The Rise of High-risk Businesses – How Fintech and Cryptocurrency Have Come To the Rescue
December 02 2021 - 1:23PM
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The internet has radically changed commerce and opportunities for
entrepreneurs and small and medium enterprises (SMEs) globally. The
ability for smaller merchants and businesses to operate
internationally has been a game-changer. However, numerous payment
problems have arisen resulting from the rapidity of the change, and
financial services are struggling to keep up. Legacy infrastructure
is holding back business It is frustrating for many SMEs that they
can now operate across borders, but legacy banking infrastructure
often labels smaller businesses as ‘high-risk’. This can make
transactions difficult, risky, slow, and expensive. For example, a
business receiving an international payment will probably use SWIFT
and won’t receive the money for between one and five days, on
average. There is no transparency in the process, there will be
fees attached and, probably, an unfavorable exchange rate. Then
there are the risks for the merchant that arise from credit card
fraud. The recent 2021 Chargeback Field report found that between
2018 and 2021, there was a 21 percent increase in criminal fraud.
There are solutions available for P2P transactions and larger
companies, but SMEs have been largely excluded. As smaller
businesses often operate on very tight margins, this is holding
back a lot of enterprises. Fortunately, solutions have been
appearing thanks to nimbler fintech companies, innovative new
platforms, and the adoption of cryptocurrencies. High-risk SMEs and
cross-border transactions are on the rise Companies are generally
labelled ‘high risk’ for a couple of reasons. First, the type of
industry is one of the broader and often more arbitrary ones. These
can include online pharmacies, VoIP providers, and even
subscription services to things like magazines. Some industries
deemed high risk are vast. The online gaming industry, for example,
was worth US$37.65 billion in 2019 and is expected to be worth
US$122.05 billion in 2025. Cryptocurrencies and related businesses
are similarly deemed risky, yet Bitcoin alone is valued at $1.03
trillion (as of 26th November 2021). Secondly, SMEs are frequently
labeled high risk as they tend to have low sales and transaction
volumes. Also, smaller companies operating outside of wealthier
countries or blocks – such as the US, Canada, Japan, Australia, and
the EU – are grouped into this ‘risky’ category. However, this is
incredibly limiting, especially given that SMEs account for 90% of
all businesses worldwide. The internet is still expanding, and
smaller merchants are suddenly able to reach global markets.
Unfortunately, the legacy banking infrastructure has fallen behind
in how it labels risk and penalizes SMEs making cross-border
transactions. However, fintech is finding solutions, and the banks
are being forced to play catchup. Cryptocurrencies solve the main
problems with traditional banking systems Ironically, given its
frequent labelling as ‘high risk’, it seems that cryptocurrency
might be a solution. Fintech companies like XanPool, and its
platform XanPay, have developed infrastructures that bypass legacy
banking networks. XanPool’s founder and CEO, Jeffery Liu, explains
how his company’s cross-border payment solution came about. “As an
entrepreneur, I am also on the lookout for problems people are
having, and I then set out to try and provide a solution,” he says.
“XanPool was founded in 2019 because there was a problem onboarding
and offboarding from fiat currencies to crypto. The issue was that
to buy and sell crypto with local currency, you had to go through
the legacy banking infrastructure with all its fees, delays, and
risks. Given that Bitcoin was invented to bypass traditional
systems, the situation was crazy. So, we designed a way around
that.” XanPool is essentially a market-making software that lets
buyers and sellers – liquidity providers – trade crypto using
various digital wallets or bank accounts. “We have cryptocurrency
and a network of local currency liquidity providers that allows
users to bypass traditional banking systems. This means they can
also avoid the extra fees and exchange rate problems and, as
transactions are instant, there aren’t days of delays and risks of
chargebacks and fraud,” Liu says. Once XanPool was up and running,
Liu saw another problem that could be fixed. By leveraging
XanPool’s existing cryptocurrency and liquidity pool, cross-border
payments could also bypass traditional international banking
infrastructure. SMEs had been left behind, but that is changing “We
knew SMEs had been largely ignored by the banking system, with
regards to making international payments. This was especially true
in countries and industry sectors that established finance deemed
risky. This includes most online businesses and nearly all of the
Asia Pacific region countries,” Liu says. Given that there are an
estimated 213 million SMEs globally and almost 132 million of them
are in the Asia Pacific region, there are a lot of enterprises
being deemed ‘high risk’ and excluded from easy cross-border
transactions. “To solve this problem, we created XanPay,” Liu
explains. “It’s a payment platform that every high-risk business
from SMEs to eSports can use. As it works with local existing
payment platforms, it is straightforward to implement and use.
Furthermore, because it is built on XanPool’s infrastructure, these
enterprises benefit from instant international payments with no
risk of chargebacks or credit fraud. Having transactions that are
40 per cent cheaper and are instant decreases the risk that got
them penalized in the first place.” The advantage of fintech
solutions like XanPay is that they were able to start with a fresh
slate. Banks are struggling to adapt their systems and make them
more efficient, but newer companies can start from scratch and
incorporate advances like eWallets and cryptocurrency. As more SMEs
in developing countries move online, the number of businesses
labeled ‘risky’ will continue to rise. Even a few years ago, this
was a significant issue. Now, thankfully, there are several fintech
solutions – and if the banks don’t catch up, they will be left
behind.
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