The foreign exchange market is the largest and most liquid financial market in the world, with over $5 trillion traded daily. These OTC, otherwise known as over-the-counter, transactions are performed online between traders around the world, 24 hours a day, and 5 days per week. This level of activity has attracted millions of traders, raising concerns with many of the governing financial bodies. Part of the fallout from financial intervention has made forex merchant account services become a high risk industry.
Since there is no centralized foreign exchange market, all currency trading is done electronically. The ease of access by traders has helped propel the growth of the industry over the last decade. In that time, thousands of new firms and millions of new traders have entered the forex industry. These foreign exchange firms have become extremely competitive, by offering leverage to the payments made by traders.
Forex Merchant Accounts
EU Paymentz provides forex brokerages with real-time payment processing solutions for the debit and credit cards networks including; Visa, MasterCard, American Express, JCB and China UnionPay. Most payment processors only offer Visa and MasterCard however; China UnionPay is a growing card brand. With 3 out of 10 cards throughout the world branded as CUP, accepting China UnionPay will only help brokerages succeed in Asia.
Most forex businesses are plagued with the problem of too much volume. With flexible volume caps, Forex merchants will be able to process transactions without the issue of exceeding their processing monthly limits. It is common practice for payment processors to limit the monthly volume of a forex business in order to hedge their risk. This is a safe move for banks but it is crippling to the brokerage. Forex brokerages that grow too fast are many times unable to handle all of the transactions being submitted through their website. This problem can eventually damage a firm’s reputation and brand.
Another aspect of Forex trading involves the multiple currencies used throughout the world. As an international business, forex brokerages must be able to accept multiple currencies in order to successfully cater to their clientele. EU Paymentz is able to offer a processing platform that allows for easy payment in dozens of different currencies. Customers will expect their brokerages to offer to process transactions in real-time with instant approvals or declines. Avoiding any possible delays in account funding that could prevent access to the trading desk.
Why Forex Credit Card Processing is High Risk
Forex brokerages looking to open a merchant account soon recognize a number of obstacles in their way. These hurdles include; their startup status, lack of licensing and regulation or the absence of strong financial documentation. In most cases, it is a combination of all three.
One of the most common reasons payment processors will avoid working with a new forex broker is their lack of track record. Startup brokerages have low volume without a track record to prove the strength of their business. Banks and payment processors prefer to work with established brokerages with trading volume and a solid reputation Established brokerages make the process of approval and setup worthwhile for the banks and payment processors.
Brokerages without a track record increase the risk for the bank and payment processor. When underwriters are unaware of how the merchant operates their business, more questions than answers can appear. Many times increased account management is required to ensure the account performs correctly. Any potential problems will usually result in account closure before harm can be done to the processor. Many times established brokerages require less management, making it easier for account approval.
A lack of strong financial documentation is a common reason for forex merchant accounts to be declined. When a bank approves your merchant account, they have accepted the risk of your business. Banks use financial records as a way to compare businesses to determine the perceived risk. Businesses with a straight forward business plan that the bank knows will minimize risk and make money will generally be approved quickly. Companies that reflect businesses or businesses models that have lost the bank money will face increased underwriting and higher chances of being declined.
Financial documentation for forex brokerages includes bank statements and payment processing statements. These tell the full story of a business and its health. Brokerages that are operating with a sizeable bank account, minimal chargebacks, and a high volume sales will usually have fast approvals. On the other hand, smaller forex firms and startups will have a much more drawn out underwriting process due to their lack of a financial track record.
Licensing for Forex Brokerages
Licensing and regulation is a difficult task for most forex brokerages who are starting up. Most jurisdictions make it cost prohibitive to become a licensed or regulated forex broker. This is done on purpose with high fees and extensive applications to prevent fraudulent brokerages from opening up. Brokerages will find it much easier to be approved for a forex merchant account after they become licensed.
This problem has carved out a cottage industry in some nations with less financial regulations. A handful of countries offer forex licenses for startups with significantly fewer requirements. Brokerages using this option may obtain licensing in countries such as Belize or Vanuatu for $20,000-$30,000. While still expensive, countries with more strict licensing charge hundreds of thousands to millions for a license.
Forex brokerages that are unwilling or unable to pay for licensing can open their forex business in a country that does not require licensing or regulation. The problem for unlicensed brokerages is that most financial institutions will refuse to work with an unregulated company. Not only will merchant account approval be difficult, but even setting up a bank account.
Benefits of partnering with EU Paymentz
• Large Deposit Processing
• No Volume Limits
• Low Cost Forex Processing Rates
• Multi-Currency Acceptance
• China UnionPay - Access to China and the Chinese Yuan.
• Regulated Merchant Accounts - Process FX transactions with FSA approved payment processors.
• Real-Time Processing - Forex merchants will receive instant transaction responses.
Start Accepting Credit Card Today with EU Paymentz
EU Paymentz is a leader in the high risk payment processing industry. With a specialization in setting up forex merchant accounts for brokerages around the world. Contact EU Paymentz today and speak with one of their account representatives to learn how quickly your business can be approved and set up.