Being the first to enter a new market is
a daunting challenge, but it was one Moneybookers’ founders took on
with vigour when in February 2003 it became Europe’s first
regulated electronic money (e-money) issuer. Their efforts have
been rewarded with what is now one of Europe’s fastest growing
internet-based person-to-person and business-to-customer payments
services.

UK-based and regulated by the
country’s Financial Services Authority, the door to Moneybookers’
establishment was opened in October 2000 when the European
Commission (EC) issued its Electronic Money Directive. In April
2002 the UK became the first European Union country to implement
the directive into law, allowing establishment of regulated e-money
service suppliers permitted to take deposits but not pay interest
or extend credit to customers.

Though growth of Europe’s e-money market has not met the EC’s
expectations, Moneybookers by any measure has been a resounding
success. From a mere 650,000 customers at the end of 2004,
Moneybookers ended 2008 with 6.2 million customers, up 55 percent
compared with a year earlier.

Customer numbers are growing rapidly, Moneybookers’ joint-CEO
Martin Ott told EPI. Indicatively, 9,000 customers signed
up every day in December 2008, up 130 percent compared with
December 2007. The majority of customers are in the UK, Germany,
France and Poland, he added.

Transaction volumes grew at an even faster pace than customer
numbers in 2008, doubling to €3 billion ($4 billion) on a run-rate
basis. Profit run-rate based on earnings before interest, tax,
depreciation and amortisation doubled to €26 million in December
2008, justifying private equity firm Investcorp Technology
Ventures’ decision to acquire a controlling stake in Moneybookers
for €105 million in March 2007.

Cost competitive

In essence, Moneybookers’ service enables users to upload money
to a virtual account – or e-wallet – which can be used to pay for
goods and services online and send money to anyone with an email
address. Payments are made instantly.

In building its business Moneybookers has focused on crucial
factors such as simplicity, cost competitiveness and security.

As an example of simplicity, Ott explained that for a
Moneybookers customer to send money by email to someone without a
Moneybookers account in another country the recipient would be
asked to open a Moneybookers account. The recipient could then
receive payment via a Moneybookers correspondent bank in that
country or, if requested, have the amount paid out in cheque
form.

The service is designed to be extremely competitive. Costs are 1
percent of transaction value with a maximum of €0.50. When a
foreign currency is involved 1.75 percent is added to the
applicable wholesale foreign currency rate to protect Moneybookers
against adverse exchange rate moves.

Moneybookers’ fees make it a strong contender in the global
remittance market where high fees are rife. For example, according
to the World Bank for a remittance between the UK and South Africa,
where Moneybookers has a correspondent bank, competitors’ fees
average 12.22 percent, ranging from 5.55 percent for a 24-hour
service from LCC Trans-Sending to 22.1 percent for an instant
service from MoneyGram.

Moneybookers has a fast-growing network of correspondent banks
which at the end of 2008 provided coverage of 39 countries in 29
currencies.

Popular with merchants

Given Moneybookers’ wide geographic reach it is an ideal way for
small companies to internationalise their business, said Ott. The
service is also highly flexible and can be easily customised for
merchants, he explained.

Of particular significance in terms of flexibility is
Moneybookers’ technology development centre in Bulgaria which, said
Ott, produces very high standard solutions at comparatively low
cost.

Moneybookers’ service has evolved to the point where more than
60 local payment options are offered, while for customers using
credit cards for merchant payments 200 countries are covered.

Another attraction for merchants is Moneybookers’ no charge-back
policy. A service in which Moneybookers takes the risk, it demands
absolute confidence in its security system.

The system mitigates against fraud in a number of ways, from the
basic approach of excluding customers from high-risk countries to
sophisticated technology that, for example, can identify that a
specific personal computer has already been used to open an
account.

In addition, instant credit checks on new customers are done, in
Germany, for example, by credit bureau SCHUFA, said Ott.

“If they have a bad credit record we won’t offer them a debit
card facility and request that they make giro [instant bank account
debit] payments,” he added.

Online merchants have adopted Moneybookers’ service in droves
with the number offering its payment service ending 2008 at over
30,000.

Not all Moneybookers’ merchant clients are small. Among major
global names is internet phone service giant Skype, an eBay unit,
which uses Moneybookers to process payments internationally, said
Ott. From February 2009, eBay itself will add Moneybookers to its
official list of payments methods.

Moneybookers’ is undoubtedly enjoying first-mover advantage in
the e-money market, but could face increased competition if the EC
goes ahead with plans to lower entry barriers. However, welcoming
the move, Ott noted that it would “level the playing field” by
bringing existing unregulated schemes and probably payments
processors into the regulated e-money arena.

Ott is confident that Moneybookers will go from strength to
strength.

“Despite the financial crisis we have seen no slow-down,” he
stressed.

Indeed, it appears economic pressures are resulting in more
people going online in search of value – which Moneybookers
certainly offers.