Co-opetition is the Future of Cross-border Payments
In venture capital, not all buzzwords stand the test of time - to put it politely - but there are some I'm willing to bat for. One is 'co-opetition' - the act of co-operation between competing companies. Put simply, businesses that engage in both competition and co-operation can be said to be in co-opetition. When the ideal balance is struck, this combination will enable knowledge sharing while retaining the core components of antitrust that help to foster a competitive environment.
One might say that co-opetition is a form of strategic alliance. It is particularly effective in solving problems that arise at the international level, where regulatory frameworks fail to align. It is also highly common between software and hardware firms. As a result, the many predicaments of cross-border payments sit within a certain sweet spot so far as co-opetitive endeavours are concerned.
The past twelve months have provided ample examples of why co-opetition is needed in cross-border payments. At the end of last year, Indonesia's central bank launched Fast Payment (BI-FAST), a real-time, 24/7 payments infrastructure designed to boost the country's economic recovery.
The move followed similar initiatives launched by regional neighbours including India1 (IMPS/UPI), Singapore2 (FAST), Thailand3 (PromptPay), Australia (NPP), Hong Kong SAR4 (FPS) and Philippines (InstaPay).
These trends illustrate the growing pivot away from cash and towards a digital economy driven by real-time payments - or 'RTPs' - which enable instant, round-the-clock money transfers between two accounts at the same time, or between different financial institutions.
Real time payments are valuable for a number of reasons. For end users, the are convenient and flexible, allowing for instantaneous, mobile-first payments, whether for settling bills, paying goods in retail store or shopping online - all without cash. For banks, RTPs remove the burden of processing cash, or other physical instruments, like checks.
Then there is the public sector. For regulators and national governments, RTPs provide an incentive to promote financial inclusion agendas, since payments can be made through mobile apps without the need for a bank account.
This is particularly important for the Asia Pacific region, where up to a billion people still lack access to basic banking and financial services. RTPs will be crucial in bringing millions of people into the digital financial ecosystem, most of them residents of emerging economies.
But while RTPs are booming at the domestic level, cross-border usage has failed to get off the ground. Payments on the international playing field continue to rely on outdated payment rails like wires and other burdensome mechanisms. None of these methods are instantaneous.
Cross-industry collaboration and co-opetition is urgently needed if RTPs are to enable seamless, instant transfers across borders.
The biggest hurdle to cross-border adoption of RTPs is the lack of interoperability between the various national payment systems. National regulators continue to promote domestic digital infrastructure characterised by country-specific data laws. This only creates further barriers to collaboration.
The question is therefore how to establish a cross-border RTP system that requires internationally-agreed standards of technology and governance, while at the same time complying with a dizzying array of national and international laws and regulations - especially in relations to Know Your Customer (KYC) and anti-money laundering (AML).
Co-opetition is the critical component in overcoming these challenges. By leveraging the strengths and technological expertise of various RTP players, nations can make financial, intellectual and technological resources work more effectively to the benefit of the consumer.
Smart venture capital can act as the catalyst to springboard the cross-industry partnerships needed to make progress in this space. A major reason my fund invested in Malaysia's Savii, for example - which supports over 400,000 employees with safe, convenient and affordable loans, advances, mental health support, financial education and COVID insurance, with no risk or obligation for employers - is because of its ambitious partnership programme, through which it collaborates with other firms in the data, payments, banking and HR solutions industries both to improve its own product and offer its services in return.
Given the complexities involved, the cross-border payments space is in dire need of such cross-fertilization. Stakeholders will need to share knowledge, tools and technology to cultivate innovative solutions to complex problems.
Priority number one will be tackling the issue of privacy, namely the lack of a single governance model that accommodates the data and privacy policies and payment regulations of different economies.
There is also the need to address consumer concerns around cybersecurity. The instantaneous nature of RTP transactions can lead to concerns around fraud and money laundering. This is especially the case when compared to payment settlement systems such as direct debit or electronic transfers, where a legacy of robust cybercrime tools and practices has reinforced consumer trust.
Fundamentally, for cross-border RTP transactions to succeed - governments, regulators, banks, fintechs and other stakeholders must move away from a winner-takes-all approach and push for the accelerated development of a RTP ecosystem that benefits all parties.
It is the role of venture capitalists not only to identify those start-ups most conducive to knowledge sharing across their industry, but to steer them towards partnerships that will enhance their product or service to the broader benefit of the market as a whole.
Tim Heath is the founder of Yolo Investments, where he is a General Partner