Essentially, a money transfer operation involves offering the service to collect money from the sender in one country and deliver it to the receiver in another country. This is also known as a remittance business.

The sender is also known as the remitter and the receiver is also known as the beneficiary. The business managing the entire process is called the Money Transfer Operator, or MTO.

In most cases, the remitter will go to a physical location (shop, kiosk, etc.) and hand cash to the MTO teller which is to be sent to the receiving country. The exchange rate between the sending currency and delivery currency will be agreed and so will any extra charges, such as commissions, head office fee, etc. The remitter will be given a receipt showing all the details including who the money should be picked up by and how much delivery currency will be given.

The MTO then deposits the cash into their bank account, and when they have collected a large amount, they make one bulk transfer to the delivery agent in the receiving country. This can be done monthly, weekly, etc. as per the agreement between the MTO and the delivery agent.

The delivery agent delivers the money to the beneficiary at the agent's physical location (shop, agent outlet etc.) once they receive instructions from the MTO.

Depending on the agreement between the MTO and delivery agent, the delivery agent may deliver the money on credit, or request for a deposit to be kept up-front from the MTO. The delivery agent will usually take a commission for their service.

Each send-receive cycle is referred to as a transaction.

The MTO usually makes a profit in two ways:

1. By offering a lower exchange rate to the remitter than what the MTO must pay to the delivery agent.
2. By charging a fee or commission for the service. This fee usually varies depending on the amount being sent.

Some newer developments in the remittance industry are:

• Allowing the remitter to create and pay for a transaction using the Internet (online). In this scenario, the remitter does not have to physically go to a shop or agent outlet.
• Allowing the remitter to create and pay for a transaction using SMS text messages on their mobile phone. Again, in this case, the remitter does not have to physically go to a shop or agent outlet.
• Remitter and beneficiary receipts can be sent automatically by email or SMS text messages.

No, small operations of less than 500 transactions a month have used spread sheets to keep track of information and email/fax to and from their delivery agents, but this is now dying out. As regulations get tougher and tougher, with these manual methods it can be difficult to keep the correct information that is required by authorities. Checking for money laundering activities, blacklisted remitters/beneficiaries is also very difficult. Identification documents must be kept handy for each customer as well.

Another reason to use automated systems is the speed and efficiency of transaction delivery. Web-based systems can perform all the required checks, and provide the required information to the correct delivery agent instantly. They store all the transaction information and identification documents in one place, and are much more efficient for customer service, for example when dealing with customer complaints.

Automated systems can also provide very accurate financial information about your business, profit/loss at a per transaction level, reports and implementation of business rules.

In order to set up your own money transfer business in your country, you need to carry out essentially four tasks as follows:

1. Apply for a money service business (MSB) license with your regulatory body (e.g. HMRC manages the MSB register in the UK)
2. Set up a special money transfer bank account with a licensed financial services institution in your country
3. Have a delivery/pay-out network in place in the destination country where you plan to send money to
4. Have a reliable money transfer system in place

See http://www.hmrc.gov.uk/mlr/getstarted/register/msb.htm for information on applying for an MSB license in the UK.

For information on the latest updates on Money Laundering Regulations in the UK, please visit http://www.hmrc.gov.uk/mlr/news/index.htm

A money transfer software system for your business must be reliable, robust, secure and proven. Such a system, such as RemitONE`s, must be business-rules driven and must allow you to input compliance rules as per your regulatory body`s requirements. The system must then effectively enforce those rules to ensure that the risks associated with money laundering are minimised.

Yes. RemitONE`s consulting arm, R1 Consulting, is your gateway to industry experts from Africa, Australia, Europe, Middle-East and North America, ensuring that you have access to the right person to advise you on regulation and compliance for your region, your business model and the application procedures for your MSB license.

We have instant access to a plethora of resources to guide you in the right direction.