Why do acquiring banks for card processing avoid serving money-transfer and remittance businesses, and which acquirers do work with companies like Remitly and WorldRemit?
Payments
Asked by Question Bot08/Apr/20151 answer
1 Answer
F
Faisal Khan
Answered 08/Apr/2015
Money service businesses (who are money transmitter) to many financial institutions and processors represent businesses that are classified as high-risk.
There is a reasoning behind such classification and it boils down to a few elements:
Because banks/financial-processors would have to invest more in HR and technology to cater to money transmitters, many just cannot justify the expense, based on the estimated revenue.
Fraud represents a high-risk, even though fraud itself would be covered by a deposit by the remittance companies (in the event of a chargeback). The 3PP are extremely jittery that because of high-fraud rate, their underwriting capability might be adversely affected by the card schemes. To give you some semblance of fraud, Faisal Khan's answer to Online Payment Gateways and Processing: What is the average chargeback rate in the US? (which still holds true today).
Then there is the added (misplaced?) that should a transaction that was a money laundered, terrorist financing or drug financing transaction slip through the crack, the banks/financial processors go ape shit as to what the possible repercussions would be from the regulator.
For 90% of the processors, the refusal is based on FUD (Fear / Uncertainty / Doubt) factor, and just because the others are not processing, they will not either. Its a reflection of what is going on with other colleagues and peers.
In reality, the business is very safe. Let me repeat that, the business is very safe. If you don't have the HR / software, needless to say, you're not ready for it, and most are not.
Removing the HR/Software aspect of it, Banks/Financial institutions /financial processors with well-experienced Risk Departments, do provide transaction processing to remittance companies, but do so to those who have a solid operating history in the US, who have sold financials, AML/KYC policy, whose flow of funds they are comfortable with, whose correspondent partners are equally responsible, and all parties are properly licensed.
The above prerequisites eliminates easily 2/3rd remittances companies. What's left, are companies who either don't want Credit/Debit card processing based on the fraud or deposit requirements.
To answer your last question, in the money service business / money transmitter business / remittance / money transfer business, the financial institutes or financial processors who are willing to work with you, are guarded well, i.e. their names are not shared and are considered hidden treasures (example if you know of a processor who will work with MSBs or if you know of a bank that will open an operating account for an MSB), you keep that information to yourself.
There is a reasoning behind such classification and it boils down to a few elements:
- Inadequate HR resources that specializes in AML/KYC for the remittance business
- Inadequate Computing/Software resources to implement the necessary AML/KYC/BSA, et. al. policies that would make the FI/Processor compliant from a regulatory aspect.
Because banks/financial-processors would have to invest more in HR and technology to cater to money transmitters, many just cannot justify the expense, based on the estimated revenue.
Fraud represents a high-risk, even though fraud itself would be covered by a deposit by the remittance companies (in the event of a chargeback). The 3PP are extremely jittery that because of high-fraud rate, their underwriting capability might be adversely affected by the card schemes. To give you some semblance of fraud, Faisal Khan's answer to Online Payment Gateways and Processing: What is the average chargeback rate in the US? (which still holds true today).
Then there is the added (misplaced?) that should a transaction that was a money laundered, terrorist financing or drug financing transaction slip through the crack, the banks/financial processors go ape shit as to what the possible repercussions would be from the regulator.
For 90% of the processors, the refusal is based on FUD (Fear / Uncertainty / Doubt) factor, and just because the others are not processing, they will not either. Its a reflection of what is going on with other colleagues and peers.
In reality, the business is very safe. Let me repeat that, the business is very safe. If you don't have the HR / software, needless to say, you're not ready for it, and most are not.
Removing the HR/Software aspect of it, Banks/Financial institutions /financial processors with well-experienced Risk Departments, do provide transaction processing to remittance companies, but do so to those who have a solid operating history in the US, who have sold financials, AML/KYC policy, whose flow of funds they are comfortable with, whose correspondent partners are equally responsible, and all parties are properly licensed.
The above prerequisites eliminates easily 2/3rd remittances companies. What's left, are companies who either don't want Credit/Debit card processing based on the fraud or deposit requirements.
To answer your last question, in the money service business / money transmitter business / remittance / money transfer business, the financial institutes or financial processors who are willing to work with you, are guarded well, i.e. their names are not shared and are considered hidden treasures (example if you know of a processor who will work with MSBs or if you know of a bank that will open an operating account for an MSB), you keep that information to yourself.