Backing Rail to Create the New Global Payments System
Economies around the globe are increasingly interconnected, but our financial rails have failed to evolve into a digitally borderless world. Our thesis is that crypto payments will continue to experience secular growth as they provide more efficient rails to move money around the globe.
This is where Rail comes in. Rail is building a next-generation payments infrastructure that creates a faster, cheaper, and more seamless alternative for cross-border payments. Leveraging stablecoins and digital asset infrastructure, Rail customers can experience a quantum leap in terms of cost and efficiency that cannot be realized with the existing traditional financial plumbing.
We are proud to be the lead investor in Rail’s new $10M Series A funding round and are excited to help bring tokenized payments to the mainstream.
THE NEED FOR A NEW GLOBAL PAYMENTS SYSTEM
In our recent Future of Payments piece, we explored the scope and scale of the challenges facing the global payments space today. The payments infrastructure that moved $190T around the globe in 2023, was built more than 50 years ago and is an expensive and inefficient system that operates within limited banking hours and relies on many intermediaries. This is a growing problem as global payments are expected to increase in size to $290T by 2030.
If you have any experience sending cross-border payments, you know the process is far from optimal. In a world where we can send text, voice, and video instantly across the globe, why is the experience of sending financial value so different?
In a recent survey of global business executives by financial services company Rapyd, they found that 76% of businesses pay $10-50+ in fees per transaction for cross-border payments. A similar proportion reported delays ranging from two to 15 days in sending or receiving cross-border payments.
The clearing and settlement of cross-border payments through traditional rails are cost-prohibitive and slow. It can also take up to several days for payments to reach their destination as the flow for these payments relies on many intermediaries. Cross-border payments typically involve multiple local and correspondent banks, clearing houses, FX brokers, and payment networks, each adding layers of complexity and cost to the transaction process. These intermediaries also have varying operating hours/cut-off times making availability an issue.
REIMAGINING GLOBAL PAYMENTS
While we have seen payments innovation at the margins from traditional fintechs, we believe blockchains are a critical piece in reimaging global payment operations. The development of global and interoperable public infrastructure can change payment rails globally, creating an opportunity to disrupt the existing cross-border payments ecosystem.
We’re already seeing this play out as crypto-powered payments continue to experience secular growth as they provide more efficient rails to move money and programmable assets around the globe. Aggregate stablecoin supply as of July 2024 is approximately $165B. USDT and USDC represent the #3 and #6 cryptoasset by market cap respectively and account for ~60% of onchain transaction value.
Blockchain infrastructure is superior across several dimensions. Blockchains are global standards that allow for near-instant settlement of value. Blockchain-powered payments also reduce the number of intermediaries involved, removing many operational complexities and costs in the process. Blockchains also provide real-time visibility into fund movements, providing much-needed transparency.
Maybe it’s unsurprising that there is so much demand from market participants broadly who want to move value around the world quickly and cheaply. But how do businesses and consumers actually engage with these systems to realize the benefits and how do they integrate this technology into their existing payments stacks? This is where Rail comes in.
THE PAYMENTS REVOLUTION IS ONCHAIN
Rail is a global payments network that leverages digital asset infrastructure to create a faster, cheaper, and more seamless alternative for cross-border payments. We believe that Rail can be the innovative infrastructure that solves significant payments friction by leveraging blockchains and stablecoins on the back end.
Rail is a payments company that delivers a fully compliant payments platform that combines fiat and digital assets via a single API. With a multi-partner approach, Rail takes on the heavy lifting of integrating with various crypto and fiat partners (blockchains, asset issuers, custodians, exchanges/liquidity providers, banks, traditional payment rails, etc.) to facilitate a compliant payments experience for their customers. Rail helps facilitate the highest speed / lowest cost route for transactions and is able to settle the full lifecycle of a cross-border payment using crypto rails in as fast as ~90 minutes—up to 1-2 orders of magnitude faster than existing solutions.
We think of Rail as disrupting SWIFT, the primary interbank messaging service for financial institutions globally. SWIFT works with 11,000+ institutions and does $150T in transaction volume per year. Rail has experienced tremendous growth year-to-date and plans to grow by continuing to expand its interconnectivity across many geographical corridors and partnering with growing corporations, fintechs, payment processors, and banks that see high volumes of cross-border payments.
We’re excited for Rail’s future as the lead investor in their $10M Series A. We believe strongly in their founding team and see co-founders Bhanu Kholi (CEO) and Tarun Mistry (CTO) to be two formative executives shaping the future of payments. If you are excited to join this mission or want to learn more, please check out our recent podcast on Rebank or join the team!
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