Software Transcends Borders—Why Not Money?

Software is inherently global and easily transcends borders—localizing it can be as easy as translating the language. Who is the Google of Brazil? Google. The globalization of money, however, is considerably more challenging. 

This is especially true for global businesses, which grapple with multiple bank accounts in multiple currencies, opaque and expensive foreign exchange rates, unpredictable money transfers, weeks-long reconciliations, and more.   

Furthermore, many global software companies monetize with financial services. While embedding financial services is relatively easy in some countries, a global software company that wants to add payments, lending, or some other financial service in multiple countries has to navigate a complex web of local infrastructure companies and regulations. 

This is a persistent problem that has been the driving force behind many ambitious fintech companies over the years. As the company of the future becomes default global, there is now a real catalyst for change. Thus, top entrepreneurs are pursuing cross-border infrastructure that is more easily used and integrated—as well as full-stack solutions for businesses themselves.   

The root of the problem 

Though money predates software by 50 centuries, it is still much more difficult than software to move it around the globe. Why has this been an intractable issue for so long? To understand the persistent “localness” of money, it helps to look at the underlying cultural, infrastructural, and regulatory drivers of monetary policy. 

Payment preferences differ by country

In Mexico, around 90% of the population still uses cash; in Brazil, over 75% of consumers use Pix, the country’s instant payments system; and in Kenya, 96% of households have a mobile money account, M-Pesa. Such preferences are sometimes driven by socioeconomic reasons (lower GDP-per-capita nations generally have very low credit card penetration, for instance), but they are also impacted by the local presence of free and easy rails. In Brazil, for example, Pix became the most popular payment method in the country in just two years—as well as the second-most used instant payments system in the world. The U.K. has had real-time payments since 2005 via the Faster Payments network. Today, U.K. consumers use contactless payments for nearly 90% of in-person transactions.

Payment rails differ by country

Payment rails are the underlying infrastructure that allows money to move. While global rails currently exist in the form of wires or card networks (such as Visa or Mastercard), none of them provide 100% coverage around the world. In addition, a software company that wants to sell its product globally needs to integrate multiple payment methods; if a prospective customer’s preferred local payment method isn’t supported, the company risks losing sales. Today, this complex, interconnected payments system functions similar to the airline industry: although airlines may offer international flights, they can’t cover all possible destinations and routes, necessitating the need for country- or region-specific local airlines. Much like local payment rails, connecting via different airlines is cumbersome. Thus, to make international travel easier and more integrated, airlines created three major air alliances. Now countries in different regions are starting to do the same for payments. 

Regulation differs by country

Each country has its own regulatory bodies and requirements for what licenses a company needs in order to send, receive, or store money. Some countries have opaque regulations seemingly designed to keep new entrants out, while others enact progressive policies and endeavor to attract new companies, as we’ve seen in Brazil and the U.K. Companies that want to help consumers or businesses send and/or receive money across borders need to get a license (or find a partner to borrow the license from) in both the sending and the receiving countries, a process that has historically been a major hurdle to fintech innovation. In addition, compliance, capital requirements, governance, and data storage are all country-specific and require significant local expertise.

The opportunities: global fintech infrastructure

Money moves clumsily across borders, but increased consumer and business demand for better experiences is attracting top entrepreneurs to solve these problems. There are many areas of opportunity here: 

Creating multi-country rails

It continues to be challenging to move money across a single border. Businesses are often left waiting for days for a payment to go through, without knowing the exact foreign exchange fee. Moving money between multiple countries multiplies this problem. Several existing companies have already integrated with various local rails to help companies orchestrate money movement, but opportunity still exists for new players to create seamless and transparent money movement experiences between countries.

Building embeddable payment infrastructure 

Increasingly, companies aim to monetize through financial services, but in many geographies, it is still difficult to find modern card-issuing partners or white label payment acceptance. Furthermore, global software companies are frequently compelled to partner with several different infrastructure providers to cover the necessary geographies, a complex process that requires maintaining multiple vendors.  

Enabling borderless business banking

Businesses operating in multiple countries often open several bank accounts per country—correspondent banks to facilitate international transfers, local banks to take advantage of the best local banking services, additional investment or treasury accounts, and more. This process is slow, hinders cash visibility across the company, incurs high expenses when moving money (even within a single company), and complicates end-of-month reconciliation. The increasing prevalence of open banking in many countries offers new companies the opportunity to create an application layer that offers multi-country account visibility and other services.  

Satisfying global compliance

Know Your Customer or Know Your Business (KYC/KYB) compliance in a single country is often complicated. It not only requires integrating the right data sources, but also creating a process that feels frictionless to the customer while satisfying all compliance requirements. Outside of customer onboarding, complying with local regulations around aspects such as data storage or reporting requirements can be challenging, especially when operating in multiple countries. Though there are best-in-class “as a service” companies that solve this problem in the U.S., globally these challenges remain unsolved, especially for businesses. There is potential to abstract this complexity with software. 

Combatting fraud

The advent of real-time payments in many countries will solve some frustrating payment delays. However, this magnifies another problem: fraud. As generative AI tools become more widespread, the cost to fraudsters of iterating malicious content drops to near zero: they can write and test thousands of phishing attack emails in minutes and continuously tweak the ones that work best. In this new landscape, effective fraud solutions for cross-border payments will become increasingly important.

For all these reasons, there’s a huge opportunity to develop software that makes moving money across borders seamless and transparent—and for making those services trusted and secure. 

Are you building in these areas? We’d love to hear from you.

See a16z.com/global-payments for more.