“The translation sector is far from an ideal solution”

How modern technologies are changing cross-border transfers and why ideologically they have remained unchanged since the time of early civilizations, Kommersant was told by the chairman of the Association of Participants in the Market of Electronic Money and Money Transfers Victor Dostov.

— How do you assess the situation with money transfers in Russia?

— In a certain sense, in many countries, including Russia, internal translations have almost reached perfection. You can instantly transfer money by phone number, the commission is small, and everyone understands that it contains a margin reserve – a few tenths of a percent maximum. With us, this is still available for individuals, but, of course, such systems will soon work for legal entities.

This model is already working for international transfers. Many Russian banks allow you to transfer money to neighboring countries by phone number, and, if not for the current situation, services would be available on a global scale. From an outside perspective, the problem of transferring money to another country has long been resolved, but the picture is not entirely rosy.

— Apart from the geopolitical situation, what are the problems of cross-border transfers?

— There are five problems with international transfers. First, it is the transfer of liquidity. You can very quickly send a message to the bank that it can transfer the agreed amount to the beneficiary’s account and you, as the system operator, guarantee its receipt. However, the gross transfer of money between banks in most cases is done using SWIFT (or its equivalent) along the correspondent chain of banks. This is quite expensive, slow and risky – the sender’s bank may default, and there have been such precedents.

Secondly, it is currency risks. In the mentioned chain, several currency recalculations take place – between the currency of the sender and the recipient and in the banking chain. If any of the rates change, this can lead to losses for the operator. If it changes a lot, then even to the suspension of gross settlements.

Thirdly, it is the crisis of correspondent relations that has been taking place in recent years. Sanctions, currency collapses, and so on lead to the fact that ties between banks are broken, chains become longer, losses and risks are greater. This is very clearly seen in modern Russia on the example of Western correspondent accounts, but this is just an exacerbation of a chronic disease. There have already been stories when a country – for example, Nigeria – was disconnected from the correspondent network almost completely.

Fourth, it is the constant tightening of AML/CFT requirements. Any operation must be checked for compliance with anti-money laundering legislation – violations threaten with huge fines. Sanction lists with their absolute bans are only part of the issue. If money is transferred outside of the sanctions lists, but the sender and recipient are not well identified, the purpose of the transfer or the origin of the funds is suspicious, the operation must stop or the operator (and banks) face fines and other troubles.

Fifth, this is the difference in country regulation. Including the difference in identification, currency control, transfer thresholds and much more. The latter points are exacerbated by the fact that international transfer systems are treated as a high-risk area.

— So the market for cross-border transfers is changing not only in Russia, but throughout the world?

— The situation, of course, is changing all over the world. While 20 years ago the market was dominated by giants like Western Union with double-digit transfer fees, it is now a multi-player area. The main flows are still very traditional – bank transfers, Western Union and its small clones, but alternative players have also appeared.

First, these are card to card services of international payment systems. They allow you to quickly and conveniently transfer small amounts within the system – for example, Visa or Mastercard. Various systems can build “bridges” – for example, you can transfer money from the Mir card to the Belarusian Belcard.

— But transfers from card to card are not such an innovation …

— The second approach is that the transfer system creates its own internal wallets. Users replenish the wallet, transfer money to the recipient’s wallet, and the recipient withdraws it somewhere to a bank transfer or even to cash, for example, to his bank card.

Compared to card to card, this system is much more flexible. The wallet can be replenished in any liquid way – from any card, from a bank account, in cash through an agent, credited, replenished with cryptocurrency, and so on, as well as withdraw money as you like. You can also add your own prepaid cards here, and everything becomes quite efficient, if somewhat cumbersome.

An example of such a system is Revolut, which started with transfers and, according to their statement, turned into all things money, with its own tokens, investments and everything else. However, for users who do not want to delve into the details, all this mechanics can be hidden and given simple ready-made templates.

Does this approach solve the problems you identified?

— The development of money transfer systems also extends to the optimization of gross settlements. As mentioned, transferring money between banks is not always convenient, and netting is a good way out.

The simplest netting occurs when the flow of money from country A to country B is approximately equal to the flow of money from country B to country A. Then, ideally, there is no need to transfer real money and the task is reduced to the exchange of information.

Unfortunately, in typical directions of transfers, the flow usually goes in one direction. For example, Russia is the largest donor for the countries of Central Asia. Modern operators are trying to build more complex multilateral netting schemes, sometimes including cryptocurrencies and other assets, in an attempt to strike a balance.

– It turns out that with the development of new technologies, the money transfer system is not simplified?

— International transfers are as old and varied as the world. Most likely, it was precisely in connection with the need to transfer money over long distances and between different states that the Arabs (and possibly even the earlier civilizations of Mesopotamia) had the idea of ​​bills and the separation of cash and information flows, when money is brought to a safe place, and travel they are in the form of paper receipts or oral communications.

The design has perfectly survived to this day in the form of hawala, a system of informal translations, and has perfectly adapted to modern technologies. Technically speaking, hawala is a distributed network without centralized management, an archaic distributed ledger from havalars.

All modern transfer models ideologically represent hybrids between distributed structures (many banks, agents, cryptocurrencies, and so on) and, in most cases, centralized management operators. As a result, we can say that for money transfers, the ancient ideology received very powerful, complex and sometimes confusing technical superstructures.

As the traditional financial system develops, this sector will merge into it – as it happened to a large extent with the countries of Europe after the emergence of the single payment system SEPA. Nevertheless, on a global scale, this sector is extremely far from an ideal solution and is extremely high-margin compared to local transfers, which inevitably provides it with many more years of development.

Interviewed by Maxim Builov