Cross-border payments are a booming industry. It is also very competitive and is taxed by serious regulatory requirements. Succeeding in this space requires solid operational tactics, the ability to adapt to changing markets, and a deep understanding of the myriad of regulations. Payoneer, a company founded and managed by Yuval Tal, has been developing prepaid debit card solutions for cross-border payment market niches for more than six years. According to Tal, “Providing international payments, especially below $ 10K, in a profitable way is very complicated and complicated.” While companies like PayPal and Moneybookers have significant cross-border capabilities, Payoneer has demonstrated technologies that make it easier for a much larger group of users to receive international payments.
During its six-year operating history, the company has transformed in many ways to meet the changing demands of the market. Payoneer implemented a strong differentiation strategy using prepaid debit cards to facilitate the movement of funds across national borders. Greater differentiation was achieved by targeting niche industries struggling with these types of payments. And while there is competition, Tal suggests that “the real challenges are not competitive, but things like fighting fraud and mitigating other risks.”
Prepaid debit cards are everywhere. A survey published by the Federal Reserve Bank of Boston in 2009 reported that approximately thirty-three percent of all consumers owned some type of prepaid debit card. Prepaid debit cards include a diverse group of payment instruments ranging from gift cards to phone cards, electronic benefits transfer (EBT) cards, and more. A large number of these ubiquitous instruments are issued through major credit card brands: Visa®, MasterCard®, American Express®, and Discover®. The use of these branded cards has grown rapidly and due to recent legislation they are poised to grow even more and at a faster rate.
According to Mercator Advisory Group, consumers loaded more than $ 60 billion on branded prepaid debit cards in 2008, almost 50% more than last year. These cards, while bearing the aforementioned brand names, are actually issued by hundreds of banks and their independent third-party partners. Payoneer is one of these third party companies.
Yuval Tal capitalized on the growing trend towards globalized outsourcing in the IT industry. In particular, he saw that many companies were outsourcing small jobs to freelancers and micro-businesses. Mr. Tal also noted that these self-employed workers found it difficult to get paid. Sending checks, for example, took a long time, and even longer to clear. Cash was out of the question and wire transfers were prohibitively expensive. Tal developed a system to serve this market and “payment processing” was born. Workers could now be paid quickly and paid in their local currency through ATMs. Freelancers like oDesk, Elance, and guru now use Payoneer prepaid cards to pay their workers around the world.
Payoneer harnessed the power of the card brand networks and developed an online system that issued prepaid debit cards to these workers that they use to receive their payment. Freelancers could use their cards to buy products from millions of merchants or withdraw cash in their own currency from thousands of ATMs. Best of all, employers of freelancers could reload cards online. Ease of use, online availability, and many proprietary features enabled Payoneer to offer a better service than its rivals. “International is not for the faint of heart,” says Tal, “it takes institutional funding and an ongoing payments effort to manage a large number of moving parts.”
With a fairly sophisticated payments platform already built, Payoneer was ready to tackle other industries. Like bowling, Payoneer began to tear down similar markets. He created programs to compensate participants of large online affiliate programs. The system was also adapted to compensate affiliate vendors, clinical trial patients, direct vendors, and specialty payroll providers. With each vertical, Tal was careful to incorporate highly proprietary features to increase defense over competitors.
New US government regulations pose challenges for prepaid debit card issuers. The recently enacted Dodd-Frank Financial Reform Act dramatically reduces the fees on debit cards that issuing banks can charge merchants. This law will mean significant rate reductions, resulting in a significant loss of revenue for many debit card issuers. Fortunately, the law had some exemptions, including the exclusion of prepaid debit cards from the mandate. In other words, banks can still charge the “old” higher rates for prepaid card transactions. Therefore, banks and their external issuers are struggling to develop new prepaid debit card programs to make up for lost revenue. This will mean industry growth as well as further completion. At times like this, Payoneer’s application of defensible differentiation can be your greatest asset.