Blockchain technology has uses beyond bitcoin, and many companies see merit in using it to handle cross-border payments. But blockchain isn't the only solution to the inefficiencies of international money movement.
Boston-based Flywire's experience developing its cross-border payments business over the last eight years suggests that while blockchain may introduce some improvements to managing payment ledgers, it will be tough to bypass many of the other necessities of international payments, said Mike Massaro, Flywire's CEO.
“Cross-border payments tend to be complex because of all the things you have to include to protect against fraud and money-laundering, and it’s hard to imagine that the cost of providing that would ever go to zero,” he said.
Flywire specializes in helping companies to receive B-to-B payments from senders around the world, with flexibility to control the cost, currency and timing of the payment with the greatest advantage for both parties, using a network of bank and other partners, according to Massaro.
Blockchain technology could provide more direct connections between some of the participants in Flywire's payment chain, accelerating the process and cutting costs by eliminating intermediaries, he noted.
“We move money via debit and credit and our underlying system essentially is based on balancing a ledger, which is what blockchain does,” Massaro said.
Flywire has entertained the idea of using blockchain. It met with several blockchain technology providers to discuss partnerships and even acquisition, but Massaro said, it’s not easy to apply blockchain technology concepts to Flywire’s services.
“We’ve seen a lot of interesting technology and a lot of companies that have raised a lot of capital for blockchain technology, but so far we haven’t seen anything we believe could get better results or improve the economics of our current processes,” he said.
Flywire plans to continue studying blockchain technology. “If we see some blockchain technology that delivers real value to what we’re already doing, we’ll be in a position to use it, but right now it's all very conceptual and frothy,” Massaro said.
Cross-border payments is one of the busiest investment niches in fintech, and Flywire within the last year has done its own expansion beyond tuition and health care payments services to handle general business-to-business transactions, where it sees major growth opportunities.
For the immediate future, Flywire is focusing on building a customer base for the commercial B-to-B service it launched in spring of 2017, years after beginning its initial cross-border payments work handling tuition payments for college students studying in other countries, and more recently in cross-border health care payments.
When Flywire moved into general B-to-B payments this year, the company expected to see demand coming mostly from smaller companies in niches like travel and publishing, where it has some experience.
But in addition, Flywire is getting business from U.S.-based manufacturers sending parts and finished products to other countries. These clients need help receiving payments from those buyers.
Makers of auto parts and fire-fighting equipment makers selling products in Europe and Asia are two areas of new business for Flywire.
“We’re in a very hot payment space, and it’s generating a lot of activity,” Massaro said. “There’s both opportunity and competition, and blockchain may eventually provide a way to streamline some of the processes in cross-border payments, it doesn’t necessary solve the whole problem."