- PSP (or E-Wallet)
PSP examples include Webmoney, Qiwi, PayPal, Skrill, Neteller, Yandex and others. An FX Offshore Broker needs to open a wallet in the selected payment system and place it on the website and also in the Trader’s Room (Link to the Article about Traders Room)
Fees: Can be dramatically different between currencies. Make sure to get a detailed breakdown. One PSP was charging my client MDR 15% on all USD wires.
Average MDR is fixed fee (EUR50-125) or 2% B2B, 4.5% C2B (whichever is greater)
- Crypto Deposits (can be made to PSPs, EMIs, less common to Banks)
Over the past few years the amount of funds transferred in crypto has grown dramatically. There are quite a few automated solutions from OrangePay or Cryptonator, as examples.
Fees: Generally higher compared to regular wires, literally no fees if transferred to offshore FX brokers wallets
Other :
VISA/MASTERCARD – This option requires the FX broker to have a company with Bank Account in Europe and have an agency contract with an offshore entity.
The European Company acts as a payment agent to receive funds. This type of structure has recently become difficult to set up due to the fact that less and less banks are willing to work with FX deposits.
Payment Aggregators: (Winpay, OrangePAy, Interkassa) may save a lot of time dealing with different PSPs and are often used by start up brokerages
Checklist of the questions you should be prepared to answer:
- Proof of URL domain of the company
- What is the average number of payments per month to the account?
- From which jurisdictions you expect to receive incoming funds?
- What will be the source of these incoming funds?
- Which are the most important business partners of your company?
What are the biggest struggles :
- Credibility of the financial institution
It may sound like an oxymoron, but Offshore FX Brokers are more likely to use unlicensed financial institutions that have a higher risk of failure. Desperation combined with a limited choice of providers are leading to less strict due diligence and as a result – a loss of money. You are already running a high-risk business and it is super important NOT to settle with an unlicensed payment solution
I put the cost below credibility for a reason. Low fees are attractive but they also act as a red flag. $5k in monthly savings may cost you an entire company deposit. Are you willing to risk it?
The cost of payment solutions is a sensitive topic that some FX Brokers tend to ignore. I often look at SYOB business plans and rarely see proper expenses recorded for the deposit/withdrawals. Start-up offshore FX Brokers should consider a 5-10% expense for all incoming and outgoing wires.
Some financial institutions may experience technical issues or a system “overload”. FX Brokers have to provide a few alternative solutions to avoid clients complaints.
- Payment providers/financial institution high attrition rate
Legal mergers, acquisitions, license suspensions and so on are more common among the types of financial institutions that offshore FX Brokers will be using. The only solution is (1) diversification and (2) continual monitoring of news about your partners.
Common Sense Tips:
- FX Brokers should not keep all funds in one place (Bank, PSP, EMI). The average FX Broker has over 6 working solutions and is always in search of new
- Go local. FX Brokers must look at their client-based preferred ways of depositing/withdrawing
- NEVER keep the firm’s operational funds together with client funds. Separate. That will help to maintain proper accounting for future audits
There are thousands of solutions out there (there are 500 EMIs in Europe alone, 1400 Money Service Operators in HK) , don’t waste your time talking to everyone. Talk to the experts who can provide you with a unique, proven working solution.