SoftBank veteran looks for profit in payments infrastructure plumbing

In the summer of 2020, as pandemic-driven volatility gripped markets, SoftBank Group shocked Wall Street with a series of huge options bets on US technology stocks. Behind that deal — which earned SoftBank the “Nasdaq Whale” moniker — was Akshay NahetaAn executive whose career has been marked by bold wagers on disruption.

Now, after orchestrating multibillion-dollar deals, including an attempt to merge Nvidia and ARM, Naheta is making perhaps his most ambitious bet yet: that the world’s payments infrastructure is ripe for reinvention.

His Zag, a Switzerland-based startup, Distributed Technology Research (DTR), trying to bridge the gap between traditional banking and blockchain technology, is joining the army of companies trying to modernize the global payments infrastructure.

The startup claims its technology can eliminate payment inefficiencies ranging from transfer costs and interchange fees to foreign exchange conversion charges and settlement delays. “Current payment networks suffer from inefficiencies – transfer costs, interchange fees, FX conversion charges, settlement delays and other opaque fees,” Naheta told TechCrunch in an interview.

DTR’s core technology, AmalgamOS, essentially connects banks to the blockchain network. Through APIs, it allows businesses to integrate payment capabilities while complying with local regulations. The system can handle everything from merchant payments to treasury management, supporting both traditional currencies and major stablecoins in 48 countries.

The startup has built what Naheta describes as an “international orchestration network” that automatically routes transactions through traditional banking or blockchain rails, depending on which path offers the best combination of speed and cost. “We are connected to 12,000 banks in Europe,” he said in an interview. A business integrating DTR’s API allows its customers to initiate transfers directly through banking apps.

DTR’s push into payments infrastructure comes at an opportune time. Visa and MasterCard – both of which Charge 2-3% swipe feeMerchants — typically the second-highest cost after payroll — are facing increasing scrutiny over their duality, and the proposed US Credit Card Competition Act could require banks to offer merchants alternatives to dominant networks.

DTR’s early customers say its infrastructure fills a significant gap. Philip Lord of Obit, a crypto wallet startup, said the system allowed his company to move money from a crypto wallet to a UK bank account within 30 seconds on Christmas Day – a transfer that would take days through traditional channels.

Naheta’s interest in payments infrastructure stems from an unlikely source: SoftBank. Acquisition of Fortress Investment Group In 2017. About $20 million worth of bitcoins were placed on SoftBank’s balance sheet.

As he studied the underlying blockchain technology, Naheta says he saw an opportunity to apply his background in wireless communications to payment networks. While still at SoftBank, Naheta began assembling what he hoped would become DTR’s founding team. He reached out to his undergraduate thesis advisor, Pramod VishwanathAn expert in wireless communications who now heads Princeton’s Blockchain Center and Sriram Kannanwhich will start later own level.

The team saw blockchain at heart as a peer-to-peer communication network, which could apply decades of research into wireless systems to revolutionize payments. Naheta said he almost resigned from SoftBank in the summer of 2018 to focus on DTR and crypto venture Bakkt, but was persuaded to stay by senior executives including Rajeev Mishra and Masayoshi Putra.

Naheta’s earlier forays into the payments sector included SoftBank’s investment in Wirecard, which later collapsed. SoftBank still makes a profit on its investment in Wirecard. “I’ve made a lot of mistakes,” he admitted. “I looked at it in perspective, here’s a company that has all these regulatory licenses around the world, clearly owning payment technology.”

Those experiences seem to have influenced DTR’s emphasis on compliance and institutional credibility. This measured approach extends to the company’s growth strategy. “Even if I grow my headcount to 60 people by the second quarter, we will still be free-cash-flow positive,” he said.

Startups face competition on multiple fronts. Wise has built a successful business matching currency flows between countries, Ripple offers blockchain-based settlements despite its legal troubles, while traditional banks also say they are upgrading their systems through initiatives like SWIFT. Last, but not least, the stripe The recent $1 billion acquisition of Bridges To help the world’s most valuable fintech startups make deep inroads into payments.

Yet Naheta sees an opening in serving businesses caught between these worlds – particularly digital nomads, creative economy platforms and companies operating in emerging markets.

“Banks are not equipped to run KYC/AML at that small scale, where you’re paying $200 to 10,000 people a month,” he argued. The fragmented nature of national payment systems creates particular challenges for businesses operating globally, as each jurisdiction maintains its own rails and regulations.

The high margin and network effects of the payments industry make it very difficult to disrupt. PayPal still has a market cap of $70 billion after recent declines, while Visa and Mastercard are worth a combined $1 trillion.

“I really think the retail customer is sinking into payments,” he says. “And it’s not the banks’ fault. They are plugged into legacy systems and turning the Titanic around is very difficult.”

Lord of Obit said in an interview that space remains wide open. He pointed out that until just a year ago, the only option for businesses needing to move between crypto and traditional banking systems was to “go to an OTC shop and pay maybe like 1 to 3% to transfer it.”

“It’s crazy that over the years, we’ve had so many startups, we’ve had so many coins appear, and every time I wanted to on-ramp or off-ramp, there was no other formal legal thought system. around,” he said. DTR’s solution is a “faster block” than alternatives.