In the money transfer world, the USA to Africa is perhaps the hottest corridor. With the introduction of cryptocurrency, many entrepreneurs who want to enter into the money transfer business, are now plotting on how easy it is to use cryptocurrencies like bitcoin, Ethereum, ripple, etc. to make money transfer between the United States and Nigeria (for example) possible.
What most would-be-money-transfer entrepreneurs do not understand is how the movement of funds has to be as per US law and international law.
I made this video particular for those who were interested in the USA to Nigeria corridor and using cryptocurrency like Bitcoin and selling it on Luno, etc.
The video will help you understand the transfer mechanics better. Please also refer to these two videos below to understand how correspondents work.
- What is a Correspondent Tie-up? & Why is it necessary?
- What is a Tri-Party Correspondent Tie-Up Agreement
Hello. My name is Faisal Khan. I’m a banking and a payment consultant.
I want to talk about a very particular corridor that’s pretty hot right now and that is the United States to Nigeria transfers and particularly using crypto. So, people, entrepreneurs will come to us and say, hey, can you get us a sponsorship in the U.S. for picking up a transaction legally, which we can do. And then this person or this entrepreneur says give us the bitcoins or give us the money or leave the money in the United States; we will take bitcoins and then, you know, sell it in Luno, which is an exchange in Nigeria, and then distribute the money out from there. The problem in this thing is that this entrepreneur is not licensed to handle that money. They either need to get a license in, let’s say, Estonia for an exchange or a wallet. In addition to that, they also need a payment institution license.
An exchange or wallet license only allows one person to either buy or sell. It does not allow third-party transfers. An exchange or wallet license does not allow Peter to pay Paul or Mary or Chris or someone else. It only allows Peter to pay to Peter himself. That’s it. No one else. So when you’re picking up a transaction from the United States, let’s say that’s Peter and Peter’s wanting to send money to Mary in Nigeria, they’re two separate people. The exchange license, the crypto exchange license cannot come into play over here. It simply is not valid for this transaction. What you need is a payment institution license, because you certainly have a payment institution in the United States to pick up the transaction, which is a money transmitter. You are now giving the money to a payment institution, let’s say in the EU or UK. That payment institution then sends it to a bitcoin exchange. You buy the bitcoin, you sell it down into Nigeria.
So we have three parties, the U.S. money transmitter, the EU payment institution, the EU crypto exchange. Now we need a fourth one, a delivery partner in Nigeria that is licensed by CBN – the Central Bank of Nigeria, to be able to disburse these payments. A lot of the entrepreneurs I know say, well, you know, let us worry about that, you know, crypto is not regulated, etc. Crypto may not be regulated, but the fact of the matter is, you’re still taking a U.S. transaction and transporting it across the border and executing it in Nigeria. The U.S. party, the counterparty that has taken the original transaction is responsible for it. You cannot just come and take custody of funds and just net it off over there without permission. There has to be a systematic system of regulated entities on ground in the country before that payment can be made out.
I’ve put a link below to what correspondent-tie ups are and what tri-party correspondent tie-ups are in the link below. Please do watch those videos. It is imperative that you understand why this arrangement has to be necessary before the project can go live. You can’t just come to me or anyone else for that matter and say hey, just handle the US part, and we will do Nigeria. You know, we will net it off over there. We will use our money and our bitcoins and set it off over there. It does not work this way. You have to understand the mechanics of it. If you don’t want to understand the mechanics, well, that’s on you. It’s not on us. But the fact of the matter is, no provider, no rightful provider with the license access is going to give you something like this to take and execute.
If you have any other questions or comments, feel free to ask below in the contact form below and I’ll be happy to answer. Till next time, have a good one.
This page was last updated on January 31, 2020.