One of the most difficult and challenging aspects of running a new forex brokerage is understanding how Payment-Service-Providers (PSPs) and offshore forex banking work. If you are an IB who is deciding to open his own brokerage business, this may be an area where you struggle. At first glance, this seems like a very simple issue, but the reality is more complicated. For the retail trader, using a credit or debit card to make a deposit into their trading account is very simple, it is as easy as ordering from a website online. But from the brokerages perspective, this is much more difficult. This blog post will examine why, and will provide some helpful hints on setting up and managing your PSP network.
While PSPs seem simple, the key to understanding why the process is complicated is the amount of risk the processor is taking on by processing the transaction. Processors run substantial risk of “charge-backs,” where credit card users call their card issuer and insist a transaction was fraudulent. In high risk industries, like forex trading, the rate of charge backs is much higher then it is in standard retail sales. Resolving charge-backs is a very expensive and time-consuming process – most PSPs go to very long lengths to insure they have minimal charge-backs to deal with.
Additionally, setting up a payment service provider account is a fairly long process. The processor must collection all the client’s documentation, verify the documents compliances, and do a risk assessment of the client. This all takes substantial amounts of energy. For new brokerages, or brokerages that look like they may not do much business, PSPs may decide that even going through the compliance process is not worth their time.
Many people who are new to PSPs are surprised by the fees they charge. Many PSPs charge a high single digit percentage on every transaction that goes through their processor. While the rates maybe high, for new brokerages, the revenue the PSP generates is very small. If a brokerage is doing five digits worth of processing, the fees don’t add up to much in an absolute sense. This leads many PSPs to be very wary of taking on new or marginal business.
The key to successfully obtaining and managing PSP services for your brokerage business depends on having quality relationships with the PSP providers. Global Group Technology has helped dozens of FX brokerages obtain PSP and offshore banking services. Our relationships mean that our turnaround time is fast, and we can obtain lower rates then a brokerage may obtain individually.
In addition to obtaining the required PSP and banking accounts to process funds for your business, we have extensive experience integrating PSPs directly into our Traders Cabinet. We make the whole process a snap, and your clients will be able to easily and quickly deposit through their credit card directly from your Traders Cabinet.
If you are interested in learning more about how we can assist you in setting up a PSP for your forex brokerage, please reach out to us today for more information!