Understanding the financials behind Regulatory Coverage for Money Transmitter Licenses in the United States
When you submit an application for Money Transmitter License Coverage, your information is collated and then a template is made for circulation amongst various Banks and Non-Banking Financial Institutions.
Banks and other non-banking license holders will then look at the opportunity resume and determine if they want to work with you or not. In most cases, banks and other license holders have set dates on which they meet up regularly to discuss suggested future business that might be coming their way. Sometimes it is a committee, many-a-times it is the CEO (of the Principal License Holder company) that is making the preliminary decision to explore further, or not.
If they decide Yes, then usually they have a list of questions that they would like to have answered (through me). Most of the time neither does the institution that is willing to provide money transmitter license coverage to you know of your name nor do I disclose to you the name of the license holder. Obfuscated information is exchanged most of the time (albeit, there is no guarantee for that to be the case all the time).
When all the questions have been answered, the Bank or the Principal License Holder may decide to say Yes or No.
In the event of a Yes, then a referral agreement between the entity seeking money transmitter license coverage and I must be in place. To understand how I charge for my consulting when it comes to regulatory coverage, please read: How Do I Charge For Commercial Services?
The term sheet that is quoted by the bank or the license holder, varies from institution to institution. It also very much varies on what type of coverage is asked for, what is the business you are in, how much business you will generate, the risk profile, etc.
Generally there are a multitude of fees assigned and they would be something like this.
One-Time Setup Fees
The one-time fees as the name suggests is an NRC (Non-Recurring Charge). It is levied by the institution for establishing the relationship and in most cases is a premium you pay to do business with them. In some cases, there are absolutely zero costs to sign-up, but a premium is levied nonetheless to start the relationship.
|One-Time Setup Fees||Cost|
|Average||$5,000 to $7,500|
|Difficult Cases||$20,000 to $25,000|
Know Your Customer (KYC) Fees
Institutions have to implement KYC Fees. Typically, KYC fees are valid for 12 months. So if a user signs up on say 8th February 2018, and you have assessed a KYC fee of say $2, then on 7th of February 2019, the KYC must be performed again on the client and the prevailing KYC fee is also applicable. So all KYC rates are one-time, valid for 12 months unless otherwise stated by the term-sheet.
|Know Your Customer Fees||Cost|
Monthly Recurring Fees
Whether you bring business to the bank/license-holder or not, there is usually an association fee. The institutions have put together a client profile to service you and this costs money. Some institutions absorb the cost, most do not. In some cases, the cost is offset with the number of transactions you are allowed.
|Monthly Recurring Fees||Cost|
Network Charge (Per Transaction)
For every transaction that is handled by the bank/license-holder, there is a
The volume charge is how the bank/license-holder really makes money. It is a very small percentage of the total Dollar value being processed by the institution. It is always represented in basis points (1% = 100 Basis Points). For example, if the volume charge is 40 basis points, this means, 0.40% or $4,000 for every $1 Million processed.
|Fixed Fees (i.e. no volume charge)||0|
|Minimum (for high volume)||25 Basis Points|
|Average||35 Basis Points|
|Maximum||45 Basis Points|
|Difficult Cases||80-120 Basis Points|
Needless to say, these are indicative prices. Actual prices will be in these Average -to- Maximum range. Minimum range is applicable only when you have a sizable and healthy amount of ready transactions (i.e. you are not a startup but an established incumbent).
Volume charges may also differ on the amount of business you bring to the institution, in which case, slab pricing would be provided to you. Typically, slab pricing would be discussed only when you are providing consistent $10 Million or more worth of business per month of the last 90 consecutive days.
The fixed fees (Zero Volume Charge) is provided under very specialized circumstances. Where existing business volume is very high, margins are low and both parties agree on a higher fixed monthly fees (with slab pricing) to use the license.
As with any business, bank/license-holder will require a deposit. Deposits can be used for a multitude of purposes. Pre-funding deposit, Chargeback deposit, Fraud deposit, etc.
In some cases the solution providers may require 1 -to- 3 -to- 5 days of average daily flows as reserves. It all is dependent on the corridor, the risk index, etc.
|Deposit Requirements||Amount Held|
|Higher than Average||$50,000|
|Difficult Cases||As per assessment|
Chargeback & Returns Fees
This is the fees levied by the solution provider for investigating any chargeback &/or returns fees.
|Chargeback & Returns Fees||$15|
The Fedwire fee (domestic only) per wire shall be anywhere from $10 to $65 per transfer/type. You will be charged as per actual by the solution provider. Fees vary between providers.
|FedWire Fees||$10 to $65
Charged as per actual