SoftBank Veteran Invests in Payments Infrastructure

SoftBank Executive Launches Venture to Reinvent Payment Systems

During the summer of 2020, amid significant market fluctuations caused by the pandemic, SoftBank Group surprised observers with substantial options investments in U.S. technology companies. Akshay Naheta, an executive known for ambitious and disruptive strategies, was instrumental in these trades, earning SoftBank the label of “Nasdaq whale.”

Having previously managed multi-billion-dollar transactions, including a proposed merger between Nvidia and ARM, Naheta is now undertaking what may be his most significant endeavor yet. He believes the global payment infrastructure is poised for fundamental change.

Introducing Distributed Technologies Research (DTR)

Based in Zug, Switzerland, Naheta’s startup, Distributed Technologies Research (DTR), aims to connect conventional banking systems with the capabilities of blockchain technology. This positions DTR among a growing number of companies focused on modernizing how payments are processed worldwide.

DTR asserts that its technology can resolve numerous payment-related inefficiencies. These include reducing transfer costs, eliminating interchange fees, minimizing foreign exchange conversion charges, and accelerating settlement times. “Existing payment networks are burdened by inefficiencies – encompassing transfer costs, interchange fees, FX conversion charges, settlement delays, and other hidden charges,” Naheta explained to TechCrunch.

How AmalgamOS Works

DTR’s central technology, AmalgamOS, establishes connections between banks and blockchain networks. It utilizes APIs to enable businesses to integrate payment functionalities while adhering to relevant local regulations.

The system supports a wide range of financial operations, from processing merchant payments to managing treasury functions. It accommodates both traditional currencies and prominent stablecoins across 48 different countries.

DTR has developed what Naheta terms an “international orchestration network.” This network intelligently directs transactions through either traditional banking channels or blockchain rails, selecting the route that provides the best balance of speed and cost-effectiveness. “We maintain connections to 12,000 banks throughout Europe,” he stated.

Businesses integrating DTR’s APIs can allow their customers to initiate transfers directly through their existing banking applications.

A Timely Entry into the Payments Landscape

DTR’s entry into the payments infrastructure sector appears strategically timed. Visa and Mastercard, which typically levy swipe fees of 2% to 3% – often the second-largest expense for merchants after payroll – are facing increased scrutiny regarding their market dominance.

Furthermore, the proposed U.S. Credit Card Competition Act could mandate that banks offer merchants alternatives to these established networks.

Early Customer Validation

Initial users of DTR’s infrastructure report significant benefits. Phillip Lord of Oobit, a cryptocurrency wallet startup, noted that the system facilitated a money transfer from his crypto wallet to a U.K. bank account in under 30 seconds on Christmas Day.

This transfer, he indicated, would have taken several days using conventional methods.

Origins in SoftBank’s Bitcoin Investment

Naheta’s focus on payment infrastructure originated from SoftBank’s 2017 acquisition of Fortress Investment Group. This acquisition resulted in approximately $20 million worth of Bitcoin being added to SoftBank’s balance sheet.

Through studying the underlying blockchain technology, Naheta identified an opportunity to leverage his expertise in wireless communications to improve payment networks.

While still at SoftBank, Naheta began assembling the core team for what would become DTR. He contacted Pramod Viswanath, his undergraduate thesis advisor and a blockchain expert at Princeton, and Sreeram Kannan, who later founded EigenLayer.

The team viewed blockchain as a peer-to-peer communication network, capable of applying decades of research in wireless systems to revolutionize payments. Naheta considered leaving SoftBank in the summer of 2018 to fully dedicate himself to DTR and the crypto venture Bakkt, but was convinced to remain by senior leaders like Rajeev Misra and Masayoshi Son.

Lessons Learned from Past Investments

Naheta’s prior experience in the payments sector also included SoftBank’s investment in Wirecard, which subsequently collapsed. Despite this, SoftBank realized a profit on its Wirecard investment.

“I’ve encountered setbacks,” he conceded. “I evaluated it from the standpoint of a company possessing all the necessary regulatory licenses globally and demonstrably having the payments technology.”

These experiences have shaped DTR’s emphasis on regulatory compliance and institutional credibility. This cautious approach also extends to the company’s growth plans.

“Even if I expand the team to 60 people by the second quarter, we will be free-cash-flow positive,” he affirmed.

Competitive Landscape and Future Outlook

DTR faces competition from various players. Wise has successfully built a business facilitating currency exchange between countries, Ripple offers blockchain-based settlement solutions despite legal challenges, and traditional banks are also upgrading their systems through initiatives like SWIFT.

Additionally, Stripe’s recent $1 billion acquisition of Bridge is expected to strengthen the leading fintech startup’s position in the payments sector.

However, Naheta believes there is an opportunity to serve businesses operating in the space between these established systems – particularly digital nomads, creator economy platforms, and companies operating in emerging markets.

“Banks are not equipped to handle KYC/AML procedures at a small scale, such as processing $200 payments to 10,000 individuals monthly,” he argued. The fragmented nature of national payment systems also presents challenges for businesses operating internationally, as each jurisdiction has its own rules and infrastructure.

The payments industry’s high margins and network effects make it notoriously difficult to disrupt. PayPal has a market capitalization of $70 billion, even after recent declines, while Visa and Mastercard are collectively valued at over $1 trillion.

“I believe the average consumer is being overcharged for payments,” he stated. “This isn’t the fault of the banks; they are constrained by legacy systems, making significant change difficult.”

Lord of Oobit commented that the market remains open for innovation. He pointed out that, until recently, businesses needing to move between crypto and traditional banking systems had limited options, often relying on over-the-counter shops and paying fees of 1% to 3% for transfers.

“It’s remarkable that, for many years, despite the emergence of numerous startups and cryptocurrencies, there was no formalized, legal system for on-ramps and off-ramps,” he said. DTR’s solution is “significantly faster” than existing alternatives.