How saturated is the money-transfer startup market, and how capital-intensive is it to build?
Payments
Asked by Question Bot04/Jan/20121 answer
1 Answer
F
Faisal Khan
Answered 04/Jan/2012
The market is saturated / not-saturated depends which two geographic regions you are working in (From/To countries).
Building a platform from scratch is not too difficult. I've often said this, stare at a white-board long enough, and you will come out with a payment processing solution. The main issues you will face are two:
Traction
When rolling out a money transfer product/solution, your main area of concern would be on how to make an income. For any decent income, you will be dependent on the number of transactions you do per day, and in some cases, the transaction value (if your business model supports commission extraction from the amount being remitted / transferred).
Whilst everything may seem all green to you, it can take one effort by a mid to a large size company to totally disrupt your business model. I have seen this happen too many times.
Getting customers will be your biggest hurdle.
Legal Compliance
No matter what territory you operate out of, legal compliance would be your bigest challenge. Money Service Business license (also known as Money Transmitter License), and other licensing requirements would be very strict and difficult to obtain.
Some of the checks you would be looking at are:
These checks if not done, can land you and your company in serious legal trouble with the law.
Your best bet is to seek a partner, preferably a bank, that is licensed and has a money transmitter license. This is to be true both in the remitter and beneficiary country. Once you have such partners, you can then perhaps engage them to either sponsor your product/solution or lease it. This would be the safest and most pragmatic approach for you.
The capital outlay can easily be done by the banks, provided they see a true value add and something that you are able to bridge / provide for.
I cite this answer not as a theoretical answer, but one based on experience. I too had started the solo path and discovered the hurdles, especially the financial hurdles and then decided to partner up with banks. The synergies that both you and the bank will bring to the table - is what makes a good mix and a successful product.
*My answer mostly assumes the money transfer system you want to build would be international and not just localized.
Building a platform from scratch is not too difficult. I've often said this, stare at a white-board long enough, and you will come out with a payment processing solution. The main issues you will face are two:
- Traction
- Legal Compliance
Traction
When rolling out a money transfer product/solution, your main area of concern would be on how to make an income. For any decent income, you will be dependent on the number of transactions you do per day, and in some cases, the transaction value (if your business model supports commission extraction from the amount being remitted / transferred).
Whilst everything may seem all green to you, it can take one effort by a mid to a large size company to totally disrupt your business model. I have seen this happen too many times.
Getting customers will be your biggest hurdle.
Legal Compliance
No matter what territory you operate out of, legal compliance would be your bigest challenge. Money Service Business license (also known as Money Transmitter License), and other licensing requirements would be very strict and difficult to obtain.
Some of the checks you would be looking at are:
- AML (Anti-Money Laundering)
- KYC (Know Your Customer)
- OFAC (Office of Foreign Assets Control) - US Check
- SAR (Suspicious Activity Reports) - US Check
- Velocity Checks
- CTR (Currency Transaction Reports) - US Check
- Etc.
These checks if not done, can land you and your company in serious legal trouble with the law.
Your best bet is to seek a partner, preferably a bank, that is licensed and has a money transmitter license. This is to be true both in the remitter and beneficiary country. Once you have such partners, you can then perhaps engage them to either sponsor your product/solution or lease it. This would be the safest and most pragmatic approach for you.
The capital outlay can easily be done by the banks, provided they see a true value add and something that you are able to bridge / provide for.
I cite this answer not as a theoretical answer, but one based on experience. I too had started the solo path and discovered the hurdles, especially the financial hurdles and then decided to partner up with banks. The synergies that both you and the bank will bring to the table - is what makes a good mix and a successful product.
*My answer mostly assumes the money transfer system you want to build would be international and not just localized.