Built 13 years ago on the premise that it is not easy for charitable organizations to get donations into developing countries facing a natural disaster, INTL FCStone Ltd. has transformed itself into a cross-border payments provider that banks and corporations have increasingly found useful.
FCStone's London-based global payments unit this week reported it had signed its 500th "institutional client" as it continues to provide money transfers into developing countries mostly for international aid and development organizations, but also global financial institutions and multi-national corporations.
About 99.9% of FCStone's money transfers are considered electronic payments, but they essentially move into the same "box" for the company to prepare them for transfer in the proper currencies to the correspondent bank partners in various countries, said Carsten Hils, global head of INTL FCStone's global payments division.
"Some of these payments would go through a local Automated Clearing House system, or some could go through wire transfers to follow all of the rules and regulations in that particular country," Hils said.
FCStone's "box" reformats the transaction for the payment process in the country receiving the funds, moving it along to a local bank through FCStone's system, Hils said.
"We spend a lot of time and money making sure the customer experience is better," Hils added. "Sometimes we can't do a payment electronically because a country may not be advanced in that area, so in some cases it may just require a phone call, saying kind words to a person sitting in that bank to make the payment happen."
FCStone differentiates itself from other services, Hils said, by putting its own capital into the mix to speed up payments, especially when a country is in need of funds quickly to recover from a disaster.
"A lot of companies have the client give the money first, then start the process of making a payment," Hils said. "We don't do that. We extend credit, when approved, to all of our clients so the payment goes out immediately, and then the client pays us later."
FCStone takes the risk up front in that scenario, but it feels confident in the large charitable organizations, banks and corporate clients it serves that receiving payment will not be a problem in most cases.
The company, which also has offices in Singapore and New York City, maintains a network of 300 correspondent banks in providing its service to 175 countries in 150 different currencies. FCStone says it is on track to establish a record year in payments, topping the $22 billion it transferred in 2015.
In a cross-border provider playing field that has the likes of Western Union, MoneyGram, Earthport, Payoneer, WorldRemit, Swift and others for for clearing and settling payments, FCStone wants to stand out in targeting developing countries and putting up its own capital to speed up payments.
"They suggest the risk is rather low, but I still think that it is a very real risk," said Nancy Atkinson, wholesale banking expert and senior analyst with Aite Group.
Atkinson pointed to an incident earlier this year in which Earthport warned clients of possible losses of £5 million ($7 million U.S.) from their foreign exchange subsidiary Baydonhill, which made payments on behalf of a client in advance of receiving the funding. And that was with a payment model in which the payment initiator has to prefund the transactions, she said.
"To date, they have not recovered the funds, but have suggested that the customer may have intentionally engaged in fraudulent activity," Atkinson said. "Given FCStone's model, though, it could be a problem as greater losses are likely the more the cross-border payments market grows."
Still, FCStone's service addresses a significant problem area for banks and other organizations seeking to move money into developing countries, Atkinson said. "They provide key services for international clearing, FX conversions, and regulatory compliance," she added. "Banks would otherwise have to establish these on their own."
Which is why so many banks came forward about five years after FCStone had established itself as an option for charitable organizations to deliver money to Africa, South America or Central America countries in need of aid.
Banks have found FCStone particularly practical if they are making regular, but not numerous, payments to a specific cross-border region, Hils said.
"They would rather provide the service through us, rather than build the infrastructure themselves to do this," Hils said."It might be a bank having to make one payment to Bolivia a day, and they don't want to create a whole new setup just to do that."
Global companies with call centers or distribution centers in developing countries are also using FCStone to make payroll or supplies payments in those countries. "For example, Uber drivers in Asia have to be paid at some point, as that type of technology has led to the need for more cross-border payments," Hils said.
U.S. companies paying employees in other countries were sending transfers often initially paid in dollars or on prepaid cards, Hils added. "We are able to do those in the local currencies now."
With the recent security concerns arising amongst Swift system members, Hils said FCStone is acutely aware of the need to have a strong security network, including making sure its correspondent bank partners are also utilizing strong security practices.
"We use the Swift system in a lot of banks, and we believe that is the most secure way to communicate with those banks," Hils said. "But as we bring our information into those banks, we have to make sure our data is secure as well."