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

Welcome to the Connector Podcast, an ongoing conversation connecting fintechs, banks, and regulators worldwide. Join CEO and founder Koen Vanderhoydonk as you learn more about the latest available trends and solutions in the markets.

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

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

It's your maiden flight.

Exactly. Exactly. So let's see how it goes. Let's see how it goes. So my name is Petter Sangeren. I'm the CEO of Santiclobe. My background is with the Swedish bank SEB, I could say. I was probably with SEB, oh, nearly 20 years working in different parts of the bank, mainly in fixed income and FX, 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 and, you know, 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 2016 or '17, sorry. I felt that it was time to do something different. And then I bumped into Henrik Gradin, who is the founder of Centiglobe. And they had, by then, they had actually done quite a lot of work on Santander. I'll come back into that later. 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 of working in a large bank with all the challenges in doing cross-border payments and FX and so on, it was very, very exciting. And I saw that, you know, things like that you consider like a natural law, you know, cutoff times, for instance.

Mm-hmm.

Everything has adapted around that, that just cutoff time is something that you have to accept. And the whole infrastructure was created on the back of that. When you started questioning that, you started saying, wait, hold on, I could actually move money in real time. What type of consequences could that have 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 4 or 5 years later. So that's the story.

And you mentioned Centiglobe 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?

Yeah, sure. I mean, there are many challenges, of course, when you make cross-border payments, not least everything related to AML and those challenges and compliance challenges. But that's not really where we play, come in. I think our role where we come in is on messaging, where I would say that SWIFT has definitely its advantages, but there are also certain disadvantages using SWIFT. And secondly, and I think more importantly, is the actual value transfer. How, how do you move value from bank A to bank B across time zones, banks with different risk perceptions of each other, and so on and so forth? And another very interesting part that, that we also resolve is that, I mean, typically a bank would fund, fund their correspondent bank account using FX swaps, and FX swaps would typically require you to use CLS, and CLS normally can only settle transactions one day ahead of time. And all these things, you know, in terms of the value transfer could be done, you know, with basically a drag drop instantly. And of course, that opens up a lot of opportunities and possibilities in the cross-border industry.

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?

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 does not become disadvantageous in terms of liquidity. It is always challenging when someone has to, you know, use a lot of liquidity or pre-fund. Normally today you would use pre-funding as a way of resolving.

Mm-hmm.

this value transfer. And how do you do that in a more efficient way? So that's also important. So risk is one part and trust is one part. And finally, I think liquidity is also very important.

Well, it almost sounds all too good to be true. But if we then really dive into the technology, because I know that for SantiGlobe, 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?

That's right. Absolutely. I think that when you look at us and you 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. And what you do when you use Centiglobe, 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.

And I mean, tokenization, it's by many seen as something complex. Maybe underregulated, not sure, but how does that work for you guys? How do you break up the process?

Yeah, I mean, and I think this is sort of also a little bit our USP, right? How we differentiate ourselves from many 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 a bank. The agreements we use need 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, for the tokenization. So, so what the way 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, i.e., those assets are in the balance sheet of that institution. So the way we operate it, what backs the system and what is tokenized is completely independent of Centiglobe and it's in the hands or the risk exposure 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, right? For instance, they may represent 20 banks in a big windmill type of investment transaction. So the way we utilize, and we use one special institution in London, 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, they would go to that security agent. They would have a security agreement with that security agent. And they place 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 every bank does the same thing. And as 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 institution. 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 holds that cash. Now, of course, what you could do, and that is something we haven't done, but because our clients are not really ready for it, but instead of placing cash with a security agent. You could place a government bond collateral. If you place a government bond with a security agent, it's no longer even risk on that, on the bank that the security agent uses, because securities are 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 on a bank deposit anymore. It's actually of a 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 would back the system, if it makes sense.

It makes a lot of sense. If you ask me, you're reshaping the infrastructure. And I was wondering if you could maybe, for the audience, because they're maybe not all so detailed in the matter, but could you also give a use case, a story maybe from one of the clients of Santiglobe and what it really brings to them, like, uh, yeah, very down to earth.

It's a very good—

I think it's a good point, Koen, because when you look at cross-border payments, which is sort of— I mean, when do you use this technology? You typically use it when you have a market where there's sort of distrust between 2 parties, 2 parties that would not trust each other. And then the DLT would come in and it would create, you know, stability and trust in the system. And of course, cross-border payments are obvious. 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 2. You create that trust, but then you have to also say, 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. It would be great if he got it in real time, but it's not the end of the world. So what we try to identify are verticals, end-client 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. 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. But what if the buyer of that invoice sits in a different country or even in a different time zone? Does that mean that the seller of the invoice have to wait 2 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 bank investor of invoices. And with the technology, the EU bank can purchase these invoices and they trigger 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 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 where it's a need to have and not a good to have.

Peter, we're almost at the end of this conversation. And I was wondering, 2 questions if I still may. One thing is, where would you like to be in 5 years? And then maybe following up on that, what would be a typical client for you?

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 correspondent bank world, I think, in 5 years' time. You have 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 5 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, right? I mean, I'm sure the Chinese CBC network will have difficulties working with the JP Morgan network and so on and so forth. And I see that a role someone like us can play is actually pure interoperability as well.

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 have to have— like to have a conversation with you. How do they reach out to you? Where can they find you?

Yeah, well, thanks, Koen. I think the easiest way is probably to drop us an email. It could be sent directly to my email, so it's peter.vanderhoydonk@gmail.com. sandgren@centiglobe.com. So it's, it's Peter with 2 Ts, basically, dot Sandgren, S-A-N-D-G-R-E-N. Uh, I'm happy to have a conversation and discuss the future of payments and DLT and all other exciting things in this space.

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

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