A Canadian money service business (MSB) can expand its operations with one crucial step. Obtaining US banking rails will help you enjoy better reach and profitability in a foreign country.
Whether you’re processing payments for clients or facilitating remittances, a USD banking system can make your transactions easier. Keep in mind obtaining US banking rails may not be as easy as it seems.
The regulatory landscape, risk considerations, and banking relationships all play key roles in determining which option is best for your Canadian MSB.
Our guide explores the various options for obtaining US banking rails. We will highlight the advantages, challenges, and more for you today.
Why US Banking Rails Matter For Canadian MSBs
Every FINTRAC MSB knows that obtaining US banking rails is necessary if they want to expand their business. This step is essential because:
- US Banking Rails Make USD Transactions A Breeze
When operating your Canadian MSB, you must have payment infrastructure to conduct US transactions. This will be a breeze with US banking rails.
A banking partner that allows you to perform such transactions will also be helpful. If you don’t obtain payment rails, transferring money for foreign clients would be a trouble for your MSB.
- US Banking Rails Enhance Your Global Reach
Expanding a MSB by engaging in cross-border activities requires you to meet various rules. Without US banking rails, you cannot perform transactions beyond your border.
The best thing is that the US financial system is a major hub for various payment services. You can improve your MSB's profitability and cross-border relations by obtaining US banking rails.
- Your Canadian MSB Can Enjoy Better Payment Processing With US Banking Rails
Remember US banking rails are infrastructure that allows transferring money. With the rails, you can use a US-based bank account for settlement for accessing various:
- Payment processors
- Card issuers
- Institutional partners
Obtaining US Banking Rails As A Canadian MSB: Key Methods, Advantages, And Challenges
With the earlier benefits in mind, let’s explore the key ways to obtain US banking rails as a Canadian MSB.
- Banking As A Service (BaaS) Providers
A Banking as a Service (BaaS) provider acts as an intermediary between an MSB and a US bank. It offers a streamlined way to access US banking rails without needing a direct banking relationship. This is often the preferred option for early-stage fintech companies.
You can obtain US banking rails with European or Canadian BaaS providers. These service companies are usually connected to US banks in the back end. Developing a relationship with BaaS providers will be cost-effective for your MSB in the early stages due to reasonable fees.
The BaaS providers will offer you easy access to:
- USD bank accounts
- Reliable payment processing channels
- ACH payments rails
US banking for Canadian MSBs is a breeze with BAAS providers. This is especially true if your company is in its early stages. Once you’ve built your brand, you can move on to getting a direct account with a US bank.
Advantages Of BaaS Providers
- Lower Barriers to Entry: BaaS providers will work with your MSB regardless of the revenue you’re generating. They’re the perfect option for new fintech companies.
- Faster Onboarding: Onboarding with a BaaS provider for US banking rails takes one to three months only.
- Cost-Effective: Fees are usually lower compared to setting up a direct banking relationship in the US.
- Minimal Licensing Requirements: Unlike direct US banks, which may require federal or state money transmitter licenses (MTLs), BaaS providers often do not have such prerequisites.
Challenges Of BaaS Provider
- Limited Banking Flexibility: Since your business is operating under the umbrella of the BaaS provider’s banking relationship, you may have limited control over certain financial operations.
- Compliance Obligations: While BaaS providers handle many regulatory issues, MSBs must maintain a solid AML/KYC program to satisfy regulatory requirements.
- Direct US Bank Account For Canada MSB
Once an MSB becomes more established, generating substantial revenue and demonstrating a strong compliance program, it may pursue a direct banking relationship with a US bank.
To open a direct account with a US bank, your MSB must undergo an extensive due diligence process, ensuring they meet strict regulatory and operational requirements.
Advantages Of US Bank Account For Canada MSB
- Full Control Over Banking Operations: Having a direct banking relationship provides Canadian MSBs with greater operational flexibility and control over transactions.
- Better Institutional Recognition: MSBs with direct US bank payment rails often find it easier to attract institutional investors and business partners.
- Enhanced Credibility: Working with a US-based bank demonstrates a high level of financial legitimacy and regulatory compliance.
Challenges Of US Bank Account For Canada MSB
- Stringent Onboarding Requirements: US banks require MSBs to have a well-established compliance program, experienced compliance personnel, and clear business practices before opening an account.
- Licensing Considerations: Many US banks require MSBs to hold federal and state money transmitter licenses (MTLs) before offering you an account.
- Lengthy Approval Process: The onboarding process for US banks can take several months to a year, depending on the complexity of the MSB’s operations.
- Accounts With Offshore Banks
Some MSBs explore offshore banks as an alternative way to access US payment rails. These banks are in jurisdictions like Curacao and Mauritius. They may offer USD accounts with fewer regulatory hurdles.
Offshore banks may provide you with USD banking services, including wire transfers and payment processing, often with lower compliance requirements compared to US-based banks.
Advantages Of Offshore Banks For Payment Rails
- Easier Account Opening: Offshore banks often have lower regulatory requirements compared to US banks.
- Fastest Onboarding: Out of all options, offshore banks offer the fastest onboarding. You can enjoy account approval within weeks.
- Access to USD Transactions: Offshore banking can provide access to USD transactions without requiring a US MTL.
Challenges Of Offshore Banks For Payment Rails
- High-Risk Perception: Many offshore banks operate in jurisdictions with less stringent regulatory oversight, which may raise red flags for business partners and regulatory authorities.
- Limited Credibility: Working with offshore banks may make it harder to establish trust with US business partners, payment processors, and investors.
- Potential Regulatory Issues: Canadian MSBs using offshore banks could face additional scrutiny from FINTRAC.
Which Payment Rail Option Is Best for Your MSB?
Choosing the right method for obtaining US banking rails depends on several factors, including your MSB’s stage of growth, compliance readiness, and long-term expansion goals.
If your MSB is in its early stages, obtaining payment rails with a BaaS provider is the best option. However, if your business is already well-established, you should connect with a US bank directly.
Your last resort when obtaining payment rails should be offshore banking. This method is a high-risk due to less reputable banking jurisdictions. You should consider it as an option only if other methods are unavailable to your MSB.
FAQ
What Is A Payment Rail?
A payment rail is a network that allows you to move money from one party to another. It forms an integral part of MSB services, especially for businesses expanding to foreign regions.
Can A Canadian Business Have A US Bank Account?
Yes, a Canadian MSB can enjoy a US bank account by fulfilling regulatory requirements and connecting with an account provider.
What Types Of US Banking Rails Are Suitable For Canadian MSBs?
You can choose from ACH payment rails, FedNow, real-time payments, and wire transfers when obtaining US banking rails. Various card networks are also suitable for Canadian MSBs.
Renno Co. & Fintech Making Obtaining US Banking Rails A Breeze
Entering the US market will be a breeze for your Canadian money service business if you have payment rails. You must understand the implications of each obtaining method before making a decision.
Our fintech law firm will help you with that. We specialize in making US banking for Canadian MSBs a breeze. You develop good banking relationships, maintain compliance, and secure approvals for obtaining US banking rails with our lawyers.
Connect with us today to start your MSB expansion process and enter the US market smoothly.
