National Check & Currency’s MSB Insider recently sat down with me and asked my opinion on various issues. Here is the interview in full.
How has the financial landscape for MSBs changed since you started working in this industry?
The industry over the past few years has become more regulated. Oversight has increased, so have the baseline (floor) parameters needed to enter this sector. Whether or not this is good or bad, only time will tell. There is a constant struggle between the Regulator and the MSB as to how much regulation is acceptable.
Finding the sweet spot is now the bone of contention between the regulator and the regulated. (see image below)
The MSB market has had its bar raised for sure, so now it is not everyone’s cup of tea to enter the market with ease. Application, qualification and maintaining MSB licenses are now more work than they were ever before. There is good in this, but as the sweet spot moves, transactions get more oversight (read: friction), which can be bad for business.
Authorized Delegate statuses are being revisited by the regulators and finding money transmitter license coverage is getting more difficult by the day.
In your opinion, will current trends in compliance negatively affect financial inclusion?
Not really. I think the goal by each government backed financial regulator is to ensure that grey economies cease and desist. That cash economies are converted to electronic money economies for better monitoring and compliance.
This is easier said than done.
The barriers to entry for financial inclusion are discriminatory in many aspects. They discourage the widespread adoption of the banking system, so the blame equally lies with the banks who see small value transaction clients as a burden as opposed to an asset. This is precisely an area where banks needs to revisit their understanding of what it takes to onboard a previously unbanked consumer. Deposits alone will not solve the problem. Metadata will. Consumers are now generating so much of metadata in their everyday life that this precious data is being ignored. Out-of-the-box thinking on how to commoditize a consumer’s metadata is where the next big opportunity is.
Of the estimated 2.5 billion unbanked people in the world, many have access to a mobile device. This is spurring a mobile wallet race. How will this affect global money transmission and the financial industry as a whole? How do MSBs fit into the growing mobile marketplace?
There are over 150+ mobile wallet OEMs today. Not every wallet-maker will survive. Having said that, I don’t think we will be seeing a case where a particular mobile wallet will dominate. The financial world is fragmented and will continue to remain so. Regional wallets will regain their titles in their respective territories, whilst across-the-globe players like Tencent, Facebook Messenger, Google and Apple will try to forge alliances and tie into the regional wallets for easy on-loading/off-loading of transactions.
I think eventually, consumers will adopt multiple wallets. Each wallet providing a specific niche. They could have a (walled-gardened) telco led wallet as well as a global wallet like Payoneer, Skrill or Apple Wallet. Depending on the relationship, the two wallets on the phone might even talk to each other.
MSBs, and specifically the money transfer operators will have to realize that money movement margins are dwindling. Ben Milne, the Founder of Dwolla recently made paying by Dwolla free. Obsolescence in the financial world is coming, and transfer fees based income is being threatened.
MSBs have to rely on value-added services to which most have just paid lip-service to. With thinning margins, near real time transfers, competition from both incumbents and new players with deep pockets, there are only so many big-blinds an MSB can play.
What is a challenge that you face today that did not exist when your company started?
Access to Banking & Bank-led processors. Five years ago, finding a bank to work with was not impossible. Today, it is a Herculean task. The fact that one cannot find access to banking pretty much kills the business. This is not only true in UK, US but other markets like Canada, Australia, EU, etc.
What are the three biggest hurdles that your clients face today?
- Licensing (in the markets they want to expand into directly – the time frames are too long)
- MSB friendly Banks (pretty much a hurdle with everyone now)
- The perceived threats that MSBs Because of these perceived notions that MSBs are high-risk. CROs, CLOs & CFOs are simply refusing to entertain bona fide business entities.
What do your clients value the most? What are they looking for from you?
Turn-key solutions that would satisfy all the concerned people like the CEO, CFO, CRO and CLO. They want to deal with one party that takes care of the entire problem set in order to go-to market.
Do you see the current Somali (and global) remittance crisis having a large scale global impact on regulation, the BSA, and FinCEN?
The Somali problem is a unique problem because of the lack of KYC controls on the receiving end. Consult Hyperion of UK did a detailed report for FSD Africa. Turns out, the banks (in the sending countries) cannot with a high-degree of accuracy ascertain the identity of the person receiving the remittances and the money laundering threat that this person poses to the transaction.
We still do not have a global standard for gauging identity. Heck, we don’t even have a global contacts standard, let alone KYC.
Many countries have a very unique biometric KYC system (Pakistan for example where the entire population over 18 has been fingerprinted and can be identified with a biometric scanner). India is coming up with their system and so are other countries. EU refuses to partake in such a setup, citing privacy concerns (which echo all the way across the pond to US and Canada). In the absence of a universally adopted KYC system, the Somalia problem will remain.
The only solution on such corridors is to have an on-ground biometric identity verification system which the host nation of the transaction can approve and accept.
In your eyes, how will Bitcoin play into the global remittance industry?
Bitcoin right now is negligible in the remittance industry. The overall remittance figures for Rebittance (Bitcoin based Remittances) is estimated to be far less than US$ 10 Million (and this too is a bloated figure). Whilst Bitcoin certainly provides the instant value-transfer capability, it does have many drawbacks when it comes to cashing out, liquidity on the local exchanges, price volatility, bitcoins-to-fiat settlement times as depicted by the exchanges, regulations, bitcoin legitimacy in both the remittance corridors, security, etc.
I personally think the Bitcoin market has to go through a couple of seasons before it even starts to gain noticeable traction. The Blockchain, the underlying technology being used in Bitcoin holds tremendous promise and we are sure to see lots of innovation in that arena. Competing protocols like Ripple have a much stronger chance to be used for value-transfer, as opposed to Bitcoin. Coincidentally, Ripple can transport fiat as well as Bitcoin natively.
What is your response to critics of digital currencies such as Bitcoin?
There will always be two sides to a story. Think back to the days and times when the first mobile phone came out, do you think the Baby Bells were threatened? Look what happened to Blockbuster or Borders. Whatever came out of Smith Corona and their amazing typewriters or the Polaroid. All dead, because obsolescence and stubborn complacency came in the way.
Critiquing is acceptable. I’m all in favor of critiquing. Criticizing however, is just myopic in my view. Bitcoin has its flaws (both in design, approach and usage), it is good to critique them.
Many, many people don’t understand how Bitcoin works, and herein lies the problem. When people within the financial sector don’t get it – they go negative. Bankers being the prime category of nay-sayers. Hence the critics. There is no shame in saying I don’t get it. I didn’t. It took months before I really got the hang of it.
Bitcoin is as revolutionary as the development of the HTTP protocol or sliced bread (whatever you fancy). The best use case of bitcoin in my opinion is yet to be developed, but the technology and concept is here to stay.
How do you think the new digital currency regulations in New York will impact and guide bitcoin regulation on a national and global scale?
Domestically (State side): Yes. They will. A lot of the US State Regulators look up to New York. Few admit it, but they do. Globally, no. I think the old age problem is still very much alive, which is the regulators will apply analog laws and juxtapose them to something that is inherently digital in nature.
What was the course of events that lead you to the money transfer and payment systems industry?
I stepped into this domain by accident. A bank in Pakistan reached out to me to find a US based ACH processor who would process remittance payments for a Pakistani Bank that also wanted US Money Transmitter License coverage. The challenge seemed easy enough for me, until processors and people started hanging up the phone on me or refused to answer emails once I told them of my geographic location. I was persistent and it paid of literally after 137 failed attempts. I finally found a processor willing to work with the bank, the country and provide an MTL holder to give coverage.
Today, I would rephrase it and say familiarity would be the answer. Remittances have always been close to heart, because of my professional network. I’m connected on both the Sender and Receiver side, so it was very easy for me to position myself as someone who could architect a deal together to get a particular corridor going. From the world of money transfer, then came tangential branches likes licenses, banking, processors, AML/KYC, payment networks, etc.
What excites you the most about your daily work in cross-border money transmission?
The challenge. As cliché as it may sound, the challenge is what excites me. I love taking a problem on which there is literally no hope and then attack it, hack it head on till such time I find a solution. This is where many people just give up. I don’t. In some strange way, the point of throwing in the towel for many is where I get started.
There is always a solution. It might not be the best, it might not be 100% to your liking or demands, but there always is a solution, and 99% of the time this solution means convincing someone to do what needs to be done. This is where I excel and what I love about my work.
 FSD Africa: Safe Corridors for Remittances: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/306312/Safe-corridors-Remittance-technology-options.pdf