Biggest challenge for a money remittance company

Every week, a new startup is born to grab the 600 Billion remittance market volume . With an average fee of 7% approximately 40 billion dollar are paid in fees and despite dozens of startups trying to reduce it, fees are not coming down as anticipated. Even though we blame the remittance companies for higher fees, the industry have some additional challenges which other industries haven’t even heard of.

The biggest challenge in running a MSB ( Money Transfer Business ) isn’t higher cost of acquisition,  technical debt, marketing but a Bank account. All MSBs are considered High Risk Accounts (HRA) irrespective of size. It started with the Operation Choke Point which was announced in 2013 by United States Department of Justice. Every bank which is doing business with high risk clients such as payment processors, payday lenders, cheque cashing business & money service businesses are being investigated under this operation. Things have gone worse since then and accounts are being shut down. “De-Risking” is the common term used while closing a bank account. Banks are not interested in dealing with the MSB due to redflags that are raised both internally and externally in terms of compliance.

Maintaining a bank account is the biggest struggle in a money remittance business

Banks are justified on their end since in some cases, the cost associated with enhanced due diligence outweighs the cost of maintaining certain accounts. In other cases, banks mitigate the problem by charging premium fees to certain types of customers. This issue is not just limited to agents but the company itself.  Here is an excerpt of World Bank survey report.

“A Significant portion of MTOs declared that the MTO principal (28% of the respondents) or its agents (45% of respondents) can no longer access banking services. Of that smaller group of MTO principals without access, 75% are maintaining their presence in the market by using alternative channels to clear and settle the amounts at international level; the other 25% of MTO principal respondents are currently unable to operate regularly through bank channels.”

Derisking Money remittance

Issue is that even though a MSB is 100% compliant, their account could be shut down without any reason. Regulators are well aware of the issues, however, none of them are super interested in solving this issue because there is no incentive. It is a continuos battle between the bank, MSB and regulator with no clear winner.

As per WorldBank recent report, 69% of the MSB are impacted due to recent account closures.

A bill should be passed by the assembly that as long as the business comply with the regulations, banking services shouldn’t be denied because it leads to either shutting down the business or using alternative underground routes such as Hawala. Bank account for a legally operated business should be a RIGHT. As an example; In Canada, even though basic banking services is a right for individual. Unfortunately, same rule doesn’t apply to businesses.

So next time, when some one plan to get into this industry, they should consider banking issue as the biggest hurdle, rather than the UI, logo or branding

2016-03-06T15:46:24+00:00November 24th, 2015|

What is your management style ?

Someone asked me a question about my management style. Let me give a disclose that I have not been very good at it and this is the most difficult task that a founder has to encounter.

Management Style

While I am not pro at it, I thought of asking this question from myself for days and came up with following

Ideal management style is a style in which people don’t have to be managed

Now it goes more about the culture where everyone can think themselves accountable. I am lucky to attend lecture by Brad Hams and the way he explained the subject was great.While I recommend his book a lot, I would rephrase his book title as following

Create a culture of accountability, purpose & profitability & eliminate the entitlement feeling.

 

Any one who can master this won’t have to adapt to any culture.

 

Management Style

2016-03-06T15:46:33+00:00November 5th, 2015|