What is a good solution for U.S. startups that need to provide direct account credit to users in Asian countries?
Payments
Asked by Question Bot11/Jan/20141 answer
1 Answer
F
Faisal Khan
Answered 11/Jan/2014
In order to do this, your best bet is to get in touch with the Banks in each country (you will have to research a bit) and find out which banks are willing to work with you (not just on the receive cycle) but will actively front the average settlement value each day.
What this basically means is as follows:
You can also partner up with world-wide or regional partners who specialize in Remittances and they can do all of the above, minus the portion where money is front-ended. They will not front any money, but will require you to maintain an average daily balance with them for the payments that need to be pushed out.
The downside to such an arrangement is higher operating costs (since most remittance players are middlemen hence the transaction cost increases and less than favorable FX rate).
You would have more power and control if you were to tie-up with each bank individually (as a settlement bank) for that country/territory.
The cons are finding the right partner bank to work with. The pros are all in your favor. You get to work with a partner who values their banking license more than anything else. So from a regulatory, compliance and nomenclature viewpoint, the banking partner would know it all.
One great area of concern is to ensure that you have a zero float arrangement with the bank, i.e. the partner bank will not deliberately introduce delay in the disbursement process.
The smallest transaction you would be able to push would depend what is the small profitable value for an IBFT transaction your Partner Bank can push into an account, typically I think you're looking at $2 at the very minimum.
What this basically means is as follows:
- The Partner bank would have a US Nostro Account
- You will push aggregated payments (via ACH into the Partner Bank's US Nostro Account)
- Provide End-Details of Account Debits and break-up information about these payments to be made.
- The Partner Bank will front the money in their country and make these payment via their Interbank Funds Transfer Facility
- They should be able to provide you with a very favorable FX rate.
- In about 2-3 days the payment that you made to them in the US, would have cleared ACH and SWIFT and the money (in US Dollars) would be with the Partner Bank.
- The Partner Bank's Treasure will provide you with the settlement/FX rate each day for you to be compliant with Dodd-Frank Act (Sec 1072)
- The Partner Bank will take from you the Interest Rate for the Money that they fronted for 1-3 days (depending on the arrangement).
You can also partner up with world-wide or regional partners who specialize in Remittances and they can do all of the above, minus the portion where money is front-ended. They will not front any money, but will require you to maintain an average daily balance with them for the payments that need to be pushed out.
The downside to such an arrangement is higher operating costs (since most remittance players are middlemen hence the transaction cost increases and less than favorable FX rate).
You would have more power and control if you were to tie-up with each bank individually (as a settlement bank) for that country/territory.
The cons are finding the right partner bank to work with. The pros are all in your favor. You get to work with a partner who values their banking license more than anything else. So from a regulatory, compliance and nomenclature viewpoint, the banking partner would know it all.
One great area of concern is to ensure that you have a zero float arrangement with the bank, i.e. the partner bank will not deliberately introduce delay in the disbursement process.
The smallest transaction you would be able to push would depend what is the small profitable value for an IBFT transaction your Partner Bank can push into an account, typically I think you're looking at $2 at the very minimum.