Currencycloud Blog September 20, 2018

How to overcome the challenges of setting up a money service business

Starting a money service business (MSB) opens up a whole new world of financial opportunity, but comes with a set of challenges most businesses never approach. Today, MSB market entrants are asking for new competition, which will drive prices down and better serve the customer. As a new entrant, if you perform, the opportunity in front of you is massively lucrative. But how do you perform?

You’ll be required to overcome these key challenges:

– Gaining compliance
– Acquiring a bank account
– Finding the sweet spot in the market
– Nailing customer experience
– Gaining trust

Let’s dive in.

Compliance and your money service business

Obviously, moving money is risky. Anytime you take on servicing money, you are willingly acknowledging and participating in that risk. But it doesn’t have to break you. Eliminating risk involves establishing legitimacy, both via compliance and via a valid bank account. (We’ll get to that bit in the next section.)

One aspect of establishing legitimacy is making the business decision to not accept cash. Regardless of how difficult it is for a new, unknown MSB to acquire trust from a bank, it’s even more difficult for an MSB to go underground in order to avoid the banks, and in doing so, take on far greater risks — including the risk of never having the opportunity to gain trust in the future.

Your worst case compliance scenario: accidentally funding a criminal organization. To avoid that, don’t accept cash, and put your head down to go through the arduous process of becoming compliant right up front — then treat it as an ongoing effort to maximize compliance. Nothing can slip through the cracks. Because each state has different rules and licensing for these sorts of things, achieving compliance can be a lengthy and confusing endeavor. Work with a third party who can assist you, but be sure you have a view under the hood as it does so. Part of the compliance battle is simply understanding it; passing off all of your tasks to a third party without your continued participation won’t help you gain that understanding.

Establishing a bank account

As mentioned, banks are wary of MSBs. They see MSBs as risky, and rightly so. But there is a way to build acknowledgement of your legitimacy and acquire a bank account. First things first, build a technology-based business that doesn’t accept cash. Deal with only legitimate, well-known individuals and businesses. Register as an MSB with you third-party regulatory provider’s assistance. (If your provider is an expert in currency exchange regulation, even better.)

Your job is to prove to the bank that you are the most credible version of an MSB that could possibly exist. Your business model must be sound. If you already have a compliance partner and your regulations met, your business will be viewed as a stronger investment. But you can help your cause by finding smaller, yet established, banks that are hungry for business and trying to build a fintech foundation.

Now that you’ve created your credibility and put in the prep work, you can approach these banks with a much stronger proposition, and are likely to see a much more favorable outcome.

Your market proposition

Which customers do you want to serve?

The MSB market is relatively untapped, and there is massive opportunity in several areas. Choosing where you want to focus will be a challenge, but one that can be overcome with some thorough research. For instance, you may discover that you have the capability to serve entrepreneurs with ease. You might want to craft your service to help only micro-sized businesses before they are in growth mode, perhaps in order to propel them into that next stage via the cost savings they’ll experience on currency transfers. Generally, though you can always move down or upstream later, making a decision about your target at the outset of your MSB’s development is the right move. Even if you only service customers who are sending money from the United States to the Philippines, find your niche and see it through.

Service your customers

Nailing the customer experience is critical for success. Of course, this isn’t just a key challenge of “starting” an MSB, but of running one, too. You’re in the business to help people, so the last thing you want is for their experience to be a negative one. You need to be dependable, reliable, inexpensive and service-focused. Finding the correct customers to serve is a good first step (see above), but then you also need to continue to make their experience as seamless and enjoyable as possible. Work to understand your customers’ specific needs over time, and adjust your approach accordingly.

In the beginning, serving your customers will be a matter of simply delivering on your promises. If you are compliant, have a strong relationship with your bank, and understand the market you’re entering, keeping your promises should be no great leap.

Trust me, I’m an MSB

Building social proof and getting your name out to the world is a serious hurdle for new MSB entrants. Yes, the global market is beginning to understand the value of fintech products, but in some markets, adoption remains much lower than the global average. In Canada, for instance, there is only an 18% fintech adoption rate (more than two products used), while the global average is around 33%.

So how do you clear that hurdle? It can be a grind, as is everything when you’re in startup mode, but it’s important to find the channels your customers frequent most and begin to establish your name within those channels. The best way to gain trust at scale is to continue to put yourself out there. The more clearly you highlight the key values of the experience of working with an MSB over a bank, the more customers you gain. The more customers you gain, the more proof you have that your business works and is reliable. The more proof you have, the more customers you gain. And the beat goes on.

The takeaway

Building a successful MSB or moving a fledgling MSB online for continued growth is a challenge in its own right. Within that task, the other challenges that exist are largely about altering perception and following regulation. With the right partners, right approach and right goals (helping your customers!), you can overcome those challenges and begin to serve your customers in new ways while capitalizing on a lucrative opportunity.

Want to learn more about establishing an MSB? Get in touch with Currencycloud to talk about your compliance options today.

Johnathan is the founder and CEO of Curexe, a money service business that helps businesses expand internationally to increase the economic prosperity of their respective countries.

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