Started as a small project for friends in the UK in 2011 with the aim to offer more efficient cross-border payments to immigrants from Eastern European countries in the UK, in 2015, ArcaPay shifted to the business-to-business segment and took off. “The year is not over yet so it’s too early to call but we will most likely fall short of doubling our portfolio this year,” Marius Bausys, CEO of ArcaPay, told The Baltic Times Magazine.
ArcaPay, a company providing currency conversion and international payment services to businesses, aims to provide intelligent solutions for small and medium-sized enterprises that purportedly save up to 5 times compared with commercial banks. How does it work?
We have a network of banks and other payment service providers in a number of countries, which enables us to process payments abroad more efficiently than traditional banks. Furthermore, by aggregating and netting transaction flows, we can offer superior currency exchange rates. All this combined enables us to deliver speedy cross-border payments at a reduced cost to our clients.
Talk about your company's timeline and show some of your most important milestones, please.
ArcaPay was started as a small project, but already in 2015, we started to shift to the business-to-business segment. We began with small businesses in the UK that were importing goods from Eastern European countries. Over time, we started exploring other European markets, primarily the Baltic States and Poland. Since 2018, the Baltic States became our core target market and we’ve been consistently expanding here. Post-Brexit, ArcaPay received authorisation from the Bank of Lithuania in 2021 and our Lithuanian company has become a cornerstone of our group of companies.
Yet you are in a very competitive environment, with many rivals in the fin-tech sector. Where do you believe ArcaPay edges them out?
Our strategy is to offer a rather narrow service to a specific segment of clients in our carefully selected markets. This allows us to provide high-quality service and properly address the needs of our clients. Moreover, we genuinely care about the sustainability of our clients' businesses. For instance, earlier this year we launched a freely available sanctions screening tool to check their business partners for international financial sanctions. It was one of the first such public information databases in the Baltic States.
Your presence is pan-Baltic. Yet it is Lithuania, the home base, where your footprint is firmer, is not it?
Yes, our footprint in Lithuania is currently the strongest. However, we are actively penetrating the Latvian market and also aiming to become more active in Estonia in 2023.
You’ve been operating in 19 countries in all. Are you set to expand? Where to?
As a digital business, we are open to clients from all countries where we have regulatory permissions. However, everyone’s energy and resources are limited, thus it is almost impossible to expand into multiple new countries simultaneously. Our current focus is on the Baltic States but we are treading waters in Poland and Scandinavian countries. We want to make sure that the service we can offer in each new country is in line with our existing standards
Your company provides services to over 800 importing and exporting business customers. Most of them are companies from Lithuania and the United Kingdom. Talk about that, please.
Our services are best suited for businesses that either import and pay suppliers abroad in foreign currencies or export and receive revenue in foreign currencies. The number of business clients has now climbed above 900.
For example, apart from the banks that serve most of the international payments made by businesses, ArcaPay is one of the leading players in the market of business payments between Lithuania and China. More than 5 percent of all Lithuanian imports from the Chinese market are paid via ArcaPay.
The Bank of Lithuania (LB) has permitted you to reorganise the ArcaPay Group. What was and what will be done? How will the new structure attract investors and better manage the expanding business's growth and risks?
The reorganization of the ArcaPay group of companies was completed at the beginning of the year. We created a holding company structure which includes our two operating entities in the UK and Lithuania. The new structure is more attractive from an investors’ standpoint and allows us to better manage risks associated with the expanding business's growth.
What are the biggest challenges in the currency market today?
As soon as central banks started raising interest rates in response to raging inflation around the world, volatility returned to the foreign exchange market. This presents a heightened risk to businesses and requires additional resources to address it.
Compared to the global market in Lithuania, do many companies still need to take action in their FX management?
Currency risk management methods are traditionally used by large companies, but among SMEs, they have not yet become popular. Compared with other more developed markets like the UK or US, SMEs in Lithuania are more passive in managing their foreign exchange exposures. Based on our research, only 25 percent of publicly listed Lithuanian companies hedge with derivatives, which means three times less often than companies in the global market - 73%. The question arises: why is the percentage so low among Lithuanian companies? We assume that, firstly, it sounds too complicated, and secondly, there is a lack of knowledge and understanding.
You offer FX risk management tools. Regarding the Baltic businesses, what are the real benefits of using currency risk instruments?
Arguably, each business aims to focus on its main activity and eliminate extraneous factors. Currency risk is often one of them. By not managing the currency risk, the business basically participates in a lottery – if the current currency rate moves in a favourable direction – it will be a "plus", if it is unfavourable - it will be a "minus". Financial derivates such as forward contracts allow you to eliminate this risk.
In 2021, payments by ArcaPay Group customers to Russia and Belarus accounted for 3% of the company's total transactions. Was the service to them frozen after the war started? Did you operate in Ukraine before the war? Do you work with Ukrainian businesses?
We stopped processing payments to Russia and Belarus as soon as the war started. This stance remains unchanged. We do not have regulatory permissions to operate in Ukraine but some of our clients have a need to pay their partners or suppliers in Ukraine and we happily assist with such requests.
Did you manage to double your portfolio in 2022 as planned?
The year is not over yet so it’s too early to call but we will most likely fall short of doubling our portfolio this year. However, despite the unexcepted geopolitical and economic conditions, we are seeing healthy growth rates in our core markets and hoping to finish the year strong.
What are you expecting from 2023?
Whilst the economic outlook is uncertain, we remain optimistic about ArcaPay’s prospects and expect to continue the healthy organic growth of our business marked by expansion into new countries, which means building our clients and partners network, and growing the team.
Who is your team?
We have four brilliant teams in the business – Sales, IT, Compliance and Operations – and each of them brings their own twist and perspective into our business. I am grateful to each of our employees for their contribution. We operate as a team and are strong as a team.
What do you usually do after your office hours?
Outside work, my life spins around family and sports. Time is scarce so most social activities typically involve one or the other. I’ve been playing basketball since childhood but discovered triathlon almost a decade ago. These are completely different types of sports, but each fascinates me in its own way. Whilst the idea had been bubbling in my mind for quite some time, earlier this year I finally completed my first IronMan long-distance triathlon. If anyone is keen on a running tour around Vilnius, let me know when you are visiting next time.