No segment has been faced with as many challenges over the past year as the forex industry. A massive regulatory overhaul from ESMA and increasingly hostile stance by payment service providers (PSPs) have managed to back many brokers into a corner.

Most alarmingly, this phenomenon has happened overnight, with PSPs choking the market and causing many brokerages to hit the panic button on their operations.

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Many retail players have been forced to look offshore and even regulated entities feeling the heat, the options available seem to be shrinking by the day.

A serious problem for brokers

While initially designed to help police the FX industry, a tranche of regulations has yielded a large impact on the brokers. PSPs have been transformed into proverbial gatekeepers, with the potential to hold hostage client funds.

How and exactly why this happened is still being debated, however one thing is perfectly clear: brokers are now more hellbent than ever to find viable solutions for their operations as client patience wears dangerously thin.

For many retail brokers, the payments landscape changed far too quickly to adapt. A duality of regulations and the introduction of new policies has necessitated a different approach to retail services.

While freshly implemented regulations tend to garner more headlines, transfers have been the Achilles heel for retail trading firms.

This came to a forefront late last year with measures levied by both Visa and Mastercard against retail brokers.

More specifically, the so-called Merchant Category Code (MCC) has been a sore subject for retail brokers since October 2018. Both VISA and Mastercard took aim at several retail services offerings, banning the use credit cards.

The result is the effective freezing of transfers, stifling retail operations. Since then, brokers have been slapped with a ‘high-risk’ label.

As such, PSPs have effectively cut them off, making it extremely difficult or not feasible to onboard alternative PSPs.

Brokers facing an existential crisis in 2019

PSPs have increasingly created myriad issues for brokers with accepting traders’ funds. Given these new entanglements, transactions are being declined for a variety of circumstances.

This ranges from a client’s bank, to their respective credit card company, or particular laws in the country of residence.

Regardless of the reason, the outcome has proven to be the same – clients cannot deposit funds in their brokerage’s account.

In a cutthroat world of retail broking, brokers are feeling the heat, recognizing that delays in this process can have enormous consequences.

Retail clients are in no mood to hear of logistical delays and confidence can quickly and irreversibly be eroded. For those clients who are able to effectively make deposits, brokers are forced to chase after PSPs for getting the requisite funds.

The above situation demonstrates a new reality for the FX industry with PSPs and banks fostering an effective freeze on the entire segment.

This outcome unfortunately has taken many brokers by surprise, with few options as a backup plan.

Brokers will be forced to look to the drawing board in H2 2019 or close up shop. The sudden ironclad stance by PSPs will test the meddle of brokers heading into years’ end as they look to find alternative payment solutions.

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