Open banking meets decoupled debit in new U.K. Currensea card
U.K. fintech Currensea has launched its first open banking-based debit card for British small businesses trading internationally. The card, which links to users’ existing high street bank accounts, builds on the pre-open banking concept of a decoupled debit card.
In the U.S., decoupled debit cards are meant to save money by moving funds as an ACH transfer from a consumer's bank account instead of performing a more expensive credit or debit card transaction. Thus, they are favored by merchants such as gas stations, which typically offer a discount for using their cards.
Currensea's open banking debit card has a similar mission, but with a focus on lowering foreign exchange fees. SMEs spend around an estimated £4 billion a year on foreign exchange fees, according to Diginomica.
SMEs pay £5 a month or £50 a year for their Currensea cards, and receive interbank FX rates 24x7 on 16 currencies, including the South African Rand and Thai Baht. For all other currencies, Currensea uses the Mastercard wholesale rate, which is 0.4-0.5% higher than the interbank rate.
“Currensea’s model tackles these costs head on by allowing businesses to eliminate FX costs on their cards, whilst preserving the convenience of using their normal bank account,” said Marc O’Brien, Currensea investor and advisor and former CEO of Visa U.K. and Ireland.
The launch of Currensea’s Mastercard-branded SME card follows its introduction in January 2020 of a similar consumer debit card for foreign travel. Currensea’s founders, former investment bankers Craig Goulding and James Lynn, started the company in 2018 after being charged heavy bank fees for using their high street bank cards while vacationing in Europe.
“Fees for foreign currency transactions can quickly add up when using regular bank cards, so this is an area that has been targeted by many fintechs and challenger banks,” said Zil Bareisis, Celent senior analyst.
Currensea’s consumer and business cards face competition from challenger banks and fintechs such as Starling, Curve, Monzo and Revolut, which offer low-cost foreign card transactions and low or no monthly fees on their accounts.
Currensea hopes that SMEs will be attracted by the ability to enjoy the cost savings of cards from challengers, while retaining their existing high street bank account and not having to set up and fund separate challenger bank accounts or prepaid cards.
“Business current accounts for the U.K.’s five million SMEs are highly concentrated amongst the largest U.K. banks, and these banking relationships are extremely sticky,” O'Brien said. “Consequently, businesses tend to use their own bank card and are usually charged high rates for international payments”.
Currensea doesn’t charge FX purchase or foreign transaction fees, compared to the average 3.25% U.K. bank charge for foreign transactions, and offers zero ATM withdrawal fees up to £500 per month.
Currensea’s interbank rates are provided by an unnamed global investment bank that supplies it with liquidity in foreign currencies 24x7, even at weekends, said Goulding. Both he and his co-founder previously worked in FX roles for various investment banks. Goulding also has a background in open banking, since he became chief engineer for open banking at Lloyds Banking Group in 2015.
Consumers don't pay a monthly fee to use a Currensea card, but they pay a 0.5% mark-up on interbank FX rates. Alternatively, consumers can pay £2.50 per month and get interbank FX rates. Currensea also generates revenue from interchange, especially outside Europe where, because of EU regulations, interchange is capped at 0.2%.
“Our consumer card is targeted at the 35-plus age group in the U.K., as we feel this demographic is less likely than millennials to want to open accounts with challenger banks,” said Goulding. “They are more wedded to their high street bank.”
Currensea saw sign-ups affected by the lockdown, which prevented people from traveling abroad. So it decided to target SMEs who need to purchase goods and services abroad.
Despite COVID-19, 10,000 people have signed up for consumer Currensea cards so far, and the cards have been used in 120 countries with transactions in 70 currencies, Goulding said.
Currensea plans to launch its cards in markets where open banking has already been introduced such as Europe and Australia. Another possible market could be Canada when it introduces open banking following a Canadian government consultation which has been on hold because of COVID-19. “But before expanding elsewhere, we want to get as much traction as possible in the U.K,” Golding said.
In addition to foreign business travel, Currensea’s SME debit card is intended for purchases of foreign goods and services such as software licenses. SMEs get 3-4% savings from using Currensea cards for foreign purchases, Goulding claimed.
Among the SMEs using Currensea cards are wine importers who previously purchased foreign wine through PayPal and a merchant who imports agricultural equipment from Northern Ireland to the Irish Republic.
There are also fintech clients who use Currensea cards to pay for U.S. software licenses in dollars, for example from Salesforce.com. Currensea pays for its Salesforce.com subscription with its own debit card, as does Colenko, a U.K. debt finance provider for property investors and developers.
“Attaching a new card to our existing business bank account and getting free FX is an unbelievably simple idea,” said Rob Roscoe, Colenko’s CEO. “We now use Currensea for our international payments whenever we can, as the savings go straight onto our bottom line and we don’t have to worry about doing money transfers.”
Currensea has amassed over £5 million in funding, with private investors including Mark Kimber, Worldpay’s former CIO; Marijn Muyser, co-founder of Booking.com; and Robin Terrell, former CEO of Amazon U.K.
Currensea is a principal member of Mastercard, and is licensed by the U.K.’s Financial Conduct Authority (FCA) as a payments institution and as a card-based payment instrument issuer (CBPII).
Under the U.K.’s Open Banking regulations, a CBPII is an open payment services provider which issues card-based payment instruments to initiate transactions from accounts held with banks. This is similar to decoupled debit in the U.S., with the difference that CBPII issuers use open banking to connect to underlying bank accounts.
Before launching, Currensea took part in the FCA’sRegulatory Sandbox, which helped the company get through the various regulatory hurdles.
When customers apply for Currensea cards, they consent to Currensea’s using open banking APIs to verify they have sufficient funds for purchases or for making ATM withdrawals, and to putting a hold on the purchase amount. Currensea also uses open banking technology to conduct KYC and AML checks on new customers with their existing bank.
“Using open banking for our identity checks lowers our onboarding costs,” said Goulding. “In a sense, we’re standing on the shoulders of giants, as the banks have already performed a lot of due diligence on our customers.”
In the U.K., Currensea’s closest competitor in terms of technology is Curve, which issues an all-in-one card linked to its customers’ existing credit and debit cards via open banking. The key difference, according to Goulding, is that Currensea links only to users' existing bank accounts, not their cards, and consequently doesn’t pay acquiring fees.
When customers make a purchase with their Currensea debit card, the transaction is passed to Currensea over the Mastercard network, and the funds for the payment are drawn via direct debit from customers’ associated bank accounts. The U.K.’s BACS network is used to process the direct debit from the customer’s bank account, as this is cheaper than using Faster Payments.
“When a customer taps their card in a store, they want the payment to be friction-free, which is why we opted for direct debits,” said Goulding. “Using a payments initiation API where the customer would have to authorize a transaction through their banking app would be too slow in a point-of-sale situation. All our cardholders have to do is tap their card or insert it in a reader and enter their PIN.”