“The opportunities of engaging FinTech companies into the system of cross- border money transfers in Ukraine”

AUTHORS Yuriy Petrushenko https://orcid.org/0000-0001-9902-7577 http://www.researcherid.com/rid/C-1072-2018 Liudmyla Kozarezenko https://orcid.org/0000-0002-1349-6805 http://www.researcherid.com/rid/C-4531-2018 Aldona Glinska-Newes https://orcid.org/0000-0002-5415-1563 http://www.researcherid.com/rid/H-7110-2018 Maryna Tokarenko https://orcid.org/0000-0001-8181-7394 http://www.researcherid.com/rid/X-5455-2018 Maryna But https://orcid.org/0000-0001-9120-214X http://www.researcherid.com/rid/X-5703-2018


INTRODUCTION
Ukraine is the country where citizens experience problems with processing cross-border transactions. The roots of these problems are located in the market regulation and in the presence of significant shadow segment here. The most problematic constrains for the crossborder payment processing in Ukraine are different restrictions for currency transfers from abroad to Ukrainian accounts.
Today the sector of payment systems and remittances in Ukraine is represented both by domestic and foreign players: Visa, MasterCard and American Express, UkrKart, Postal Transfers, Aval Express, Welsend, PrivatMoney and others. Despite this fact, there is a very small number of innovative participants (with a strong technological base), which are able to provide effective service and compete with existing players. That is why the in-depth study of the technological perspectives in this sector is very important nowadays.

LITERATURE REVIEW
The term "FinTech" has been widely used in business journals recently to designate challenges for the financial services, which should change the focus under the impact of innovations brought to the financial sector for the purposes of simplicity, speed, cheapness and human-centricity. The lack of academic background gave rise to numerous debates on the definition of "FinTech". Different authors have dedicated their works to this issue. Arner, Barberis, and Buckley (2015) were some of the first scientists to explain the evolution of FinTech and considered FinTech to be intersectoral and not to be limited by some specific business model or company size. At the same time, Kim, Park, and Choi (2016) referred FinTech to be mobile-centre IT service sector which aims to enhance the efficiency of finance practices.
The common issue for all points of view is that FinTech refers to institutions that develop financial services through the use of information technology. Varga (2018) tried to make the conceptual overview of the key value drivers behind FinTech. He claimed that FinTech refers to not fully regulated ventures made to develop technology-related financial services with a value-added design that will transform current financial practices.
The deepest and up-to-date study was done by IMF experts (He et al., 2018). In this discussion note, technologies in cross-border payments are considered from the different aspects. Also it is worth to admit the study of PYMNTS.com (2017) where the cross-border payments of FinTech are at "gunpoint". This research evaluates and ranks the FinTechs based on key attributes.
Theoretical and methodological background, trends, directions and perspectives of FinTech development became the sphere of interest for some Ukrainian scholars. Zherdetska and Horodunskyi (2017) in their paper defined that one of the most meaningful factor moving banking practices is financial technology development and growth of FinTech firms. Tarasyuk and Koscheyev (2017) provided an analysis of existing trends in global digital financial sphere. The complex research of Ukrainian FinTech market was made by USAID Project and UNIT. City. In their report "FinTech in Ukraine" (2018), the scholars investigated the main FinTech trends in Ukraine, analyzed Ukrainian ecosystem of FinTech and defined the main players of FinTech market.
The research made by Park (2006) presents the general overview of cross-border payments and focuses on existing challenges and inefficiencies.
Other authors, like McDermott (2016), Khalil (2017) investigate technologies for implementation in order of payments development. Such papers as Price (2015), Groenfeldt (2017) research the narrowly focused topics dedicated to the cross-border payments.
The paper (Dong et al., 2017) reviews development of FinTech and focuses on rapidly changing crossborder payments to promote the stability of the international monetary system. The authors show the ability of FinTech to respond to consumer needs for trust, security, privacy, better services, and change the competitive landscape. The working paper (Barr et al., 2018) focuses on global standards that apply to cross-border payments. They have concluded that there is a significant opportunity to archive efficiency, consumer empowerment, safety and soundness, one the one hand, and anti-money laundering and anti-terrorist financing goals, on the other hand. Ravishankar (2018) defines the benefits of using blockchain in cross-border money transfer.
Despite high interest in this topic, the theoretical and methodological basics of using FinTech precisely in the cross-border payments still remains a controversial issue.

AIMS
The aim of the research is to investigate the prospects of FinTech engagement into the system of international transfers processing in Ukraine. Achievement of this goal includes conducting a comparative analysis of the regular and innovative cross-border payment processes, developing a methodology for evaluating the impact of FinTech engagement into the system of cross-border payments in Ukraine, and investing foreign experience of FinTech start-ups participation in the international money transfers system.

METHODS
Assuming that in the regular cross-border payment transfer, banks collect service fees and rate spread, we can calculate the costs of the transactions (cost 1, 2) as:

RESULTS
Last years were marked by geopolitical turmoil, polarizing political proceedings, building isolationist sentiments around the globe and continued escalation of conflicts in different corners of the world. With all these backgrounds, life goes on for the majority of consumers. Technologies have put consumers in the driver's seat and all the time their ability to control their commerce and banking experiences is growing.
As it has been mentioned in the PwC's research about the future of the FinTech, new digital technologies will definitely reshape the proposition of existing financial services. And such sectors like consumer banking and payments will be the most exposed and disrupting in the nearest future, followed by insurance and asset management.
Significant global changes have already been disrupting in the payments sector. At the same time, financial technologies are developed enough to determine how, when and where payments will be conducted and also who will process them. This development is explored and leveraged every year. As it was mentioned in multiple reports, today FinTech shapes the course of the whole payment industry (Hardie, Wood, & Gee, 2016). Within the next few years, the FinTech is set to prevail in the sector and banks should adapt and take into consideration FinTech fueled changes.
Among such disrupters we should assume the most important ones for payment industry: 1. Rapid development of neo-banks. Neo-banks are the institutions that provide prepaid debit cards, checking and some form of savings accounts without the traditional physical building. It usually includes features like mobile deposits, P2P payments, mobile budgeting tools and real-time digital receipts.
2. Artificial Intelligence in financial sector. Artificial Intelligence (AI) enables to speed up digitization initiatives of every financial institution and provides customized products and services. AI is being applied mainly toward customer relationship management, identity authentication, compliance, risk control and other operational aspects.
3. Emergence of RegTech and Insusrtech. These kinds of technologies are the most disruptive trends in FinTech environment. RegTech is the use of innovative technologies to improve the delivery and compliance of regulations, it supports innovations by market integrity gain, helping regulators protect consumers and promoting competition. RegTech is about to reduce the costs of gaining compliance to regulations (Gulamhuseinwala, Roy, Viljoen, 2017). InsurTech is the insurance-specific branch of FinTech, which is emerging as a game-changing opportunity for insurers to improve the relevance of their offerings, innovate and grow. InsurTech has seen funding almost in line with FinTech investment overall and it is expected to increase as new players and investors are entering the space (Aite Group, 2017).   • ramification of the Brexit; • the US president election; • perceiver slowdown in China; • significant exchange rate fluctuations.
Blockchain appears to be the most growing sphere of FinTech investments inflows ( Figure 2). Funding in blockchain sector has boomed recent years (2013-2016), as products have matured and potentially use cases have emerged ( Figure 3).
Blockchain in most cases is regarded as the technology that powers up the virtual bitcoin currency. However, nowadays blockchain applications have left cryptocurrencies far behind. It offers a high degree of transparency, broad process automation and faster settlement time. The biggest IT, financial and consulting companies, e.g. Microsoft, EY, KPMG and Deloitte, increased their activity in the blockchain area by providing services for consulting, developing, testing and deploying blockchain applications for different (especially, financial) companies (Deloitte, 2016).
It is important to mention that nowadays digital payments play a significant role in business processes worldwide. The participants here include enterprises, financial institutions and individuals. Their relationships in most cases can be identified by the following payments: • P2P abbreviation of "peer-to-peer" that means person to person. It is a pure online business that matches different offers. The biggest advantage of P2P payments is a full usage of free money. However, now the biggest weakness of this mode is high rate of risk and lack of insurance.
• O2O is a term for "online to offline". It means the connection of traditional business via online platforms. Here users can select product or service and do online transactions. The core of O2O is online payments.  • B2B is an abbreviation for "business-to-business". It means transactions among enterprises. B2B has a long history of development and now is the most powerful sector of the world payments system (Lu, 2015).
Global digital P2P payments industry today is on the way of rapid development, caused by a number of key factors. McDermott (2016) names some of them. Firstly, consumers prefer omni-channel solutions for processing and managing payments (well-ordered and all-in-one board, which is not affiliated with location or device). Secondly, they want advanced security and supplementary services, which provide more than just basic enhancement. It could be achieved with the use of biometrics and tokenization technologies, which are the most disruptive trends in enabling payments' security and convenience (McDermott, 2016).
New technologies and rapid digitization embed a new concept in the "art of possible" in payments, spreading multiple devices, digital wallets and supporting infrastructure. Payments processes become simple and invisible. The significant appeal of FinTech could be explained by their ability to offer different new business solutions, deliver personalized customer experience and digitalize end-to-end business models. That is why FinTech for payments processing, including digital wallets, person-to-person (P2P) payments, integrated point-of-sale systems and cross-border transfers, are disrupting the path of industry development.  By establishing TIPS, the ECB wants to meet the demand for instant payments in Europe and facilitate the payment integration in eurozone. This service will be settled in cooperation with the European banking system.
Cross-border payments processing is still too expensive and complex nowadays. Furthermore, such payments are not transparent enough in most cases, because its real price and execution time cannot be identified precisely. In addition, cross-border transfers are quite slow. The problem is that they can be forwarded from bank to bank before they reach the place. It causes time delays and additional expenses for the final receiver. Settlement period of processing cross-border payment can take up to five days even in the most common currency pairings.
Final users feel the lack of knowledge and technologies for transferring funds directly and that is why it always causes information asymmetry. Financial institutions (intermediaries) sometimes address such asymmetry as their ownership of special know-how. In this case, they are able to verify the real availability of funds and use it for their own benefit.
In order to introduce the technologies and startups, which are "at the peak" in the cross-border payments industry, the platform PYMNTS. com issues its yearly research "The X-Border Payments Optimization Tracker". This research identifies leading cross-border payment services providers (FinTechs), based on key attributes, which are important to serving the needs of cross-border payments facilitators. Scoring includes: • risk/compliance services: tax burden, tax and export compliance, merchant of record; • geographies: currencies and languages, regions served, and office locations; • payment methods: digital wallets, payment methods, account-on-file, recurring billing and acquirer services; • omnichannel: number of operating systems supported, mobile and tablet POS; • developer toolkits: APIs, programming languages, eCommerce plugins, account updater services, shopping carts; • fraud tools: 3D Secure, PCI compliance, tokenization, address verification services, proxy piercing, transaction scoring, order linking, end-to-end encryption, IP geolocation, device fingerprinting, chargeback automation, velocity checks.  We chose TransferWise for detailed analysis, because it has unique payments facilitation process. It helps to transfer money not just sending them directly to the recipient, but redirecting those amounts to the other recipient who are waiting for the money going in the opposite direction. In the end, the final recipient receives the transfer not from the originator, but from the addressee of the equivalent transfer in the same country. TransferWise transferring process allows to avoid currency conversion and bordering crossing (Price, 2015).
TransferWise is a great example to understand the difference between regular cross-border money transfers and peer-to-peer (P2P) money transfers ( Figure 4, Figure 5).
Some differences in regular cross-border transfer and money transfer with TransferWise are presented in Table 4.
It is important to admit that TransferWise is available in Ukraine. This fact indicates the development of the cross-border payments FinTech in Note: X -amount of money transferred from Country 1 to Country 2; Y -amount of money transferred from Country 2 to Country 1; a, c -service fee; b, d -rate spread; exc 1,2 -exchange rates between currencies (Country 1 and Country 2) set by the banks.
the country. PryvatBank is a Ukrainian partner of TransferWise in enabling money transfers and international payments since 2015 (Pryvatbank, 2015). TransferWise makes money transfers to Ukraine more efficient and less time consuming: • the transaction takes from 30 minutes to 1 business day; • the recipient does not pay any commission and can withdraw money in the ATMs; • customers saved more than 22 million within the system compared to other providers (calculated by PryvatBank); • TransferWise is supported over 26 currencies, 48 countries and 360 destinations.
These incentives lead us to the conclusion that nowadays people in Ukraine have an opportunity to facilitate their transfers abroad. However, not all the people are aware of such opportunity. The lack of awareness and knowledge about FinTech innovations is one of the biggest problems in Ukraine. The lack of demand generates a lack of sufficient level of technology development in the financial sector.
The use of FinTech in cross-border payments processing in particular could generate a lot of perspectives: • enhancing the procedures of cross-border payments in an instant way; • enabling cross-border transfers processing online (e.g. transaction validation); • overall IT infrastructure upgrading; • improving of electronic banking systems (the availability of innovative functions in mobile banking and in the Internet for customers); • subsequent IT infrastructure investments (e.g. new network parameters requirements, cryptography, etc).

CONCLUSION
FinTech shapes the course of the payments industry development in different ways: by disrupting it with technologies; changing regulatory requirements; integrating financial institutions and start-ups; establishing higher standards for processes, etc. The fund transfer, payments and consumer banking are expected to be the most challenged with innovations.
After conducting a comparative analysis of two different cross-border transfer facilitation ways, we can see that the FinTech scheme (TransferWise example) has several advantages here. First of all, TransferWise uses completely different unique payments facilitation process, which allows transferring money without transferring them in practice.
The abovementioned process results in lower costs per transaction, since TransferWise collects only a single transaction fee. Also, it allows more favorable exchange rate, as the company use mid-market exchange rate for all transactions. In this case, we can calculate the absolute benefit for the end recipient using the TransferWise money transfer system.
In addition, the FinTech cross-border transaction process requires much less time and resources comparing to the similar one in the regular bank scheme.
The paper shows that investments and profits of cross-border payment solution can vary significantly between countries, since each country has separate and diverse national payment systems. FinTech can help to proceed in this direction -enhance the system and allow people to proceed more effectively here. Ukraine represents the countries where the participation of FinTech in payments is limited.
A positive experience in customer moments of truth appears to be an indicator of effectiveness of implementation innovations in financial sector. Both traditional firms and FinTech first of all should enhance moments of truth experiences in the most important for customer cases.
The process of the instant cross-border payments establishment in Europe has already begun. Involving in this process and creating effective environment to gain the benefits and to minimize the risks is an important task for Ukraine. For Ukraine, the improvement of existing cross-border payments system with FinTech is a crucial challenge. That is why it is important to focus on providing knowledge for people, supporting start-ups in the sector and learning the best implementation practices. A great example of cross-border payments of FinTech in Ukraine is TransferWise. The difference between regular crossborder money transfers and peer-to-peer (P2P) money transfers appears in its benefits, such as lower and more expectable transfer fee, mid-market exchange rate, less transaction period.
This article provides the improved interpretation of novelty in the field of FinTech and international payments. The implications of this study for the future research can be found in developing the theoretical basis for attracting the best FinTech to the domestic market. It could be done by researching the ways for increasing in demand among the population (FinTech popularization), developing the appropriate loyalty legislation and providing the opportunities for the development of domestic start-ups.