The Connector.

The Connector Podcast - Revolutionizing Cross-Border Payments with Centiglobe's CEO Petter Sandgren

October 25, 2023 Koen Vanderhoydonk (The Connector)/ Petter Sandgren (Centiglobe) Season 1 Episode 28
The Connector.
The Connector Podcast - Revolutionizing Cross-Border Payments with Centiglobe's CEO Petter Sandgren
Show Notes Transcript

Are you looking for a fresh perspective on cross-border payments? You won't want to miss our insightful conversation with Petter Sandgren, the CEO of Centiglobe. Petter brings his two-decade-long expertise from SEB to Santiglobe and opens up about his transformational journey. He shares the breakthrough moment when he realized the potential of real-time money movement, a concept revolutionizing the industry. Discover Centiglobe's role in messaging, understand the complexities of value transfer, and how value can be moved instantly between banks across time zones.

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Koen Vanderhoydonk
koen.vanderhoydonk@jointheconnector.com

#FinTech #RegTech #Scaleup #WealthTech

Introduction:

Welcome to the Connector podcast, an ongoing conversation connecting FinTechs, banks and regulators worldwide. Join CEO and founder Koen van der Hoijdon as you learn more about the latest available trends and solutions in the markets.

Koen Vanderhoydonk:

Welcome to another Connector podcast, and today I have one of our new clients, Santiglobe, represented by Peter the CEO. Peter, can you explain who you are and what Santiglobe does?

Petter Sandgren:

Yes, firstly, thanks so much Koen for inviting us. Very exciting. My first time on a podcast, so this very exciting.

Koen Vanderhoydonk:

It's your maiden flight.

Petter Sandgren:

Exactly exactly. So let's see how it goes. Let's see how it goes. So my name is Petter Sangevin. I'm the CEO of Santiglobe.

Petter Sandgren:

My background is with the Swedish Bank, seb. I could say I was probably with SEB nearly 20 years, working in different parts of the bank, mainly in fixing common effects, working a lot with emerging markets. I was heading the bank's markets division in Asia for many years and in general, it was a very good experience to get exposure to the world of cross-border payments and the many challenges you have in that space today with the legacy system we have and so on and so forth. So after I came back from Asia, I came back to head office of the bank in Sweden in 2017, sorry, I felt that it was time to do something different. And then I bumped into Henry Graden, who is the founder of Santiglobe, and they had by then they had actually done quite a lot of work on Santiglobe. I'll come back to that later.

Petter Sandgren:

But when I spoke to him and I sort of realized what the technology can do and I sort of put that into my context of the world working in a large bank with all the challenges in doing cross-border payments and ethics and so on it was very, very exciting and I saw that things like that you consider like a natural law cut off times, for instance. Everything has adapted around that. That just cut off time is something that you have to accept and the whole infrastructure was created on the back of that. When you started to questioning that, you started saying wait, hold on, I could actually move money in real time. What type of consequences could that have?

Petter Sandgren:

on a corporate or on a stock exchange, on capital and so on and so forth. And I got hooked and I joined the company. And here I am four or five years later. So that's the story.

Koen Vanderhoydonk:

And you mentioned Santiglobe, is in the cross-border space. Maybe could you line out a little bit what are the challenges and how are you solving these challenges?

Petter Sandgren:

Yes, sure, I mean, there are many challenges, of course, when you make cross-border payments, not least everything related to email and those challenges and compliance challenges, but that's not really where we play. Come in I think our role will be. Come in is on messaging, where I would say that Swift has definitely yet advantages, but there are also disadvantages using Swift. And secondly, and I think more importantly, is the actual value transfer. How do you move value from bank A to bank B to?

Petter Sandgren:

bank B cross-time zones, banks with different risk perceptions of each other, and so on and so forth, and another very interesting part that we also resolve is that I mean typically, a bank would fund their corresponding bank account using FX swaps, and FX swaps would typically require you to use CLS, and CLS normally can only set the transaction one day ahead of time.

Petter Sandgren:

And all these things in terms of the value transfer could be done, you know, basically a dry drop instantly, and of course that opens up a lot of opportunities and possibilities in the cross-border industry.

Koen Vanderhoydonk:

And when you talk about value transfer, is there a magic sauce that you use? You use the word technology, but what does that mean?

Petter Sandgren:

Yeah, of course I mean there are many things that goes into the value transfer, but, most importantly, in order to make a value transfer, you need to have something of value that both of the parties in that flow trust 100%, right? Secondly, it needs to be done in such a way that it has not become disadvantageous in terms of liquidity. It's always challenging when someone has to, you know, use a lot of liquidity or pre-fund, but normally today you would use pre-funding as a way of resolving this value transfer, and how do you do that in a more efficient way? So that's also important. So risk is one port and trust is one port. And finally, I think liquidity is also very important.

Koen Vanderhoydonk:

Well, it's almost sound all too good to be true. But if we then really dive into the technology because I know that for Santiglo, this is a very important part of the offering, in my perspective, it's a combination about using latest technology but also, at the same time, using values or institutions and functions that have been really road proven in the financial industry. But if we talk about technology, shall I use the word distributed ledger technology?

Petter Sandgren:

That's right, Absolutely. I think that when you look at us and try to box us in, we're in the DLT space and we're also in the tokenized deposit space. I guess that's sort of the new buzzword. Everyone uses tokenized deposits. What you do when you use Santiglo, you basically have an exposure on the global bank. That's sort of a global bank deposit. That sort of backs up and creates the trust of the system.

Koen Vanderhoydonk:

And I mean tokenization. It's by many seen as something complex, maybe under-regulated, not sure. But how does that work for you guys? How do you break up the process?

Petter Sandgren:

Yeah, I mean, I think this is also a little bit our USP, how we differentiate ourselves from any competitors, and what we always try to strive for in this process and in general, I think, for the company, is to ensure that everything we do is easy to apply on the bank. The agreements we use needs to be structured in such a way that the bank lawyer feels comfortable. The accounting needs to be in line with what's already used. You need to ensure that your legal team feels comfortable, that the risk manager feels comfortable. Everything needs to be done so you really fit into the existing infrastructure, so to say, and that also goes, then, for the tokenization. So what do we operate when we tokenize is that we utilize something called security agents, and the whole purpose of this process is so you don't end up in a situation that you could have with some of these sort of large stablecoins that, even though, if you're backed by something, you still ultimately have the risk on the issuer of the stablecoin, ie those assets are in the balance sheet of that institution.

Petter Sandgren:

So, the way we operate it. What backs the system and what is tokenized is completely independent of Centreglobe and it's in the hands of the risk. Expo is on someone the whole ecosystem really trusts. And what we use then are something called security agent, and a security agent is a specialized legal type of experts. They are licensed, many are typically based in the financial centers such as London or Frankfurt or New York, and their role typically is to work with the global banks in large capital market transactions. They could be involved in creating escrow accounts. They could be involved in managing pledges or managing payouts and pay-ins for global banks in a large syndication. For instance, they may represent 20 banks in a big windmill type of transaction.

Petter Sandgren:

So the way we utilize them, we use one special institution in London.

Petter Sandgren:

The way we utilize them is that they are the ones that hold the assets of our bank, so a bank member of our platform.

Petter Sandgren:

They would go to that security agent, they would have a security agreement with that security agent and they placed cash the collateral with the security agent in the security agent's client fund account and that cash is then pledged in favor of all the other banks on the network and everyone bank does the same thing and us. The money comes into the client fund account of this security agent and the security agent has accounts with top US banks and top international banks. Once the money comes in there, the pledge is in place, they would notify us and then we would credit the digital ledger of that specific account. Hence we tokenize the deposit held with the security agent in the client fund account and ultimately, of course, what you have here is a risk on that bank where that security agent hold that cash. Now, of course, what you could do and that is something we haven't done, but our clients are not really ready for it but instead of placing cash with a security agent, you could place a government bond Collateral.

Petter Sandgren:

If you place a government bond with a security agent. It's no longer even risk on the bank that the security agent uses, Because securities I'm not part of the balance sheet of that bank. They're actually segregated from the balance sheet and that means that the tokenization is actually not in a bank deposit anymore, it's actually over security and that means that if the security would be issued, for instance, by the US Treasury, we would basically have a synthetic CBDC, so to say that we back the system if it makes sense.

Koen Vanderhoydonk:

It makes a lot of sense. It's, if you ask me, you're reshaping the infrastructure and I was wondering if you could, maybe for the audience, because they may be not all so detailed in the matter, but could you also give, like a use case, a story maybe from one of the clients of Santiglop and what it really brings to them, like?

Petter Sandgren:

very down to earth. It's a very good. I think it's a good point, Conor, because when you look at cross-border payments, which is sort of I mean, when you use this technology, you typically use it when you have a market where it's sort of distrust between two parties, two parties that will not trust each other. And then the DLT would come in and it would create stability and trust in the system. And, of course, cross-border payment is an obvious one. You have one bank in country X, you have another one in country Y. How are they going to collaborate? How are they going to ensure that they don't lose money, right? And then? So that means that you can do real-time payments between these two. You create that trust, but then you have to also. Okay, that means that the payment is fast, but when is that speed good to have and when is it need to have? And possibly, I mean, if you're going to send money to your friend in I don't know, Sweden and it takes one day or so, it's not the end of the world, you know, it would be great if he got it in real-time, but it's not the end of the world.

Petter Sandgren:

So what we try to identify are verticals, inclined use cases where the technology is so good that it's irresistible, basically, and one such use case where we have been successful is actually in cross-border factoring. And why is cross-border factoring of interest? Because cross-border factoring implies that there's a seller of an invoice that has a very, very high capital cost. There's a reason why they're selling their invoices immediately, right, Because possibly they don't have credit lines. You know they need to get the cash instantly and if the buyer of that invoice sits in the local payment system, the money is probably going to be in the seller's hand almost immediately.

Petter Sandgren:

But what if the buyer of that invoice sits in a different country or even a different time zone? Does that mean that the seller of the invoice have to wait two days for float? That's not acceptable and there's a huge payment willingness to get the money immediately. So one of the cases we have done is specifically that we have used a Swedish bank member and we have used an EU-based investor or invoices, and with the technology, the EU bank can purchase these invoices and they trigger a payment through our system. There's a token crediting the Swedish bank and the Swedish bank makes a payout in real time in Swedish Kronor, and the use case of course here is that the all of a sudden, the seller of the invoice gets same day immediate payout as soon as the invoice is sold. So that's a typical type of use case. What is the need to have and what's good to have?

Koen Vanderhoydonk:

Whether. We almost at the end of this conversation and I was wondering two questions, if I still may. One thing is where would you like to be in five years and then, maybe, following up on that, what would be a typical client for you?

Petter Sandgren:

I think that what's happening in the market is that it's becoming very sort of multipolar. You're not going to have the swift corresponding bank world. I think in five years' time you have a more and more different type of payment methods, payment networks. It will be CBC networks. Probably there will be private networks, and I believe that we can be one of these private networks that are used by many different type of participants. But I also believe that our role here is, to a high extent, to create interoperability between different type of networks. So in five years' time I foresee that we will service these specific verticals there are many more verticals, the cross-border factoring was one but also that we would help to get different type of ecosystems to collaborate with each other, because there will also be a lot of geopolitical issues in this. I'm sure the Chinese CBC network will have difficulties working with the JP Morgan network, and I see that role someone like us can play. It's actually pure interoperability as well.

Koen Vanderhoydonk:

Nice. Maybe one final question from my end, and that's a very obvious one, because I hear a lot of passion and I think there's a lot of people that probably want to hear more and like to have a conversation with you. How do they reach out to you? Where can they find you?

Petter Sandgren:

Yeah Well, thanks Ko. I think the easiest way is probably to drop us an email. It could be sent directly to my email. So it's pettersangrensendeglobecom. So it's p2t specificallysangrensandegre. I'm happy to have a conversation and discuss the future of payments and DLT and all other exciting things in this thing Super.

Koen Vanderhoydonk:

Thank you so much, Petter, for your insights. Thank you also to the audience for tuning in and please stay tuned because we're going to give you more latest insights from the Fintech. Well, thank you very much. Bye-bye.

Introduction:

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