The Art of Mitigating Payment Risk

by FM
Disclaimer
  • Titan FX Head of Finance shares the ultimate treasury strategy for success.
Chamara Karunaratne, Head of Finance, Titan FX
Chamara Karunaratne, Head of Finance, Titan FX
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Payments between brokers and traders are the lifeline of the FX/CFD industry since the slightest misplacement of funds can erode trust. While a global ecosystem of Payment Services Providers (PSPs) has emerged to secure that lifeline, the industry is notoriously marred with operational failures, regulatory crackdowns and outright scams. Any broker who wants to protect its brand needs to start by implementing a strong strategy to mitigate payment risk.

We sat down with Titan FX Head of Finance, Chamara Karunaratne, to get some pointers.

Treasury management: The show must go on

“In nearly 10 years of operation we’ve never failed to process client withdrawals on demand. Not a single client can say we kept their money,” Karunaratne proudly noted. “I don’t mean that we never suffered a loss of funds — I think every broker inevitably does at some point. It’s just that our clients never experienced it on their end because we take the bullet for them every time.”

Sound treasury management is key to make up for any third-party failure and safeguard trader trust, he explained. “Whether or not the PSP is at fault – honest or otherwise – it makes no difference from the trader’s point of view. The transaction must go through, no matter what.”

Whenever an issue arises, keeping a healthy balance at the ready allows Titan FX to quietly engage in a resolution process with the PSP without disrupting the trading experience. In practice, this means funding the trader’s account out of pocket in the case of a deposit, or resending the amount through another route in the case of a withdrawal. That’s because they adhere to their ironclad rule: Every single transaction must be reconciled by the end of the day.

“The trader will see the right amount displayed on their screen and be blissfully unaware of the PSP drama behind the scenes,” Karunaratne revealed. “We may never retrieve the funds in the end, but our traders’ trust is well worth the sacrifice.”

Provider diversification: Redundancy is key

As for any other form of risk, a key principle for mitigating payment risk is to put one’s eggs in different baskets.

“Nobody can ever rely on just one PSP. At Titan FX, we always try to keep not just two, but three or four providers active for each payment method. We also have different providers depending on jurisdiction. On top of that, we try to diversify them by transaction fees, amount limits, quality of service and other criteria,” Karunaratne explained.

This approach leaves his team with a fairly large PSP portfolio to manage, including the need to continuously seek, assess and onboard new providers. But it’s the only way to deliver a smooth experience for traders.

“All it takes is a small group of customers who start having issues and can’t get their money back. Then it’s the end of the brand,” Karunaratne said.

From Tier 3 to Tier 1: Climbing the payments ladder

Titan FX recently started onboarding Tier 1 PSPs – the ones with strong operations in key financial centres — certain to deliver the best possible execution for our traders. But it only achieved that milestone after learning from its experience in lower tiers. “We started in the lower rugs of the ladder and slowly climbed our way up over the years,” Karunaratne said.

His roadmap to the top? First, obtaining financial dealer licences in several, well-regarded jurisdictions (Titan FX now has four of those: BVI, Mauritius, Seychelles, Vanuatu). Then, building trust with the brand by genuinely caring about traders. Thirdly, generating enough volume every month to qualify for the big leagues.

Titan FX also honed its skills for separating the wheat from the chaff among PSPs. It has developed its own blend of quantitative and qualitative criteria to devise a risk rating for each provider: low, medium and high.

“We try to learn everything we can about them. How long have they been operating? Have there been issues? How large is their team? In which countries do they operate? Which brokers are they working with? How quickly do they settle funds? What’s being said about them?”

Any provider who passes muster advances to the next step: the meeting.

Meeting face to face and shaking on it

“We make it a point to meet every potential PSP in person. We’re all for digital collaboration but when it comes to building trust between partners, nothing beats a firm handshake and a look in the eye. That applies equally for payment gateway providers,” Karunaratne shared.

To make these connections, his team regularly flies to key markets to meet local providers as well as attending industry events across the world. They try to meet again every three to six months to nurture those relationships.

“Whether we work directly or through these partners, they also act as our eyes and ears in each of their specific markets, from sharing gossip to providing important insights that we turn into value for our traders,” Karunaratne concluded.

Learn more about funding and withdrawal at Titan FX

Payments between brokers and traders are the lifeline of the FX/CFD industry since the slightest misplacement of funds can erode trust. While a global ecosystem of Payment Services Providers (PSPs) has emerged to secure that lifeline, the industry is notoriously marred with operational failures, regulatory crackdowns and outright scams. Any broker who wants to protect its brand needs to start by implementing a strong strategy to mitigate payment risk.

We sat down with Titan FX Head of Finance, Chamara Karunaratne, to get some pointers.

Treasury management: The show must go on

“In nearly 10 years of operation we’ve never failed to process client withdrawals on demand. Not a single client can say we kept their money,” Karunaratne proudly noted. “I don’t mean that we never suffered a loss of funds — I think every broker inevitably does at some point. It’s just that our clients never experienced it on their end because we take the bullet for them every time.”

Sound treasury management is key to make up for any third-party failure and safeguard trader trust, he explained. “Whether or not the PSP is at fault – honest or otherwise – it makes no difference from the trader’s point of view. The transaction must go through, no matter what.”

Whenever an issue arises, keeping a healthy balance at the ready allows Titan FX to quietly engage in a resolution process with the PSP without disrupting the trading experience. In practice, this means funding the trader’s account out of pocket in the case of a deposit, or resending the amount through another route in the case of a withdrawal. That’s because they adhere to their ironclad rule: Every single transaction must be reconciled by the end of the day.

“The trader will see the right amount displayed on their screen and be blissfully unaware of the PSP drama behind the scenes,” Karunaratne revealed. “We may never retrieve the funds in the end, but our traders’ trust is well worth the sacrifice.”

Provider diversification: Redundancy is key

As for any other form of risk, a key principle for mitigating payment risk is to put one’s eggs in different baskets.

“Nobody can ever rely on just one PSP. At Titan FX, we always try to keep not just two, but three or four providers active for each payment method. We also have different providers depending on jurisdiction. On top of that, we try to diversify them by transaction fees, amount limits, quality of service and other criteria,” Karunaratne explained.

This approach leaves his team with a fairly large PSP portfolio to manage, including the need to continuously seek, assess and onboard new providers. But it’s the only way to deliver a smooth experience for traders.

“All it takes is a small group of customers who start having issues and can’t get their money back. Then it’s the end of the brand,” Karunaratne said.

From Tier 3 to Tier 1: Climbing the payments ladder

Titan FX recently started onboarding Tier 1 PSPs – the ones with strong operations in key financial centres — certain to deliver the best possible execution for our traders. But it only achieved that milestone after learning from its experience in lower tiers. “We started in the lower rugs of the ladder and slowly climbed our way up over the years,” Karunaratne said.

His roadmap to the top? First, obtaining financial dealer licences in several, well-regarded jurisdictions (Titan FX now has four of those: BVI, Mauritius, Seychelles, Vanuatu). Then, building trust with the brand by genuinely caring about traders. Thirdly, generating enough volume every month to qualify for the big leagues.

Titan FX also honed its skills for separating the wheat from the chaff among PSPs. It has developed its own blend of quantitative and qualitative criteria to devise a risk rating for each provider: low, medium and high.

“We try to learn everything we can about them. How long have they been operating? Have there been issues? How large is their team? In which countries do they operate? Which brokers are they working with? How quickly do they settle funds? What’s being said about them?”

Any provider who passes muster advances to the next step: the meeting.

Meeting face to face and shaking on it

“We make it a point to meet every potential PSP in person. We’re all for digital collaboration but when it comes to building trust between partners, nothing beats a firm handshake and a look in the eye. That applies equally for payment gateway providers,” Karunaratne shared.

To make these connections, his team regularly flies to key markets to meet local providers as well as attending industry events across the world. They try to meet again every three to six months to nurture those relationships.

“Whether we work directly or through these partners, they also act as our eyes and ears in each of their specific markets, from sharing gossip to providing important insights that we turn into value for our traders,” Karunaratne concluded.

Learn more about funding and withdrawal at Titan FX

FM
Disclaimer
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