New generation of companies begin to move as old banking model fails too many

The corporate and financial elite have ended their annual love fest in Davos, the Swiss ski resort.

The mood was subdued following a notably jolting start to 2016 in the financial markets.

If one looks closely enough, the ghost of Lehman Bros can be spotted tiptoeing along some of the corridors.

Are we witnessing a repeat of the August 2015 share market storms, which eventually blew over, or is something rather larger approaching?

Some serious figures are engaging in shroud waving, financier George Soros, remembered as “the man who broke sterling”, back in 1992, among them.

However, it is a less well-known figure who has been making headlines in recent days.

William White, the chair of the OECD Review Committee, set pulses racing during an interview at the resort, with the Daily Telegraph, when he suggested that the global financial system has become unstable, and faces an avalanche of bankruptcies that will test social and political stability. 

So is Mr White simply one of those “dismal” scientists who has managed to forecast three of the last 10 recessions?

Not quite. The Canadian served for many years as chief economist at the Bank of International Settlements. He is one of the few establishment economists who managed to warn ahead of time about the 2007/ 2008 financial meltdown.

He suggests that “the situation is worse than it was in 2007” and that if the worst happens, a meltdown, for example, in ‘emerging market’ economies like Brazil, then “our macro economic ammunition to fight downturns is essentially used up.”

This is no frothing doomsayer. As one profile writer put it: “He (White) is not a nut who hides in the wood with gold bricks and canned fruit.”

White is concerned that corporate and household debts have risen — not fallen — since 2007. European banks are particularly exposed to emerging market economies which have enjoyed bubble conditions up until recently.

It is estimated that Europe’s banks have exposures of around €2 trillion (€2,000bn). Major lenders include HSBC, Santander, Standard Chartered, BBva, and Unicredit.

Santander has lent out more than €139bn to Latin America, around one half of this to a struggling Brazil.

Much of the lending has been made through syndicates making the whole business of sorting out this latest potential mess all the more challenging.

How is it that the regulators and those at the top of these global banks have let what looks like another fine mess come into being?

Has no one learned the lesson of the calamitous roaring early to mid-noughties?

The Canadian has a dim view of the economic and banking establishment, convinced that they remain blind to the risks lenders, and the system as a whole, are running. He quoted the American writer, Mark Twain to good effect:

“It ain’t the things you don’t know what gets you, it is the things you know for sure what ain’t so.”

He believes that macro economists, many of them employed in central banks, remained trapped by faulty mindsets and by the belief that economies can be controlled. They operate under the assumption that the economy is stable and that “the future will be an average of the past”.

In reality, as he told the Canadian Association of Business Economics, recently, what we are faced with is a “constant stream of innovation and change”.

And much of the change now on the way comes as a result of the effects of the latest post-2008 credit bubble in global markets.

White is sceptical about the impact of the programme of quantitative easing while acknowledging the role of central bankers in rescuing the system after the 2008 and 2010 crises.

He believes that much greater attention should be paid to a programme of public investment while he also argues that EU governments are far too focused on budget deficit reduction.

He estimates that around one half of the increase in outstanding global indebtedness that has occurred since 2007 has been assumed by borrowers in emerging market states, with much of this borrowing taking place in dollars (a rising dollar has increased this debt burden in no small way.)

Many emerging market economies are suffering from the downturn in commodity prices and some such as Argentina, Venezuela, Russia and Nigeria are enduring near perfect storm conditions.

Many of the debts will simply not be sustainable, and will remain as ‘non performing’ — absent the sort of rapid rebound in commodity prices that few people now expect.

In White’s view, the next task facing the global financial authorities will be the management of large-scale debt write-offs: “The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly.”

Europe’s banks have far more capital than was the case eight years ago, but it does look like investors could be in for a deep shaving though, in practice, debts can be rolled over pending recovery.

It is hard not to feel that yet again, the banks have got it wrong, lending billions towards largely unproductive mega-buck property projects promoted by the entourage of the various local strongmen (and the occasional strong woman).

At the same time, much key infrastructure in advanced economies is growing old for lack of investment while the expansion of many viable small enterprises are being choked off due to a lack of bank support.

Change is coming, however. The new generation of technology firms are beginning to move onto turf once dominated by the banks and other long-established lenders saddled with old infrastructure.

The old banking model is failing too many in the emerging enterprise sector and new forms of lending are emerging. Could it be that some of our global banks are destined like the once mighty dinosaurs of old to disappear?

And if they do go, will they really be missed?


Money transfer a smart move

By Trish Dromey

Five years ago Co Kilkenny-based company TransferMate set out to undercut the Irish banks by offering companies a cheaper way to make international transfers. 

Now it is transmitting payments of over $1bn (€926m) a year to 32 countries across the globe.

“To date we have processed over $5bn in international money transfers. We have been growing by 35% to 40% a year and are aiming to have sent transfers of $20bn within five years,” says company co-founder and managing director Barry Dowling.

New generation of companies begin to move as old banking model fails too many

Regulated in 28 countries in Europe as well as Australia, New Zealand, the US, Canada and Hong Kong, TransferMate now operates in most of the world’s currencies. 

Employing a staff of 105, it estimates that it now has 35,000 customers.

It began in 2010 when the company’s three founders realised that there were cheaper and faster alternatives to sending foreign payments through banks and paying transfer fees. 

The founders, who include chief financial officer Sinead Fitzmaurice and adviser Terry Clune, began with a global tax-reclaim business which used a network of accounts to transfer money.

They created a new service using a network of global bank accounts, which would eliminate transfer fees, speed up payment and have sufficient volume to allow the company to negotiate better exchange rates.

Setting up TransferMate in 2011, the founders secured a Europe Payment Institute licence and released a 24-hour online system, focusing on corporate customers with high volumes of international payments.

A partnership with Sage in Ireland, which offered the service to its corporate clients as Sage International Payments, let it increase sales quickly.

TransferMate subsequently partnered with Sage in the UK, Spain and across Europe. Expanding operations internationally, it secured licences in Australia, New Zealand and Hong Kong in 2013. It also opened offices in London, Europe, Australia, and the US.

Mr Dowling estimates that since it was set up, the company has invested €15m in developing its platform. A key element was securing licences in 45 US states.

“Getting these licences took two and a half years. We started in 2013 and aim to have a licence in every state within a few months. We are one of only four companies in the world with this number of licences,” he said.

One of a small number of companies focusing on the corporate foreign exchange transfer market in Ireland, TransferMate is operating in a very competitive space internationally.

“Our key strength is our platform; our global banking network and our portfolio of payment licences across the world. Very few competitors can match this,” says Mr Dowling. 

He says TransferMate can beat the banks on foreign exchange payments for business by up to 80%.

“With the banks, a customer can typically spend €20 or €30 for a payment and pay a charge of up to 2.5% on the exchange rate. We offer a service with no fees and an exchange rate cost of half a percent.”

In building the business globally, TransferMate has partnered with a number accountancy software providers including Xero, Myob in Australia and QuickBooks in the US.

Mr Dowling says the company achieved significant growth in Australia in 2015 due to the partnership with Myob. 

The development of the partnership with QuickBooks is expected to drive growth in the US this year. 

The target in 2016 is to transmit payments of €1.85bn.

In late 2015, TransferMate added a receivables service, which means in addition to allowing customers to make payments, it allows them to collect foreign currency payments owed to them.

The company recruited 40 staff last year and plans to take on another 73 this year. In the region of 80 employees are based at the company HQ at the IDA Business Park in Kilkenny. 

TransferMate aims to increase its staff size to 400 by 2020.

Company: TransferMate

Location: Kilkenny

Managing director:  Barry Dowling

Staff: 105

Business: international payments



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