The effects of the coronavirus on the fintech industry and its customers have ranged far and wide. While the struggles that legacy companies may be facing are likely somewhat different from the difficulties that startups are dealing with, many of the issues are the same — all of these companies, for example, are grappling with what the future might bring after the coronavirus passes.
This includes Ripple. As one of the largest companies in the cryptocurrency and fintech space, Ripple has an extensive reach around the whole globe: as such, the company’s leadership has a rather unique view of how the spread of the virus is changing its users’ lives.
Recently, Finance Magnates sat down with Navin Gupta, Managing Director of South Asia & MENA at Ripple, to talk about the effects of the coronavirus that he’s observed on the industry in which his company operates, as well as about Ripple’s operations in South Asia and MENA more generally.
Navin became a part of Ripple after two years as Co-Founder and chief executive of an on-demand commercial transportation service firm. He also has extensive experience in global transaction banking, payments and cash management, and strategy planning after nearly two decades working for HSBC and Citigroup across a number of countries; he also served as a board member of the National Payments Corporation of India (NPCI) from 2011 to 2014.
A major shift from physical to digital
We asked Navin what he has observed with regard to the ways that the coronavirus is changing the industry that Ripple operates in.
He said that there have been two dramatic shifts: “one is that we’re seeing a big shift from paper or ‘touch-based’ or physical to digital: so, if [someone] had the choice, she would not like to go to a physical retail store. If she can use an app to make the transfer possible, she would like to do that.”
“So, there is a shift in terms of our customers who have a very strong digital footprint, who are ‘digital first’ — banks or payment companies. Definitely, what we are seeing is that their business has been going up, and that this ‘shift to digital’ has been accelerated by this crisis.”
“The second thing that we are seeing is on the beneficiary side as well,” Navin said. “A similar shift is happening: [previously] on the beneficiary side, people may have had the ability to go and line up, or people may have had the ability to receive cash from XYZ-places. But today, due to lockdowns in multiple countries around the world, we are also seeing payments into bank accounts — payments into wallets, payments into some kind of electronic means through which the beneficiary family can go ahead and send it.”
Great topic. In Fintech, contactless payment workflows like Apple Pay that still require a signature via a shared <germy> pen need to be re-imagined.
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In essence, “what we’re seeing is [a shift] from touch to no-touch, from physical to digital — and this is something that we’re seeing in both ‘sending’ and ‘receiving’ markets.”
“I say this with all human concern for everything that’s going on, and here, I’m just talking about the transactions, of course,” Navin said.
However, “assuming that this is going to continue for a few months, some of that shift, I think, will be permanent, because the first time that you’re getting somebody educated to use a digital [service] always takes a little but of time,” Navin said. “But once people use it, then a lot of people…continue to be digital from there on.”
Navin said that other changes that may come as a result of the coronavirus crisis “really depend on how long it lasts.”
“If I had a crystal ball, or if I could pray, I would wish this away almost immediately.”
“[Ripple] will go wherever the customers go.”
Beyond the changes that the coronavirus is continuing to cause every day, we asked Navin why Ripple has taken a particular interest in India and the MENA region as regions to develop its business in.
“We will go wherever the customers go — it’s as simple as that,” Navin said. “IF you look at Asia in itself, [or] ASEAN and South Asia (all of those markets behave similarly), firstly, they’re a big deployer of workforce labor: Philippino nurses working all over the world, Indian IT engineers working all over the world in different industries.”
“As people migrate — either permanently or for job reasons — they tend to send money back home to their families,” he explained. Therefore, there “tends to be a very large remittance flow in the whole of Asia, which is the next exporter of talent and human capital; on the reverse side, you see remittance coming back in.”
On the “goods” side, “if you look at China, Malaysia, and Korea, these tend to be very large countries that export goods around the world. In return, they receive USD and local currency back — again, remittance market, but more in a B2B space.”
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“Then the third part tends to be services,” Navin said. So, for example, “if you look at Indian IT firms, which are probably the biggest example of [companies] exporting lines of code or technology overseas, and then they receive money back for the exports that they have done.”
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“So, if you pick all of the three things together — India tends to be a large exporter of goods and services or of human capital, and the rest of the world (as the consumer) then sends money back.”
Ripple sees the opportunities in India and MENA from both sides — in other words, Navin explained that “it makes total intuitive sense to make sure that we are there both on the ‘send’ side and the ‘receive’ side; we are already a US company” with offices in several cities across the country. Additionally, the company has offices in London and Dubai — ”which tend to be large send markets.”
At the same time, though, Navin said that Ripple recognizes the potential for ‘receive’ markets: “the ‘receive’ markets tend to be underbanked or unbanked; receive markets are where last-mile connectivity is required. [They are] where distribution becomes quite key…a number of markets where we need to make sure that we put the strings of multiple customers together to be able to offer the last-mile distribution capability that our send-side customers are looking for.”
“It’s very important for [Ripple] to make sure that we focus on having customers in every single receive market around the world.”
Therefore, the majority of transactions that are sent to and from this part of the world over any of Ripple’s networks, “if you look at the volume itself, the first problem that Ripple is solving — that comes from remittances. These are individuals,” he continued. “If there are ten people from ‘X’ country living overseas in a send market,” it follows that every year, they are sending at least 120 transactions — 12 into 10, or sometimes more.
“If you look at the b2b transactions,” however, “they’re [certainly] there — but the value is larger, and the volume is smaller.”
Because global remittance networks are most often used by retail customers, it is they who feel the issues with legacy systems most acutely: if someone working in the United States or Europe “were to send US$200 to any part of Asia, she would end up spending US$14 to do so.” In other words, “7% will be taken just to make that remittance possible.”
Navin said that this is because of “opaque technology, old technology — no transparency in terms of the sender knowing exactly how much money will get delivered, and the whole process is error-prone because it’s built on 60-year-old technology.”
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“Ripple is there to change that, to make sure that this 7% number becomes significantly lower, and the process becomes much smoother.”
Therefore, “[…] it’s very important for us to make sure that we focus on having customers in every single receive market around the world, and we make sure to cover every product type in which the beneficiary wishes to receive money — some beneficiaries want to receive money in their wallets, some cash, some through multiple mechanisms…we need to make sure that we offer [a] diversity of options that suits the last-mile beneficiary as much as possible.”
“So, now we are building both the network and the diversity within the network within the same country,” Navin said. For example, “in the Philippines, we can do accounts, we can do cash, and we can offer credits to wallets as well.”
Navin also said that Ripple is working on developing “interconnectivity between the networks.”
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Eventually, “we also want to make sure is not only that we connect and bring money back into a country, but that we also connect to the local rails in that particular country…what we’re doing is we’re also connecting to the domestic network to ensure every single bank account, every single wallet gets connected through that.”
This also includes eventually adding the option to “use a digital asset, XRP” to send money, so that a customer sending money from (for example) Europe to India would have the choice between a transaction flow of Euros to USD to INR, or from Euros to XRP to INR.
Navin explained that the latter flow comes “at a much lower cost than it would have been through the traditional channel.”
Ripple’s regulatory strategy in MENA is in line with its strategy in the rest of the world
We also asked Navin about the regulatory challenges that have been associated with operating in the MENA region.
Navin said that as a whole, Ripple’s strategy is clear: “we believe for Ripple to become mainstream, we need to work with the regulators. We need to earn the trust of the regulators and explain to them what we are doing, why we are doing it, and what the benefit is to their constituents.”
“Once they understand it, then, they work very closely alongside us,” he continued. “SAMA (Saudi Arabian Monetary Authority) is one good example — Ripple and SAMA worked very closely initially when we were putting the technology together.”
Forming these close working relationships with regulators has provided Ripple with a number of unique opportunities: “SAMA said, ‘hey, you know what, rather than experimenting one-bank-by-one-bank, why don’t we get a group of banks together and let all of them pilot the Ripple platform. And assuming Ripple is a success, or if it’s a failure, let them openly discuss and learn from each other — and that way, you can get scaled in Saudi Arabia much more quickly, and the banks can get the benefits of adopting the technology much more quickly.’”
Therefore, Ripple’s strategy (in short) is to “work with the regulators: educate them, understand what their concerns are, address those concerns, and then make sure the technology is being used at scale in a very transparent manner…we personally believe that this is the way we are able to bring the technology mainstream.”