Why Did Institutions Bet $40 Million on PhotonPay When Stablecoin Transfers Are Cheap Enough?

The profit from payments is no longer in the transfer phase.

Written by: Thejaswini M A

Compiled by: Chopper, Foresight News

We have all bought cheap plane tickets. Seeing ticket prices cheaper than a dinner in town can make one feel pleased with the bargain. But some people take a while to realize: the airport is still a two-hour drive from the city it’s named after. By the time you reach the hotel, the cost of the ticket may already be the smallest expense of the entire trip.

Cross-border remittances tell a similar story. Cryptocurrency has made the cost of on-chain transfers extremely low, and you might think that’s all there is to it, but that’s not the case.

Banks do not publicly disclose the actual profits from cross-border wire transfers. To investigate this, three Harvard Business School researchers tested their own transfers. In a working paper from the Bank for International Settlements (BIS), they studied eight cross-border transfers initiated through large banks: just from the exchange rate spread, customers had to pay an extra 2% to 4.7%, not including the additional transfer fees charged by the banks.

The Bank of Italy conducted another set of tests: targeting ordinary users, they transferred $200 using USDC between Italy and five other countries, tracking the total costs and time taken. The grand data made stablecoins look like saviors. Researchers from the International Monetary Fund (IMF) analyzed 270 remittance corridors, and Tobias Adrian presented the findings at the BIS meeting in June: on corridors that can be compared with World Bank data, transferring $200 through stablecoin channels costs about 1%, while traditional channels cost 5.8%, which is about $2 compared to nearly $12.

However, the Bank of Italy's tests also revealed less optimistic conclusions. They compared USDC transfers with Wise (a low-cost remittance service provider): total fees ranged from 0.3% to nearly 9%. For a $200 transfer, the optimal route only costs $0.6, while the worst route costs nearly $18. USDC outperformed Wise on three routes but fell short on four, indicating that stablecoins do not always guarantee lower costs. Interestingly, the average fee of the blockchain network itself only accounts for 0.4% of the transfer amount, about $0.8; the majority of expenses come from the exchange of fiat currency into and out of crypto assets.

Compared to ordinary remittance channels, stablecoins are indeed cheaper. However, they do not have a guaranteed edge over mature fintech service providers like Wise.

On October 29, Hong Kong company PhotonPay completed a $40 million Series C financing round, led by Blockchain Capital. Since on-chain transfers have never been the major expense, I am curious: what exactly are these investors betting on?

Low-cost on-chain transfers are not the core of capital bets

On June 26, 1974, German regulators shut down Herstatt Bank, which suffered massive losses in foreign exchange trading. This event is famous for its time difference: Germany was in the trading day while the U.S. market had not yet opened, and the bank was closed. Counterparties trading with it had already paid in Deutsche Marks, waiting to receive dollars, but the dollars never arrived—the New York market had not opened, and the bank collapsed. Many institutions were affected, and a mainstream payment system in the U.S. even came to a halt for 24 hours.

The payment industry still refers to this as Herstatt Risk. This incident taught the industry a lesson: a cross-border payment is essentially two independent payments in two different time zones. Once the funds complete one half of the link, they may get stuck on the other half. Today, the impact of a delayed wire transfer is much smaller, but cross-border funds still circulate in segments, and any link can get stuck.

Conventional international remittances go through multiple intermediaries. Your bank and the local bank in Brazil often do not have a direct connection, so funds need to go through a series of correspondent banks. Each correspondent bank must reserve foreign currency positions for payment while charging fees and conducting compliance checks.

Companies like Wise and Remitly have changed this model: they keep funds in local accounts around the world. When you send dollars to Europe, Wise often completes the payment directly using local euro balances, meaning the funds do not need to be transferred cross-border.

Stablecoins speed up another link: even when banks are closed, tokens can still be transferred. However, there may still be waiting on the other end for conversion. SWIFT data shows that about 90% of cross-border payments can reach the receiving bank within an hour; most delays occur after the funds arrive due to internal verification and batch processing by the receiving bank.

The Bank of Italy's tests also confirmed this. In regions connected to real-time payment systems like Pix, the entire transfer took less than 20 minutes; in South Africa, due to reliance on traditional bank transfers at the end, it took 1 to 2 business days.

Many cross-border businesses already hold operating funds, but the currency and storage locations do not meet their needs, leading to significant costs. Suppliers will not start production until they receive payment, causing delays in inventory for the month. A researcher from Surrey University, Atta Addo, surveyed the computer market in Lagos, which houses over 5,000 small and micro businesses. He recorded a case of a young merchant purchasing 500 mobile phones from a supplier in Guangzhou: five years ago, he had to queue at the bank, fill out foreign exchange documents, and wait 7 to 21 days for payment clearance. Local market conditions change rapidly; payment delays lead to either rising costs or competitors restocking by the time the goods arrive. Now he sends USDT via his phone, and it arrives domestically in minutes.

The pain points in advertising scenarios are even sharper. If Meta fails to deduct funds, advertising will stop. The funds are clearly available, and the clients are there, but the campaign is forced to pause.

What is PhotonPay?

PhotonPay disclosed in its financing announcement that as of August, its annualized transaction volume reached $65 billion, up from just over $30 billion in January. It has over 200,000 corporate clients, 34 licenses and regulatory approvals, and issued 4.4 million cards within a year.

PhotonPay provides a one-stop cross-border collection, currency exchange, and payment service for businesses. Cross-border sellers can receive payments through local accounts, with multi-currency funds held in accounts for paying suppliers or recharging consumption cards. The wallet supports the coexistence of USDC, USDT, and fiat currency balances. Businesses can exchange stablecoins for over 17 currencies around the clock, transferring directly to bank accounts or recharging cards, with specific permissions depending on the operating region.

The platform also offers virtual cards, physical plastic cards, metal cards, and branded custom cards. These cards are suitable for scenarios where businesses hold stablecoins but need to settle bills in local fiat currency. Advertisers can recharge virtual cards with USDC to pay for advertising, and what the advertising platform sees is just ordinary credit card consumption. Some cards require separate recharging, while others share a unified fund pool. Agencies managing multiple advertising campaigns can share the fund pool without needing to reserve idle funds in each card.

PhotonPay holds 34 financial licenses and regulatory approvals, covering different markets and businesses. The company stated that the new funds will be used to expand wallet products, issue more cards, and build a local payment settlement network.

The advertising platform Luban, under BlueFocus Media, illustrates the importance of this. Clients advertise on Meta, Google, and TikTok. According to PhotonPay's case, traditional cross-border fund recharges can take up to two business days, making it difficult to flexibly adjust budgets during campaigns.

PhotonPay has not disclosed the proportion of stablecoins and traditional payments in the $65 billion transaction volume. In my view, the core value of stablecoins here is not being cheaper, but rather saving time and opening access channels.

The platform charges small fees at various stages: a 0.3% fee for funds received, $3 for local transfers, $15 or $45 for SWIFT wire transfers, and a 1% card transaction fee. At the listed price, receiving $100,000 and then spending $10,000 with a card would cost about $400, not counting exchange rate conversions. In the January Series B financing announcement, PhotonPay also planned to offer investment returns and credit services for idle funds.

PhotonPay has not disclosed its revenue. For reference, Airwallex has an annualized transaction volume of $287 billion and an annual revenue of about $1.3 billion, equivalent to $0.45 in revenue for every $100 in transaction volume.

Compared to other transactions in the industry, PhotonPay's $40 million Series C financing is not particularly large. In August, Mastercard acquired BVNK for up to $1.8 billion; Stripe spent $1.1 billion to acquire Bridge; Payward acquired the Hong Kong payment service provider Reap for up to $600 million; Openfx raised $94 million; and Airwallex raised $320 million in Series H financing, with a valuation of $11 billion.

Wise has built direct payment channels connecting to eight local payment systems; in the last fiscal year, it completed a massive volume of cross-border transactions at a rate of 0.52%, down from 0.58% previously. Airwallex's business model is closest to PhotonPay, providing accounts, cards, and payment tools for businesses. Airwallex's CEO suggested last year that the payment scenarios for stablecoins between mainstream currencies are limited, but later Airwallex also co-led a blockchain project called Metal and launched USDC for internal testing.

Bridge operates at a lower level. Developers use it to transfer stablecoins and issue their own dollar tokens; its clients are service providers, who then connect to advertising agencies. There are also a number of vertical players focusing on specific corridors, such as connecting Europe to Africa and Africa to Latin America, where the exchange of dollars and local currencies is most challenging, precisely where stablecoins have the clearest advantages. PhotonPay is akin to an Airwallex-style bundled solution, with a built-in stablecoin balance in the wallet, targeting advertising buyers and cross-border exporters. Reap, also based in Hong Kong, has a similar product logic.

PhotonPay has spent ten years building banking partnerships, a licensing system, and local payment infrastructure. Li Yuanhan, a partner at investment firm Blockchain Capital, explained the betting logic: companies want a single service provider. Returning to the data I liked most in the Harvard paper: Wise disclosed the costs of transferring pounds to euros. A transfer costs a total of 24 pence, of which 22 pence is for customer service, compliance verification, and system maintenance; only the remaining 2 pence is for bank fees, multi-currency fund position management, and exchange costs.

If I had to choose the most important link among blockchain connectivity capabilities, licenses, and customer relationships, I would say it’s the customers. Blockchain connectivity capabilities are the easiest to acquire; Bridge and BVNK themselves provide this capability externally; licenses take years to refine, but obtaining a license is merely a ticket to enter. Wise holds over 80 licenses, and its application for a U.S. trust bank license was still blocked in July this year, with plans to resubmit. Customer resources are the hardest to replace; even PhotonPay has some clients who use multiple service providers simultaneously.

Luban maintains direct cooperation with advertisers, and its website lists recharge channels such as PingPong, Payoneer, and Wanlihui. The revenue structure also reflects the trend: now nearly half of Wise's net income no longer comes from cross-border transfer fees, but from interest, card services, and more; Airwallex states that over 90% of its revenue comes from customers using multiple products. Both companies are striving to become the primary accounts for businesses to hold funds.

The price advantage in emerging markets is also narrowing. From 2021 to 2024, the price difference for stablecoin exchanges to Indian rupees compared to benchmark channels is about 5.5%; this will shrink to 2.9% from 2025 to 2026. The paper suggests that this price difference arises from capital controls, meaning this advantage will disappear with changes in regulatory policies.

Profit margins are a greater concern. For transfers over $10,000 targeting developed countries, fintech service providers targeting consumers have already reduced rates to 0.4% to 0.6%, and Wise continues to lower prices. The profit landscape is concentrated in emerging markets; in the BIS sample, one B2B platform has an average rate exceeding 3%, while the Brazilian real corridor is about 6%. The sample size is limited, but it is foreseeable that all players will compete for this profit margin. Once transfers themselves become standardized commodities, the moat for businesses must come from value-added services outside of transfers.

What Does This Mean for PhotonPay?

Companies like PhotonPay, Airwallex, and Reap address needs that banks are unwilling to take on. The business logic behind these needs explains why investors are willing to continue betting.

The first pain point is fixed costs. Verifying customers and responding to customer service incurs nearly the same basic cost for a $2,000 payment as for a $2 million payment. Banks profit significantly from large orders, while small orders are easily abandoned. The Bank for International Settlements reports that between 2011 and 2022, the number of correspondent banks in Africa decreased by about 34%, and in South America by about 50%.

Correspondent banks handle payments on behalf of other banks. Companies like PhotonPay invest in licenses and banking connections, spreading fixed costs across 200,000 clients to achieve economies of scale. This is why small sellers can access services that banks would not build specifically for them.

The second pain point is time, which can be translated into opportunity costs. For example: a merchant spending $1,000 on advertising can generate $3,000 in sales. The card transaction fee is 1%, costing $10; however, if they choose the cheapest transfer channel, the funds arrive too late, and the advertisement cannot be run, resulting in a loss of $3,000 in revenue. This is why businesses are willing to forgo the lowest-priced channels.

Another area of growth is credit. Sellers often need to pre-finance inventory and advertising before receiving payments, and banks find it difficult to extend credit to small and micro exporters overseas. When a service provider can continuously see every inflow and outflow of funds for a business, it can better assess the operational status and issue loans, earning interest income, thus no longer relying solely on transfer fees. The Asian Development Bank estimates that by 2025, the global trade finance gap will reach $2.5 trillion. PhotonPay disclosed plans to launch credit products in January, while Reap has already launched corporate credit cards.

When a business becomes cheap and easy to replicate, profits will flow to adjacent links. Innovation theorists Clayton Christensen and Michael Raynor proposed a theory with a long name: the law of conservation of attractive profits.

In the cross-border payment arena, transfer fees are continuously decreasing. New profit opportunities arise from accounts that businesses use long-term and daily consumption cards. Payment companies can earn a share from card consumption; funds deposited on the platform make merchants more inclined to choose it for their next payment.

Therefore, I believe that investors betting on payment companies are essentially betting that this service provider has already deeply embedded itself in the daily financial processes of its customers, and replacing it would require reconstructing the entire business financial chain.

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