Banking for Unregulated Offshore FX Brokers

Banking and payment solutions for regulated FX Brokers are usually straightforward. I say “usually” as even FX brokers with proper licenses can get hard time finding the suitable options in today era of strict bank policies.

Unregulated offshore FX brokers from St. Vincent, Marshall Islands, Hong Kong and etc. are quite limited in the ways they can process incoming and outgoing payments deposits and withdrawals.

This article will cover the most common payment solutions available for offshore FX Brokers as well as shed some light on what can be expected.

The abbreviations that will be used:

  • B2C- Business to Client
  • C2B- Client to Business
  • B2B – Business to Business (often used for transfers to/from Liquidity provider or vendor)
  • PSP – Payment Service Provider
  • IBAN- International Bank Account Number
  • KYC- Know Your Customer
  • PA (Payment Aggregator) – a service that assembles several payment systems into a single solution
  • EMI – Electronic Money Institution
  • MDR – Merchant Discount Rate (fee to assist transaction)
  • SEPA – Single Euro Payments Area

Bank

Offshore FX brokers will not be able to secure a corporate bank account at a Tier1 or Tier 2 bank, they should investigate Tier 3 banks in less economically developed countries.

These banks are traditionally lacking the online banking features, do not have great client support, take their time to reply. Offshore FX brokers are often required to pass “in person” interviews and rejections are very common.

Cost: if you have a decent FX network, you may not even pay for the bank account opening. If you don’t – expect to pay 2-3K to the agent (no guarantees to open)

Islands banks often charge monthly maintenance fees to have an account open (from USD3000 and up), as well as have restrictions on the daily number of transactions.

FX Offshore brokers use banks mostly for B2B wires and larger B2C transactions

Fees: often fixed fee and % (whatever is greater), can be as low as 1% MDR, as high as 11%. MDR is higher on crypto deposits/withdrawals

European EMIs (manly UK and Lithuania)

EMIs is a growing bank alternative. EMI is not a bank and has certain limitation (as example, they can’t take credit risk)

Typically, EMI is well vetted, has proper KYC in place and more reliable compared to PSP. Normally EMI assign client IBAN (use own SWIFT number). Therefore, more companies may accept EMI for the financial transactions.

Fees: Fees are Volume, Sector and Origin based, but assume the average 150-250bps (~1%) on money inflows, and the average fixed EUROS 50 per transfer. Within SEPA, fixed transfer fees can be around 12.50

PSP (or E-Wallet)

Webmoney, Qiwi, PayPal, Skrill, Neteller, Yandex and others. FX Offshore Broker needs to open a wallet in the selected payment system and place it on the website and 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 (50-125EUR) or 2% B2B, 4.5% C2B (whatever is greater)

Crypto Deposits (can be made to PSP, EMI, less common to Banks)

Over the past few years, the amount of funds transferred in crypto has grown dramatically. There are quite a few automation solutions from OrangePay or Cryptonator, as example.

Fees: are generally higher compared to regular wires, literally no fees if transferred to offshore FX brokers wallets

Other:

VISA/MASTERCARD – for that option FX broker needs to have a company with Bank Account in Europe and have an agency contract with offshore entity.

The European Company acts as a payment agent to receive funds. It is difficult to set up such structure recently as 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 often used by startup brokerages

Checklist of the questions you should be prepared to answer:

1) Proof of URL domain of the company

2) What is the average number of payments per month to the account?

3) From which jurisdictions you expect to receive incoming funds?

4) What will be the source of these incoming funds?

5) 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 and limited choice of providers are leading to less strict due diligence and as a result – loss of money.

– cost

I put cost below credibility for a reason. Low fees are attractive but they as well act as a red flag. 5k in monthly saving may cost you an entire company deposit. Are you willing to risk it?

Cost of payment solutions is the most sensitive part that some FX Brokers tend to ignore. I often look at SYOB business plans and rarely see proper expense recorded for the deposit/withdrawals.

Startup offshore FX Brokers should consider 5-10% expense for all incoming and outgoing wires.

– volume of transactions

Some financial institutions may experience technical issues or system “overload”. FX Broker must provide few alternative solutions to avoid clients complains.

– payment providers/financial institution high attrition rate

Legal mergers, acquisitions, license suspensions and so on are more common along financial institutions that offshore FX Brokers will be using. The only solution is 1) diversification 2) ongoing monitoring news about your partners.

Common Sense Tips:

Of course, there are many other things that you as Offshore FX Broker should be aware.

Download our: List of payment providers that have history of approving offshore FX brokers: https://info.advancedmarketsfx.com/financial-solutions-list-download

Disclaimer: The content of this article is sponsored and does not represent the opinions of Finance Magnates. 

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