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How Do I Set Up A Remittance Money Transfer Business?



Introduction Remittance industry is not that difficult to enter into, once you understand the basics (which would be true for any other business as well), then you can, with relative confidence, ease into the business. It is also important to understand that money transfer is a serious business as far as the law is concerned. Attempting to be clever or trying to convince yourself and/or others that you don’t need a license, etc. to operate can very easily land you into trouble (fines + prison). Movement of money is regulated, be sure to consult with the local regulator(s) [there may be more than one] and attorneys who specialize in this field before you dive in. Diving Into The Money Transfer Business Most people will literally spend less than 100 hours reading and properly researching this industry and just dive in. They could not have opt for a more easier way to burn their time and money. Sure, you’re read some reports, done a few remittances yourself, maybe even interacted with the diaspora, but this would not make you a remittance transfer expert. All kidding aside, it takes deep learning and commitment to the game to make money out of it. Because money-transfer is touted as the low hanging fruit, expect fierce competition. Survival in this business is tough. Dip Your Toes Into The Water Before you find out the hard way, it is always better to start small. Everyone wants to be able to do this…

However, the rider you see on that bike, most likely started with the vehicle below and worked their way up… Yes. Training Wheels! Put them on! Start small and carefully, else you might see a lot of money and time go down the drain. When you start small, you can make mistakes. You will also be learning a lot. I cannot emphasize this enough. The subtle nuances is what the game is all about. Knowing where and how you can make money…

  • how to have tie-ups

  • where to go and ask for help

  • how to partner with vendors/suppliers

  • how to best leverage your working capital

  • how to market and focus your efforts in picking up clients

  • how to do A/B testing to see what works and what does not

  • understanding compliance

  • understanding competition

  • being acutely aware of the subtle clues for each remittance corridor you serve

  • understanding banking relationships and the hurdles posed in trying to gain access to banking

  • understanding how to calculate very accurately all the costs associated with transferring money

  • how to grow volumes

  • how to have better control over KYC issues

  • understanding money laundering and/or terrorist financing and how to avoid your system/setup from being used to funnel funds

  • how to build a team

  • Etc.

Remember, there is no shame in starting small. It pays in the long run to start small and grow. It All Starts With Licensing Because in most countries & territories, money transfer business is licensed, it is best to start understanding how licensing works and take it from there. This is my most suggest path when starting out, looking out at the licensing issue. The chart below gives a brief of how this works (from a US point of view), though the same could apply (more or less) to other regulated countries as well.

In order of difficulty (from lowest to highest):

  • Affiliate

  • Correspondent

  • Correspondent / ISO

  • Authorized Delegate

  • Licensed

  • Banking Agent

A more detailed explanation of the route you can take with respect to licensing is explained here: US Money Transmitter License I always recommend the affiliate route. My reasons for doing so are as follows:

  • there is hardly any investment from your side

  • you will learn the lingo/nomenclature very quickly

  • how money transfer works, you will get to understand nearly all facets (not all is clear in the affiliate route), but it is perhaps the best starting point

  • you will have hands-on experience rather than theoretical

  • you will find just how easy/difficult it is to amass clients (and retain them)

  • if things don’t work out, you can walk away (without writing-off much money)

  • you do not have to enter long-term contracts

  • the walk away can be done without any further obligations, it didn’t work out, no issue

  • you can always enroll with another money transfer operator into their affiliate program

  • the MTOs (Money Transfer Operators) you work with, will spend a lot of time explaining terminology and processes to you, free learning!

Once you are confident you’ve just about done enough of training wheels, you can then jump to the next level. It is all about understanding the business, your comfort level and your risk appetite. You don’t necessarily have to go to training wheels. If you understand the business well, or have interned or worked for a MTO, then you could go directly the Authorized Delegate (Agent) Route or even go ahead and start getting your own licenses. Players In The Ecosystem The next thing is to understand the different players in the money transfer business that make up the ecosystem: The image below depicts more or less a complete model of all the players that will ever be:

Sender The person sending the remittance Sender’s Bank The bank that the sender will use to fund the remittance transaction. This can also be funded via cash (at an Agent location) or by using other payment instruments like Credit/Debit Cards, Mobile Credits, etc. Beneficiary The person who will be receiving the remittance money. Beneficiary’s Bank The bank where the remittance money is credited. Alternative methods are a mobile wallet (which also has a bank on the bank end) or COC (Cash-Over-Counter) in which case the beneficiary will prefer to receive cash upon presentment of proper identification at an Agent location or Bank. Money Transfer Operator (Sending Side) The licensed entity in the sending country that is the legal owner of the transaction and is facilitating the remittance. Money Transfer Operator Bank (Sending Side) The financial institution(s) that the MTO in the Sending Country uses to aggregate the funds and distribute them. Money Transfer Operator / Bank (Receiving Side) Counter-party on the receiving country would either be a licensed MTO or a Bank. Correspondent Bank (Sending Side) Usually a correspondent bank would be involved for purposes of either hosting the sending Bank/MTO’s Nostro account, or would be used to channel funds between the Sending MTO and the Receiving MTO/Bank. Payment Processor A payment processor might be used if using payment instruments like ACH, Debit/Credit Cards, other payment instruments (like PayPal, Dwolla, etc.) The Payment processor works for and is contracted by the Money Transfer Operator (Sending Side) ID Verification (KYC) Usually a 3rd party service is employed to authenticate and verify the IDs that are submitted as part of the on-boarding procedure by the Sending MTO. Agent / Affiliate An Agent or Affiliate might be used on the Sending side to on-board the transaction and could also be used on the Receiving side to off-load the remittance transaction. Payment Network MTOs can utilize various payment network to route the remittance transfer. For example they might use a 3rd party network like Earthport to settle transaction on to various countries where the MTO may not directly be integrated. Diving Int