Payment processing gets even more critical: German bank executive speaks out

Payment processing has long been a difficult proposition for FX brokers. It may well be about to get better

Within the retail FX business, the ability to securely process client payments to and from brokerages is a major consideration, and a key business area in which there has been a constriction of options available due to the merchant services firms – namely Visa and Mastercard – having for many years looked down their noses at the retail FX businesses that are not based in the US, UK or Australia.

Payment processing and the ability to receive deposits from traders and pay withdrawals seamlessly is a key operational factor for most retail FX companies, however due to the activities of the small, retail industry specific entities in Israel and Cyprus, this has become a very difficult market for bona fide brokers.

Today, a Deutsche Bundesbank executive has called on the banking sector to develop a pan-European mobile payments platform capable of competing with systems from Big Tech giants from the US and China.

The comments come from an interview with Bundesbank board member Burkhard Balz, first published in Handelsblatt and reprinted on the central bank’s main Website.

Quizzed on the idea of a European solution, Balz says: “Here in Europe, we need to prevent a situation from arising in which American and Chinese payment systems are all we have left to choose between. Highly successful firms from the United States and China are looking to carve out a huge chunk of the European market. Hence the desire to forge a payments solution with a clear-cut European ‘brand’.

“Chinese and US players are also saying that a race is under way here in Europe in which market domination is probably up for grabs. If you ask me, Europe needs to get off the sidelines and take a stance.”

In order to achieve this, Balz says the core EU makets of Germany, France, Spain and Italy need to come together and begin work on establishing a pan-European platform.

Similar noises have emerged from the European Central Bank in the payment cards market, which is dominated by US schemes Mastercard and Visa. The ECB has long-floated the idea of a home-grown cross-border scheme capable of taking on the big brands, but so far without success.

“Of course there are cases where the results have fallen short of expectations,” says Balz. “But I’m talking about defining our final destination. Take a look at how credit card providers have increased their share of Europe’s payments market, and you’ll see a strong increase in concentration. Do we want to sit back and just let that continue? Or wouldn’t it be better to at least try to forge initiatives of our own in response?”

Balz is wary of the efforts of US big tech firms like Apple and Google, and Chinese behemoths such as Alibaba and TenCent, moving to establish their own systems as the dominant platforms throughout the world.

He is right. Two years ago, FinanceFeeds met with TenCent executives in China, who explained that WeChat has become a vital tool in use among all introducing brokers not just for communication with their partners and referral agents, but also as a payment channel which is far larger than that offered by Western payment providers.

FinanceFeeds has met with introducing brokers across the country which have portfolios of over $250 million under management, all of whom use WeChat as the main source of media as well as connection with their customers. That particular discussion highlighted that introducing brokers are reliant on developing massive WeChat networks, regardless of size or amount of assets under management, with payment solutions being integral to the system.

Mr Belz said “They have every right to make that attempt, but equally, we in Europe have every right to create our own brand. We shouldn’t just be a spectator in a market that’s as important as this. It would make sense for European players to pool their resources as a way of competing eye to eye with global rivals. Our role to begin with will be that of a moderator.”

The mere notion that major banks are beginning to look closely at payments is of great interest, and should be a good sign for FX brokerages.

Last week, FinanceFeeds reported that US banking giant JP Morgan is boosting its real-time payments offering by launching Sepa Instant in Europe.

Interestingly, JP Morgan is the second largest global interbank FX dealer by market share, the first being non-bank market maker XTX Markets placing JP Morgan as the bank with the largest FX dealing market share in the world at 10.49% of all FX order flow.

Therefore, if JP Morgan plays this correctly, the firm’s ability to interact with its own customers, those being OTC derivatives firms, on payment processing would be a very welcome development for retail FX firms and their service providers.

Payment channels and merchant services agreements have been a very challenging component of the entire electronic trading sector for many years now, with a substantial number of firms from outside the industry having been unwilling to provide payment processing services to online tradiing entities, often resulting in retail brokerages having to capitulate to the appalling and unprofessional channels provided by Israel and Cyprus based affiliate type payment vendors, most of which do not have a genuine system to offer, their roots being in affiliate marketing and binary options instead of genuine electronic payment provision.

The move by JP Morgan brings into effect the bank’s real-time payment capabilities in USD, GBP and EUR and is “another step towards offering real-time payments around the globe,” says Sungmahn Seo, MD, head of Emea payments and FX for JP Morgan Treasury Services.

Real time payments from a genuine banking institution, especially one that understrands our business so comprehensively, has to be a great thing. For example, although JP Morgan has not suggested at this early stage during the product’s life cycle that it would do this, providing a real time payments solution as part of a prime brokerage agreement to a prime of prime, which could then offer a holistic payment and liquidity solution to brokers would be a genuine FX industry breakthrough.

If the banks continue to look at the payments sector seriously, it may well be a good time for the leather jacket-clad, bryl cream laden Mediterranean no-names to bow out and make way for the professionals, which is what our industry deserves.

Read this next

Retail FX

Banxso announces 8.7% interest rate on deposits in South Africa

“With Banxso, they can enjoy the benefits of both worlds – earning competitive interest and having the freedom to trade, all within the same platform.”

Industry News

FINRA to publish transaction details in U.S. Treasury securities

“Consistent with our longstanding practice, FINRA is introducing greater transparency in a calibrated and careful manner, benefiting liquidity and resilience in this critical market while also mitigating potential information leakage concerns.”

Institutional FX

OpenYield launches “cheap and easy” fixed income trading for brokers

“We’re on a mission to make bonds cheap and easy to trade, and are excited about the opportunity to build generational capital markets infrastructure.”

Digital Assets

Sumsub and Mercuryo publish a guide for VASPs: “Mastering Travel Rule Compliance”

“At Sumsub, we’ve concentrated our efforts on filling the gap in understanding the complexity of Travel Rule regulation and helping organizations find the best solution to stay safe and compliant while minimizing costs and avoiding potential risks of non-compliance. This guide we created with Mercuryo, our trusted partner, is the ultimate navigation tool all VASPs can consult.”

Digital Assets

Bitget Wallet Leads with Record Swap Volume & New Crypto Innovations

This week, Bitget Wallet achieved a milestone by surpassing Metamask with a record 388,757 Swap order transactions, securing the global lead. The significant 7-day trading volume, almost 68,000 more than its rival, underscores its liquidity and user trust. This robust activity signals Bitget Wallet’s prominent role and reliability in the dynamic crypto market.

Digital Assets

Embarking on a Digital Currency Journey

Imagine you’ve stumbled upon a treasure map, leading you to untold riches hidden in the vastness of the internet. Instead of gold coins and jewel-encrusted goblets, this treasure comes in the form of digital currencies, the modern-day loot coveted by many.

Reviews

Traders Union Experts Share The Trading Analyst Review For 2024

Navigating options trading in rapidly shifting markets poses a considerable challenge. This is where options trading alert services become invaluable. They aid traders in keeping abreast of evolving opportunities and market trends. In this assessment, Traders Union experts scrutinize The Trading Analyst alert service to ascertain its efficacy. 

Digital Assets

BlockDAG’s Presale Achieves $9.9M: Aiming For A 5000-Fold ROI As Cardano’s Price Rises And Fantom Launches Sonic

Explore Cardano’s surge, Sonic’s efficiency, and why BlockDAG’s growth makes it the top crypto choice. A deep dive into the future of blockchain investments.

Digital Assets

US, UK probe $20 billion Tether transfers tied to Russian exchange.

U.S. and UK authorities are investigating the movement of $20 billion in the USD-pegged stablecoin tether (USDT) through Moscow-based exchange Garantex.

<