Lightnet, a Bangkok-based fintech company, has raised US$31.2 million in its latest “Series A” financing round led by UOB Venture Management, Seven Bank, Uni-President Asset Holdings, HashKey Capital, Hopeshine Ventures, Signum Capital, Du Capital and Hanwha Investment and Securities.
The firm is taking on the global remittance market, focusing on Southeast Asia. It’s a market which is dominated by millions of unbanked migrant workers that send money back home to their families yet have to contend with the high fees and slow service provided by the decades-old SWIFT system and fragmented correspondent banking network. The high cost of this network has forced many to pursue underground payment routes which are risky and unreliable. Remittance is a large market in the region according to Lightnet, with these services valued at $150 billion a year.
What is notable about Lightnet is that it is backed by six large conglomerates in Asia which between them gives the startup access to a giant network of banks and retail outlets in the region that can act as access points for customers to send and receive cash.
“We launched Lightnet to offer low-cost and instantaneous financial inclusivity and mobility to the four billion lives across Asia Pacific – all powered by Stellar’s fast, scalable, and sustainable blockchain technology”
That the Lightnet team has chosen the Stellar network as the payment rail signals a vote of confidence for both blockchain as a replacement for existing payment networks, as well as Stellar’s ability to support the movement of money in a range of currencies efficiently across borders at a fraction of the cost and time that it takes today with traditional payment networks.
Lightnet has partnered with Interstellar which is the commercialization arm of the Stellar Development Foundation, the non-profit that supports the development and growth of the open-source Stellar network. Interstellar was formed by the merging of blockchain platform Chain and the for-profit branch of the Stellar Development Foundation, called Lightyear in 2018.
With Interstellar, Lightnet has a partner that not only understands the Stellar platform but also has a deep acumen in the payments space. Interstellar’s CEO Mike Kennedy, who took over from previous CEO Adam Ludwin in September last year, previously founded Zelle – the U.S. digital payments network backed by Wells Fargo and a number of other U.S. financial institutions which processes over $75bn in transactions on an annual basis.
From the roster of investors, it appears likely that retail outlets will play a major role for the payment network by providing access points for customers to send and receive cash. For example, Seven Bank, part of Seven & I Holdings Co. Ltd, owns all the 7-Eleven stores in Japan and approximately 69,200 convenience stores globally. Uni-President Asset Holdings is the investment arm of Uni-President Enterprises Corp., which also owns over 9,000 7-Eleven and Starbucks across Taiwan, China and the Philippines. Financial and remittance institutions are also strongly represented as investors and partners and are likely to also play a similar role.
Kennedy, sees parallels with Zelle as it is was through these types of partnerships with institutions with large customer bases that the U.S. payment network was able to scale.
“The best way to scale is to partner with the best, most reputable companies that have a lot of endpoints”
To move money internationally via the network, customers will deposit money at a one of these endpoints, whether it is a bank, existing money transfer business or a store. The transaction is routed to a liquidity provider on the network that offers the most competitive currency conversion quote, with the two access points in the network then settling their leg of the transaction with that liquidity provider.
While funds do have to be transferred behind the scenes to settle up between the access points and liquidity provider in a traditional way (nostro/vostro book entry accounting or ACH), Kennedy sees that eventually when the network gets large enough, participants will start to see the benefit of settlement netting which would significantly reduce the actual movement of money that is required behind the scenes.
Stellar Network – Designed For Payments
Bringing low cost remittances to the underbanked is something that hits the core of Stellar’s philosophy which was built around the notion of financial inclusion.
“Lightnet is helping create the world we imagined when we started Stellar, a world of greater financial inclusion and interoperability. The products they’ve built on Stellar are a testament to the way we can redefine domestic and international payments in a decentralized global marketplace”
In addition to a shared ethos, Kennedy points to a number of other differentiators of the Stellar network which makes it, in his view, uniquely suitable candidate to operate as a payments and remittance network — “the Stellar network is designed for payments which means it is low cost and scalable. It allows you to do multi-currency and multi-coin natively.”
As to whether Stellar’s native token, the “Lumen” (XLM) will be used as the means of moving funds between parties, Kennedy states that it’s an option but it is not necessary to use it as the transaction can be crypto-agnostic. Kennedy also cites Stellar’s ability to support stablecoins as a mechanism to remove price fluctuations and volatility during transactions.
Gearing Up For Deployment
Typically Series A rounds are used for funding the build of technology and establishing partners. However, with Lightnet they seem to be ahead of the curve having already built the platform and secured their partner base. Instead, the proceeds from the latest fundraising will go towards strengthening Lightnet’s investment in the underlying blockchain technology on the Stellar Network, and to build a next-generation financial mobility network.
“Lightnet is offering three innovative solutions, BridgeNet, LiquidNet and SmartNet. The main platform has been completed, and the first transaction is slated for Q1 2020. In addition to the potential 500,000 cash agents across our ecosystem, Lightnet will integrate with several renowned payment and remittance partners such as Seven Bank, Yeahka, Ksher across Japan, South Korea, and several other South East Asia nations to ensure successful activation of our ecosystem,” according to Lightnet Chief Executive Officer, Suvicha Sudchai.
From then, according to Tridbodi Arunanondchai, Lightnet’s vice-chairman, the company expects usage to grow quickly.
“We project that within three years, Lightnet will facilitate over $50 billion worth of annual transactions through our industry-leading partner network”
Quoted in a recent publication, Arunanondchai, sees fact that the consumers in the region are underbanked and rely on cash as the key driver for the expected fast adoption of Lightnet. As much as 70% of Association of Southeast Asian Nations (ASEAN) population use cash or underground banking for financial transactions, and “SWIFT would never be able to touch them.”
It’s Good For Blockchain
Reflecting on Lightnet’s announcement, Kennedy sees it as not just a win for Lightnet and the Stellar network but as a step forward for the blockchain industry as a whole. The initiative demonstrates large multinational companies moving onto the blockchain to conduct real world real transactions.
“There’s been a lot of hype around buying and selling crypto-currencies, but this is about showing a real use case, with reputable companies for real life transactions,” says Kennedy.
There’s a popular saying in emerging technology that reflects the natural risk aversion that most companies have when trying something new – “everyone wants to be first to be second”. With Lighnet having cleared the path, we may just see the rest of the payments industry following behind.