Interview With Iurii Gugnin: Boosting U.S. Export Competitiveness With Cheaper Remittances

Iurii Gugnin is a seasoned entrepreneur and fintech specialist and is here to shed light on the technicalities surrounding international bank transfers and their impact on businesses, especially SMEs.

With over a decade and a half of experience in the field, Gugnin is currently spearheading the growth of Evita, an American startup that is revolutionizing the way companies handle international transfers.

In a short span of six months, Evita has achieved a remarkable turnover of $15 million per month, proving its profitability and effectiveness.

The startup is instrumental in facilitating overseas purchases of real estate, automobiles, and equipment for foreign clients while also aiding American small and medium-sized businesses in importing goods from abroad at a fraction of the cost.

Unlike traditional banking institutions such as Bank of America and Chase, which levy a 3-5% charge on transfers, Evita operates on a minimal commission of 0.4-1.5%.

This approach not only fuels the growth of the US economy but also aids in re-establishing the country's dominance in global exports.

Join us as Iurii Gugnin delves into the challenges faced by the U.S. in expanding its exports, the reasons behind the high costs of international wire transfers, and potential solutions to these issues.

Q: With a wealth of experience in fintech since 2009, could you share some insights about your journey with international payments?

A: My journey with international payments has been quite diverse, encompassing roles as an entrepreneur, consultant, and individual user. I've had the privilege of traveling to over 100 countries, living in several for extended periods, and consistently encountered a common issue: the incompatibility of bank cards when moving to a new location.

For instance, a Thai card was unusable in the States, and a Dubai card was ineffective in the UK. Despite Visa and MasterCard's global presence, their usability is conditional.

In my entrepreneurial journey, I've faced similar challenges. I established an international business, secured licenses in Europe and the CIS countries, and am currently in the process of obtaining licenses in America.

One of my notable ventures is the Karma investment platform, which has successfully built a community of over 8,000 investors, attracted more than 500 business borrowers, and structured a $250m deal with a major bank.

However, the process of making international transfers with currency exchange was often marred by high fees and lengthy waiting periods.

In addition to this, I've advised five countries on digital asset legalization, engaging with central banks to discuss payment structuring and the integration of digital money to enhance transfer transparency.

Drawing from these experiences, I founded Evita, a US-based company, in 2021. After a year of product-market fit exploration and several pivots, we found our niche in making international money transfers faster and cheaper, leading to rapid growth.

Q: The Federal Reserve reports that the average cost of money transfers from the States to other countries is now about 5.6%, even higher than in 2022. Why are these fees so high?

A: The high fees can be attributed to what I call the 'imperial syndrome' prevalent in the States. There's a common belief that dollars are universally accepted, negating the need for other currencies. Mainstream banks like Wells Fargo and Chase primarily operate in dollars in the United States, and the SWIFT system also predominantly uses USD.

Growing up in Asia, I was accustomed to carrying different currencies and exchanging them with ease, a practice not common in the US. Despite my knowledge and net worth, it took me three months to open a EUR account in the US, and even then, there were significant usage restrictions. This is a challenge that many local entrepreneurs face.

There is a niche segment of VIP banks, such as HSBC, Morgan Stanley, and JP Morgan, where corporations or wealthy individuals can open accounts in different currencies. These banks offer competitive exchange rates and reasonable transfer fees, but they are not designed for the mass market.

In essence, there's an oligopoly of 3-4 leaders in the US banking sector who set their own prices. They've decided to charge 3-5% for international transfers, and most customers, unaware of how exchange rates are determined or where to find current information, have no choice but to comply.

Q: In many Asian countries, the transfer fee is significantly lower than in the United States. For instance, in South Korea, it's only 3.55%. Can you shed some light on why this is the case?

A: Asia, with its multitude of island nations, has a unique culture of multi-currency transactions. However, even a seemingly small fee of 3.5% can add up quickly. Consider purchasing a Mercedes-Benz G-Class abroad for 300,000 EUR. The commission alone would amount to a staggering 10,500 EUR.

There are companies like Revolut or Wise that cater to smaller transactions, such as a $1,000 payment for freelance services. In these cases, an additional percentage doesn't seem as daunting. But in the B2B sector, the stakes are much higher. Transactions often involve tens or even hundreds of thousands for equipment, material supplies, and furniture.

On our platform, we've even facilitated the purchase of a thoroughbred horse from Germany with an impressive pedigree. The price tag was 120,000 EUR! In such scenarios, even half a percent can make a significant difference.

Q: The process of cross-border transfers often results in high costs and extended durations. Would you provide some insight into the underlying reasons for this?

A: Certainly, let's consider a hypothetical scenario. Imagine two individuals who wish to open dollar accounts in a bank in Mongolia and another in Korea. The question arises, how can this be achieved? The challenge lies in the fact that to handle non-cash dollars, both banks require a license from the United States.

Acquiring such a license is a daunting task for foreign financial institutions. As a workaround, these Mongolian and Korean banks would typically open correspondent accounts in U.S. banks, say Wells Fargo and Citi, respectively. Within these accounts, virtual folders are created for specific users.

Now, let's assume a client from Mongolia wishes to send dollars to a friend in Korea via SWIFT. As I mentioned earlier, the currency is held in American banks. The initiating bank, Wells Fargo, would first verify the sender and recipient of the transfer.

Following this, it would execute the transfer within the U.S., to Citi. The receiving bank, Citi, would then confirm that the Korean bank has an account with them and that the intended recipient is indeed a client of theirs.

This process of verification and confirmation takes time, and during this period, transaction fees accumulate. Hence, the perceived delay and cost associated with cross-border transfers.

Q: So, if I understand correctly, Mongolian and Korean banks might not directly interact with US dollars, but rather through an intermediary. Does this additional layer extend the transfer time?

A: Yes, this is a common practice in many countries. A local bank might open an account with a Korean bank, which in turn has an account with a US bank. Consequently, the money passes through several "hands" of correspondent banks, each taking a slice of the transaction as commission.

Moreover, when funds are sent through this complex chain, the transaction details can be extensive, often filling an entire page of text. This complexity significantly increases the likelihood of errors, which further extends the transfer time.

But that's not all. Customers have come to expect SWIFT transfers to be a lengthy process. For instance, when money is sent from the US to Latin America, the CIS, or Asia, local banks might reflect the transfer in the customer's account a day or even a week after the funds have arrived.

During this period, the banks essentially use the customer's money for free, earning interest on the deposits.

Q: Would it be accurate to say the complexities associated with international transfers contribute significantly to the U.S. losing its leadership in global exports?

A: I believe it's a crucial factor. The U.S.'s reliance on the dollar has had unintended consequences. In 2012, the U.S. was surpassed by China in terms of global exports, and by 2022, the Chinese yuan had become one of the top five currencies in transaction volume.

While the dollar still leads, the use of the yuan nearly doubled from 2019 to 2022.

Despite the slowdown in China's economy due to low birth rates, it continues to progress, driven by momentum. Furthermore, China frequently devalues its currency, which benefits the country as expenses are nullified while income remains in dollars. Consequently, Chinese goods remain competitive in the global market.

In contrast, the U.S. faces high costs in various sectors, including real estate, transportation, internet, and food. These costs inflate the price of goods, making them less attractive overseas. Unique products like Boeing airplanes or Nvidia chips are exceptions.

Additionally, businesses bear the burden of a 5%+ commission for payment transfers and interest rates on loans.

Q: What solution does Evita offer?

A: Fast and cheap international B2B transfers. We have a large community of exporters and importers who need to regularly transfer large sums to other countries. We also have our accounts in the States, in the UK, in the EU, and soon to be in China. This allows us to offset counter-flows of money.

Q: Could you provide some insight into how the counterflow system operates?

A: Imagine a scenario where one company needs to transfer $1 million from the US to Europe today, and another company needs to send the same amount from Europe to the US.

In this abstract situation, we at Evita can accept the dollars into our American account and simultaneously transfer euros from our local European account and vice versa.

This makes all transactions swift as they are conducted within the US and EU respectively. Moreover, we save on currency conversion because we don't convert the currencies.

Our counterflow system is supported by a community of importers, exporters, logistics operators, and entrepreneurs from various countries. My extensive experience in fintech has been instrumental in bringing this community together.

Large banks also have systems that allow for such internal clearing, which significantly increases the profitability of transactions. However, clients are often not informed about this and are charged hefty commissions for transfers. In reality, banks do not change the currency but simply adjust the figures on the accounts.

At Evita, we choose not to keep all the profit for ourselves. Instead, we share a portion of it with our clients in the form of a discount. As a result, the user will pay a commission of only 0.4-1.5%, depending on the transaction volume, instead of the usual 5% or even 3%.

Essentially, we democratize access to clearing, which is currently monopolized by banks, and save up to 90% of money on currency exchange.

According to the SBA, U.S. small businesses export goods and services worth $341 billion annually. We estimate that products like Evita could save Americans between $7-16 billion a year.

Q: What happens if the counterflows don't align?

A: In such cases, we resort to transferring money through digital wallets using stablecoins. We maintain legal and institutional accounts on regulated exchanges like Kraken.

Cryptocurrency transfers offer a faster and more cost-effective alternative to traditional bank wires, taking just a minute instead of two days and costing 50 cents instead of $45.

Q: Your primary focus is on small businesses, correct?

A: Our focus is on small and medium-sized businesses. However, it's important to note that these businesses often engage in quite large transactions. While we don't cater to corporations on the scale of Apple, our clients are primarily involved in buying and selling cars.

Currently, we're exploring the luxury furniture niche. Our services are also frequently used for payments related to equipment and charter flights, which can cost up to $200,000.

Q: Is it accurate to say Evita also assists businesses in addressing their working capital issues?

A: That's correct. It's a common scenario where a business has paid for a product and is simply waiting for its delivery. Many suppliers only ship products after receiving payment. If the transfer is made via SWIFT, the customer may have to wait an additional two weeks. During this period, the money is essentially "blocked" in the system.

However, if the funds are transferred within a day, businesses can turn over their working capital more frequently, leading to increased earnings at the end of the year. This is often more significant than the profitability of a single transaction. We aim to shorten the cycle and increase the number of "turnovers.”

Moreover, businesses can avoid taking out loans and paying high-interest rates. Currently, the interest rate on a small business loan ranges from 6% to 45%. Not all businesses can secure these loans from banks due to stringent requirements, leading to the emergence of loan sharks who offer loans at annual rates of 100-200%.

By freeing up working capital, Evita could potentially save US exporters around $20 billion a year at the very least. Given that small businesses are the backbone of job creation in the U.S., it's crucial to help them save money.

Q: Rounding off the interview, what do you think the future holds for the international payments market?

A: The future of international payments, in my view, may present more challenges. Despite the technological capability for instant and affordable global transfers existing for over two decades, two major obstacles persist.

Secondly, there is a global trend of increasing governmental control over business operations. European banks, for instance, spend an average of 14.25 million euros annually on Anti-Money Laundering (AML) and related activities. These costs are inevitably passed on to consumers through service fees.

Collectively, Europeans spend 140 billion euros per year on AML measures. However, these efforts only uncover less than 1% of actual criminal activity, while 99.99% of individuals and businesses bear the brunt of compliance requirements.

As regulatory measures continue to intensify, domestic and ecosystem-specific money transfers will become the norm. Consequently, services like ours that facilitate these transactions are poised to gain popularity.