Forex Merchant Account—Everything You Need to Know
What Is a Forex Merchant Account?
Forex stands for Foreign Exchange and is used to refer to a global market where foreign currencies are bought, sold, traded, and speculated on.
This market is the largest and the most liquid of all markets worldwide as it sees over $5 trillion transactions a day — perhaps because it’s open 24 hours a day, 5 days a week, (and on most holidays).
The Forex market operates along two different business models. The first model involves currency trading on the interbank market where banks are the ones doing the trading. And, the second, caters to individuals who trade currencies through brokers or trading platforms on the over-the-counter market.
So, in light of this, a Forex merchant account is for Forex traders, Forex informational services, and Forex trading platforms.
Having a Forex merchant account and making use of Forex payment processing enables you to accept credit and debit cards from traders, and to take advantage of alternative payment methods.
Forex Merchant Account — What You Need to Get Started
Depending on where you’re located, the requirements which need to be met in order for you to become a Forex merchant will vary.
For instance, if you’re a European Forex merchant, you’ll need to have a business presence in Europe and be a regulated foreign exchange.
Once you have legal and corporate headquarters, you should then present your revenue earnings to the acquiring bank you’ll be working with.
To impress the acquiring bank, you’ll need to have from 3 to 6 months of processing history and a low overall chargeback rate.
If you don’t have any processing history to present, you could help put your bank at ease by equipping your checkout process with 2-step authentication such as 3-D Secure, which will serve as an additional layer of payment security.
However, note that, 2-step authorization mechanisms can be a real conversion-killer. So, when looking for the right payment processor for your Forex business, see if you could find one that offers a more conversion-friendly version of this feature.
For example, some providers offer more subtle, non-invasive versions of 3-D Secure, thanks to which the customer doesn’t have to deal with redirections or annoying pop-ups, (as the authentication is displayed as an overlay). This kind of authentication system will help you maintain a low chargeback rate, while helping to boost your conversion rate.
Fraud and chargebacks are a prevalent problem for highly profitable businesses and, as such, these issues are quite common in the Forex industry.
And, unfortunately, high levels of fraud and chargebacks make acquiring banks reluctant to work with you, as they worry you might become a liability down the line — this is also part of the reason why your Forex merchant account is considered high risk, (more on that below).
So, with this in mind, it’s quite important to quickly and effectively eliminate these revenue-jeopardizing issues as they occur.
To do so most effectively, find a payment processor who specializes in providing high risk merchant accounts, as they’ll be able to understand the specific Forex-related challenges you face — which will consequently help you resolve them sooner than if you were to work with a processor who doesn’t grasp your business model.
Why Is Forex Considered High Risk?
As mentioned above, it’s the acquiring banks who categorize Forex merchant accounts as high risk.
Why is that?
Well, aside from the fact that Forex merchant accounts generally see higher rates of fraud and chargebacks, it relates to the fact that Forex is a global trading platform — and this means that no single country can have jurisdiction over another country’s currency. Moreover, many Forex trading platforms aren’t even licensed.
This prevalent and, essentially unavoidable, lack of regulation is in large part what makes banks classify Forex merchant accounts and Forex payment processing as high risk.
Another reason why banks consider Forex merchant accounts high risk is a result of an increased risk of fraud, money laundering, and chargebacks from dissatisfied investors.
Luckily, many of these issues can be avoided if you properly licence your Forex merchant account during the underwriting phase.
Having all of the necessary licences will help you attain approval for your merchant account more easily — as will having strong anti-fraud and anti-money laundering filters in place.
And, dealing with fraud once it happens is nowhere nearly as effective as preventing it from occurring in the first place.
This is why it’s crucial to find a payment provider who knows your industry’s specific needs, and who’ll implement smart anti-fraud filters, which will be able to accurately distinguish your legitimate customers from fraudsters.
However, on the other hand, anti-fraud filters can grow to become overly sensitive, leading to a decreased payments’ acceptance rate, lower conversion rate, and frustrated customers.
This is also something to keep in mind, especially since operating a Forex merchant account, you likely see significant spikes in payment processing — this, in turn, puts your merchant account at risk of being inaccurately flagged for fraudulent activity.
To avoid this, talk to your chosen payment processor and try to find the right balance between the two.
Compliance & Legal Requirements for Forex Merchants
Forex trading can legally take place in the United States and Europe. With the latter being more friendly in terms of compliance and legal requirements.
For instance, an American broker is required by the National Futures Association to have $20 million USD in locked capital — a requirement so strict that there are currently only 5 fully legal Forex merchants operating in this market, (which just so happens to be the largest of them all).
Whereas, a European broker only needs to have between $100,000 and $500,000 USD to be able to lawfully operate.
That’s quite a big difference — and a sound explanation for why there are more Forex merchant accounts operating in Europe than in the United States.
As it stands, the United States is also stricter than Europe when it comes to cryptocurrency trading. Both regions are cautious in this regard, but Europe — as opposed to the United States — has allowed Bitcoin to operate in its jurisdictional region.
Forex Payment Processing
Over the past decade, tectonic technological innovations have been advancing payment processing practices across the globe.
It wasn’t so long ago that bank wires, cheques, local deposits, and other nearly obsolete payment methods were, in fact, ubiquitous.
And, due to the international and demanding scope of Forex trading, technology has played a key role in pushing this market to the forefront.
Whereas, today, these outdated transaction methods have in large part been overtaken by the likes of debit and credit cards as well as anonymity-ensuring e-wallets.
These new payment methods are great at servicing instant transactions, which play a key role in high risk industries such as Forex.
Cross-border transactions have become quite popular thanks to the emergence of blockchain, Bitcoin, and other cryptocurrencies.
Multicurrency transaction processing takes place when your business accepts credit card payments from customers in various foreign currencies.
For example, you are making use of multicurrency transaction processing, if your Forex merchant accounts accepts investments from individuals from different countries, who make investments using their national currency.
Multicurrency processing can be quite complex, with the set-up encompassing many international currencies. For example, your Forex business might service customers who invest in EUR, USD, CAD, GBP, AUD, etc. and, as such, you’ll need a special Forex merchant account which will be able to efficiently process large volumes of global transactions.
To ensure your customers get the best user experience, look for a payment processor whose merchant account and payment gateway will support various currencies and languages.
Certain providers’ payment solutions are tailored to cater to international customers — as such, they’re able to accept payment in over 160 global currencies and provide a customizable checkout that can be displayed in up to 24 different languages.
The Convenience of Credit Cards
Generally, credit cards and e-wallets are Forex traders’ preferred payment methods, as they’re very convenient when it comes to making multiple deposits in short periods of time.
Especially when juxtaposed to wire transfers, which will have your customers filling out mounds of unnecessary physical or digital forms just to make a deposit — undoubtedly, an unwelcome hassle.
Forex trading is a fast-paced and demanding landscape, which is why you should look for a payment processor who’ll be able to offer you an optimized high risk merchant account equipped with the 1-click payments functionality.
Making use of 1-click payments helps to measurably improve user experience for your customers and, thereby, also boosts their customer lifetime value.
This feature allows Forex traders to quickly and seamlessly conduct multiple transactions, without having to fill out their credit card information every time they’re about to go through with a payment.
And, if you’re looking for a payment solution that really goes above and beyond in this department, look for a provider who offers 1-click payments which cover customers’ sensitive data with tokenization technology for maximum transactional security.
Forex Merchant Account — Deposits & Withdrawals
When it comes to making Forex deposits, your customers will factor in a few variables before making their choice.
Some of them might have many options to choose from in this department, whereas, others might not be so lucky.
In the end, what your customers choose as their preferred Forex deposit method will depend on a combination of the following factors:
For each deposit method, it will be the customer’s native country and the regulators you work with who determine how much money your customers can transfer to their Forex trading account using each particular method.
Some countries regulate how much money your customers can wire using a bank wire, and it’s not uncommon for credit cards to also have deposit limits.
So, Forex traders looking to make deposits will have to conform to the regulations and depositing capabilities you have in place, as well as to the laws of their native country.
It may seem somewhat surprising that your clients’ country of origin has a significant effect on how they’re able to make deposits with your Forex merchant account. But it does.
This is because not every country has free unrestricted access to global financial systems. Certain countries function under international sanctions, while others deal with serious problems (i.e. drug trafficking, terrorism) on a national level and, as such, are not allowed to access payment systems that can’t accurately track the investment money’s ownership.
Forex traders in such countries will sometimes only be able to use bank wires to make deposits, which isn’t ideal, but, in their case, it’s unavoidable.
As one can expect, some payment methods tend to be characterized by being more secure. For example, bank wires (although inconvenient and old-fashioned) ensure that your client’s deposit is routed via a bank account, which simultaneously implies that the proper Know Your Customer (KYC) documentation has been gathered and will help to identify the person operating the account, in case issues arise.
As a Forex merchant, you can consider putting limitations on some of your customers, (if you feel concerned about their country of origin), but remember how important it is to provide credit card payment processing to the rest of your clientele, as this method is decidedly preferable.
Many Forex traders who run their operations on handheld devices like to use them to perform a variety of other Forex-related functions, one of which is making Forex deposits.
In today’s mobile-first world, it’s important to provide your customers with fast, easy, and seamless mobile functionalities to help guarantee that they won’t go looking for another Forex broker.
As such, look for a provider, whose payment solution has outstanding handheld usability capabilities.
A superior mobile payment processing solution should be characterized by:
Withdrawals / Payouts
If a given Forex trader suddenly generates a large amount of profit from his investment and decides to withdraw a substantial sum of money — you’ll need to be able to provide them with a payout in a timely and seamless manner.
Forex payment processing significantly differs between providers, which is why it’s important to look for a payment solution that offers:
Although the Forex market has been operating for decades, many acquiring banks still consider it high risk — consequently turning you into a high risk merchant.
What you should primarily focus on before and during the first stages of setting up your Forex merchant account is user experience, convenience, and security with regards to payments.
To ensure you’re able to provide exceptional services to your international and demanding clientele, look for a merchant account provider and payment processor whose solution is innovative and futureproof, as Forex is showing no signs of slowing down.
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