Ep 4: The one where we light a candle for cross-border payments and there’s a new couple in the villa - Netflix and Microsoft

We light a candle for cross-border payments

Sending a cross-border transaction, even a few years ago, would entail laborious SWIFT details, charges, questions that needed to be answered and FX fees. In fact, we would go as far to say it was akin to going for a root canal at the dentist while someone was simultaneously scraping their fingernails down a chalkboard less than a metre away 😬.

Open Banking has changed the traditional banking world. We now live in a world where money can land in seconds with radically reduced transaction costs. Many fintechs have stepped in and chucked out the rule book by offering a service that allows customers to send money for less and faster than traditional methods.

There’s a bigger conversation to be had though. Cross-border payments need to move beyond FX. If Open Banking is to live up to what it's truly been built for, then cross-border payments need to be cheaper and more widely available, and open up a truly global economy steeped in financial inclusion and growth.

Account-to-account payments cut out intermediaries, yes, but the biggest asset is the reduced risk of fraud. With cross-border payments made by card, there’s a risk of fraud, high costs and money not settling. With A2A payments, the customer is who they say they are, so the risk is reduced.

“We’ll get to a point where someone in Brazil can pay directly into the account of a merchant based in the UK using account-to-account payments. Whether ecommerce or foreign exchange, there will be a frictionless, seamless ability to do cross-border payments. Maybe it will use crypto to make the cross border transfer with cash-in and cash-out in domestic currency at each end 🤯.

We are going to start to see more ‘open payments’ and the democratisation of access to payments. For many, if you want to sign up and take credit card payments today, you either face paying 3% in transaction costs with a limited amount of traffic you can process, or you have to jump through hoops to get a decent processing account. We believe if you have a bank account and a legitimate business, you should be able to take payments.”

There’s a new couple in the villa - Netflix and Microsoft

When Pete and Bas dropped ‘Mr Worldwide’ this month, the collective reaction was “is this a joke?” The same goes for Netflix’s announcement that they’ve chosen Microsoft as their global advertising technology and sales partner. But soon we found out that Pete and Bas are indeed bonafide, however gimmicky, and so too is the Netflix and Microsoft partnership (bonafide that is).

The main purpose it seems is a cheaper subscription that will include adverts and another revenue stream for Netflix. While this makes sense, we know that Netflix were having their Blockbuster moment 👀 Subscriptions have been cancelled, logins are being shared and layoffs have started taking place. The BBC reported that Netflix lost almost a million subscribers between April and July.

Neobanks such as Revolut are also doing their bit by making “runaway” subscriptions easy to track (yet they are subscription based). Subscriptions are still hugely popular across various sectors and Netflix still boasts 221.6 million subscribers worldwide, but something is brewing. Is Netflix looking for an exit?

Rory Sutherland is Vice-Chairman at Ogilvy UK. He also co-founded the behavioural science practice within the agency and has some interesting insight into subscription models.

“Our perception of value is not simply a case of "utility minus price"; there is also a sense of fairness relative to others. In other words, we don't perceive value based only on the utility we might derive for ourselves but also the perceived utility others derive relative to ours."

Rory shares an example where person A and person B both pay £3,000 for an annual train ticket. However, person A travels five days per week and person B travels only three days. Person B is resentful of not getting the full bang for their buck because they're losing out on two days worth of travel even though it is still cost-saving compared to buying a weekly or daily train ticket.

He goes on to say that: “Add into the mix an economic downturn and the subscription model is riskier still. Even millionaires cull their direct debits from time to time. And new technology such as online banking makes this much easier to do.”

Is this a question of consumers tightening their belts and making difficult decisions, or are they simply over the novelty of paying a premium to strip out ads? Only time will tell. And since we’re on the topic, Netflix could simply be aiming for more revenue from adverts and throwing in another product in a classic decoy effect to get premium subscriptions up again. If so, here’s to you, Netflix. As Pete and Bas would say “We’re global, running up numbers, money man, mogul.” 😂