Weighing the Future of Payments Providers in FX

Traders have myriad options to choose from when funding their FX account, however not all options are created equal.

The demand for a reliable and easy payments provider in forex is very important for brokers and traders alike. As with the Japanese innovation in the industry in the 1980s with ‘Just in Time inventory’, traders like to put as little funds as possible in as quick a time frame.

The amount of processing alternatives is wide and vast for traders and I wonder if we are forgetting about how to secure a means of funding an account in FX. Having been exposed to multiple channels in the FX industry, I feel that perhaps the means for brokers to separate themselves from the rest is to focus on bank transfer and broker/client relationships instead of on quantity, which is encouraged through integration and easy on the eye websites.

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When you go to broker sites, a key feature is to show ALL the methods of payments. I venture to say that soon the entire website will be covered with these options. Even the payment processors themselves have opened themselves up to multiple payment methods. Additionally, advertising on payment processors are now being offered as a way to let traders know what form of payment brokers prefer. These are all perhaps rather distracting and take away the commitment it may take to be successful as a trader. However, what I mean is that as fun and quick is emphasized, successful it may not be.

The complete opposite of “fun” is the approach seen in the US presently. In the US, brokers stopped allowing processing altogether and now you can just send bank transfers while lowering leverage and require more funds by the regulated broker. From first-hand knowledge, bank transfers make the relationship more serious and relevant. I also feel that payment processors allowing investments over $25,000 do offer this type of relationship at the present time, as with Skrill, Neteller, and Fasapay – but KYC and AML documents are important in this regard. I would add Paypal, but Paypal is hesitant in forex, due to chargeback risk, and usually there is a maximum amount per month for any given client. They also have limited their partnerships in forex to a handful of brokers.

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Yet, any payment processor can freeze or have your funds frozen and that’s never fun. Every now and then due to new compliance or banking regulation, your payment processor can freeze your account or stop working with you altogether. Or, they don’t payout due to lack of resources or government intervention. MTGox with Bitcoin (at the time they wouldn’t approve my account – thank goodness) as the Japanese company’s funds were missing or the US government takeover of Liberty reserve (forex brokers were lumped into this questionable outfit with child pornographers and mob money).

Additionally, the strong profits of online payment processors come out of your bottom line. They can take between 4-9% of every deposit and hold back about 10% of your funds for six months. If you take the time to read about corporate earnings in public companies, a 5-6% earnings on profits is good (20 P/E), but if you can keep those funds and earn 10-12% you are a growth company. The only way to do this is with bank transfers and the only way to encourage bank transfer is to find more committed traders and investors.

Granted, banks can close your account for the same reasons as payment processors. They won’t take the fees that you are accustomed to and will allow a prompt closure of your account so your funds won’t be tied up as you bank with a reliable partner who accepts that you are in the forex industry.

What the future will hold will most likely be a hybrid bank that is online only. Right now you are seeing this with the growth of online money processing sites, like Moneynet, acting as a bank and processor and regulated in jurisdictions like the UK, for the issuing of electronic money.

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