Banking for entry-level offshore FX Brokers

Banking and payment solutions for regulated FX Brokers are usually straightforward. I say "usually" as even FX brokers with recognized licenses can have a hard time finding suitable options in today's era of strict bank policies. Entry-level offshore FX brokers from St. Vincent, Marshall Islands and etc. are quite limited in how 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\ with each.

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

  1. Bank

Realistically, Offshore FX brokers will not be able to secure a corporate bank account at a Tier1 or Tier 2 bank and they should therefore look into Tier 3 banks in less economically-developed countries. These banks are traditionally lacking many online banking features, do not have great client support, and 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, there may be no fee to open the bank account. If you don', then expect to pay $2-$3K to an agent with no guaranteed results

Island banks often charge monthly maintenance fees to have an account open (from $3,000 and up), as well as restricting the number of daily transactions.

Offshore FX brokers mostly use banks to hold operational capital and to facilitate B2B wires and larger B2C transactions

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

  1. European EMIs (manly UK and Lithuania)

The EMI is growing as a bank alternative. An EMI is not a bank and has certain limitations (for example, they can't take lending risk).

Typically, an EMI is well-vetted, has proper KYC in place and is more reliable when compared to a PSP. Normally an EMI will assign a client IBAN (use its own SWIFT number). Therefore more companies may be willing to accept an EMI for financial transactions.

Prepaid Debit cards issued by EMIs are among the most common ways to process the small transactions of FX Brokers

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

Click here to get a List of European Licensed EMIs with disclosed names!

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