As explained in the earlier videos that in order to run a money transfer business, you will need working capital. A very important part of that capital is pre-funding. You would need to prefund your payout partner accounts in various geographic locations to compete with them in this day an age of near instant or immediate transfer.
So what exactly is pre-funding. Here is a short video that explains it.
What is it prefunded account? That’s a question I get all the time.
Hello. My name is Faisal Khan. I’m a banking and a payment consultant and today I will explain to you what a prefunded account is.
When you have to move funds from country A to country B, you either have two models or working. One, you take the funds in the origination country, push them to the beneficiary country, which can take a couple of days and only then do the payout. This is a very inconvenient way.
So, a nice hack for this thing if you will from a regulatory point of view is, you go and prefund an account in the beneficiary country. So you could, for example, put $50,000 with your payout partner. When you receive the money in let’s say the transfer has to happen from Chicago to Manila. And once you receive the money in Chicago, because you received the money, you can ask your payout partner, go ahead, release the money, you know, from your prefunded account, and then prefunded account can be topped up on let’s say, a cyclical basis. Every three days, every four days, or every week, what have you.
It is an easy way to do instant transfers by having a prefunded account. It is always the originating party that has a prefunded account in the beneficiary country. It is never the beneficiary party that would have a prefunded account.
I hope I was able to explain the concept. If you have any more questions or comments, feel free to ask in the comments below and I’ll be happy to answer you. Till next time, Take care.