Infrastructure As A Service: The NovoPayment Approach To Latin America

8. January 2018.








As quickly as financial services are evolving in the U.S., the U.K. and other more advanced economies, things are just heating up in other parts of the world, where less established infrastructure and a large, untapped market for emerging payment technologies exist.

Latin America is one of those places where some of the methods that other economies would likely view as more “traditional” are revealing an increasingly noticeable disconnect between the needs of technologically oriented companies and banks’ actual delivery capabilities.

In a recent interview with Karen Webster, Anabel Pérez, CEO of NovoPayment, explained the widening gaps separating the region’s more innovative native and foreign companies, its rigid banking systems and the recent surge in interest to do more to close those gaps.

Traditional financial institutions (FIs) in the Latin American region, Pérez said, may not understand the ways in which a growing number of companies need to embed financial services within their platforms and customer value chains. “There is not enough appreciation for the importance of how money and data need to flow to and from the bank and other systems to make great customer experiences,” she said, adding that’s changing and that banks are trying to learn fast and have started coming to the table with more concrete projects and understanding.

“In payments use cases specifically, you see, on the one hand, companies becoming or being born more dynamic, data-driven and real-time in their consumption of services, and, on the other, banking systems that remain largely burdened by the lack of interoperability, inflexibility and data silos of legacy infrastructures,” said Pérez, whose company enables banks through a platform and APIs that facilitate the delivery and performance of new digital payments and financial services.

Growing recognition of the asymmetry between the way corporates want to transact and how banks currently operate has spurred a recent awakening, she said, marked by a new wave of activity around digital payments and financial services plans — an addressable market of $154 billion by her company’s estimates.

According to Pérez, 2017 was far more active than recent years, with a great deal of interest across a range of applications and players, from account origination to digital lending, real-time payments, mobile financial services and B2B disbursements, to name a few.

Of particular interest, she said, was FIs’ efforts to keep up with the digital evolution so that they had the capability to support new types of customers with new types of needs — think gig economy companies such as Uber, Postmates and Airbnb, digital marketplaces and OTAs. Helping banks meet those new customer demands means using technology to enable end-to-end delivery capabilities that support mass disbursements and collections for local and regional programs and other last-mile requirements.

FIs Making Friends with FinTechs

Banks, said Pérez, will always play a critical role in the success of new payments models and will win big once they get comfortable partnering with FinTechs. She pointed out that established financial institutions in the region are often overly guarded and suspicious of FinTechs, seeing them as threats rather than behind-the-scenes enablers that can help them court new and existing customers with more modern offerings.

However, in Latin America, Pérez said the various pressures are, invariably, pushing the two into collaboration — or, at the very least, into a position where banks can learn.

“Many are looking at the ‘build, invest, buy or partner’ equation right now and trying to figure it out,” she said, adding, “Once banks get it, often by realizing a quick win and proving the concepts to themselves internally, things move quickly. This is why we tell them that digital transformation can be incremental. Find a project you like with attractive volumes and start learning,” she tells them, saying that successful use cases are the best way to rally organizations and ground what at first may seem daunting.

While the openness is there, some have been quicker to embrace the new ways than others. Pérez said that with the exception of some interesting point-of-sale lending use cases, the credit side is a bit too comfortable to go chasing after the next big thing, while the commercial and business banking side of the house are putting more attention into new technology. It’s no wonder: Latin American banks have the highest return on equity (ROE) in the world — about 22 percent versus a global average of 9.6, according to McKinsey.

The NovoPayment Niche

It is in that context and environment that Pérez said NovoPayment is doing its best to make life easier for bankers and their customers by addressing a range of unaddressed payment needs.

Today, Pérez said the company sees itself as quietly empowering FIs, helping them improve the mechanisms through which they deliver and distribute financial services. Through partner banks, it provides APIs for companies that follow models similar to that of Instacart, Postmates, Airbnb and Uber to help them implement their programs in Latin America.

Pérez explained that banks can plug into NovoPayment’s platform and even white-label the company’s APIs and various platform layers to serve the needs of the growing gig economy and local corporate innovators.

Fun fact: Latin America has more cities with a population over 1 million than the U.S. There are around 200 cities in Latin America with more than a million inhabitants, and the urban delivery market (groceries, food service, pharmacy) alone is a $654 billion business.

Therefore, said Pérez, there’s a lot of need for gig economy companies to access financial services, though they are certainly not the only ones whose needs are evolving — and the great thing about APIs, she said, is that they can address many different needs.

“All banks want to capture new relationships and new flows of funds,” Pérez said, and APIs facilitate the opening of new accounts, whether they be commercial, corporate, merchant or end user accounts. “The idea of APIs is to provide little pieces so you can build the recipes to solve problems for your customers.”

The Benefit to Banks

Adopting that mindset, Pérez said, means being convinced of the importance of delivering interoperability, while maintaining a regional presence to support a variety of possible sender-receiver endpoints that make moving money and data securely and compliantly across a variety of systems and platforms seamless.

Creating this “hub” is what Pérez said NovoPayment has been developing — a platform that is integrated with varied networks and providers across multiple countries, including POS, ATM, cash-in/out, telcos, card fulfillment and local and global compliance systems. These in-country integrations with relevant ecosystem participants simplify deployment processes and accelerate time-to-market and time-to-revenue for all parties, especially for regional and cross-border plays, which are often nightmarish for multinationals given disparate networks and regulations from market to market.

However, if companies and local banks are speaking different languages, so are their systems. In response, NovoPayment has recently focused efforts on releasing APIs that allow banks and companies to talk to one another and other would-be ecosystem participants via their platform without having to do the heavy-lifting themselves.

Some banks realize the impact that private and public APIs could have on their institutions, while others are only just beginning to understand. Peréz said the more that get on board, the more they’ll begin to realize the ability of these technologies to increase deposit volumes, float, incremental transaction revenue, differentiated services and infinitely better customer experiences.

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