How to Start a Money Remittance Agency in the UK

by Ibrahim Agunpopo
101 views 4 minutes read

The money remittance industry in the UK is booming. With increasing migration and globalization, more and more people need to send money back home to friends and family. This creates a massive opportunity for entrepreneurs looking to start a money transfer business. In this comprehensive step by step guide, we will teach you How to Start a Money Remittance Agency in the UK. Read on!

How to Start a Money Remittance Agency in the UK
How to Start a Money Remittance Agency in the UK

The Size and Lucrativeness of the Money Remittance Industry

The global remittance industry is valued at over $500 billion annually. The UK accounts for about $30 billion of that market. Remittances play a vital economic role, they help lift people out of poverty in developing countries and provide financial stability.

For business owners, there is lots of money to be made in this industry if done right. Many migrants will pay high fees just to get cash instantly to their families. The average fee charged by money transfer companies can be as high as 5-10% per transaction. With appropriate volume, owners can generate six figures in profits within a couple years.

Industry Size

  • The global remittance industry processes over $500 billion annually according to World Bank estimates
  • For 2021, global average monthly remittance transfers are approximately $200 per migrant worker
  • Top remittance recipients include India ($87B), China ($60B), Mexico ($52B), the Philippines ($36B) and Egypt ($32B)

The UK Remittance Market

  • The UK’s remittance market totals nearly $30 billion per year
  • Billions in funds get transferred from over 1 million immigrants living in the UK back to their home countries
  • The top destinations are India, Poland, Pakistan, Ireland and Nigeria
  • The average transfer is £250-£750 per month per person depending on location

Market Growth Trends

  • By 2027, the global remittance industry is projected to exceed $930 billion
  • Driven by rising economic migration and easier digital transfers
  • The UK will likely grow faster than average, potentially reaching $50 billion/year

Profitability for Businesses

  • Average fees charged are 5-10% per transaction which generates significant revenue
  • Top money transfer firms like Western Union make 30-40% profit margins
  • With large customer bases sending regular transfers, owners can make £500k+ in annual profits

How to Start a Money Remittance Agency in the UK

With a solid business plan, starting a compliant and profitable money remittance business in the UK requires working through several key steps:

Step 1: Form a Legal Business Entity

You need to choose and establish a registered limited company structure that separates your personal and business finances.

Common entity options include:

  • Private limited company: Simplest and most common. Offers limited personal liability. Requires at least one director and shareholder.
  • Limited liability partnership (LLP): Partners jointly own the business. Individual partners are not personally liable for debts. No requirement to publicly file accounts.
  • Public limited company (PLC): Can sell shares and trade stock publicly. Higher setup costs but easier to raise investment capital. Strict reporting requirements.

Consult an accountant and lawyer to select the best structure aligned with your business goals and budget. Key factors that influence choice include ownership setup, number of owners, fundraising needs, tax implications, and desired privacy.

You must also register for all applicable UK taxes with HMRC. Requirements vary based on entity type. Expect to get employer PAYE registration, VAT registration, corporation tax registration, and self-assessment registration for directors.

Step 2: Apply for Regulatory Licenses & Memberships

To legally operate money transfers in the UK, you need approval and registration from several regulatory bodies:

FCA Authorization

  • Must apply to Financial Conduct Authority (FCA) to become an “authorized payment institution”
  • Rigorous standards for capital reserves, governance, risk management, safeguarding, complaint handling, reporting, etc.
  • Requires extensive business plan submission and approval process
  • Typical timeline of 3-9 months
  • Six figure authorization costs

HMRC Money Laundering Registration

  • Must register with HMRC under money laundering regulations
  • Put in place systems to verify customer identities and monitor transactions
  • Requires annual risk assessment and routine external auditing

UK Money Transmitter Association Membership

  • Join the UKMTA to show commitment to promoting best practices
  • Trade association for payment service firms
  • Provides standards, training, industry advocacy work

Overall licensing costs range from £5,000 to £15,000+ between legal, consulting, and application fees.

Step 3: Develop Compliance Policies & Procedures

To satisfy regulators as an authorized payment institution, you must develop, document and implement extensive compliance policies and procedures. These rules govern how your remittance firm will operate legally while mitigating risks like fraud, money laundering, data losses, and more.

Expect to create 50+ page manuals detailing:

  • Risk management protocols
  • Customer complaint and dispute resolution processes
  • Anti-money laundering (AML) and know your customer (KYC) identity checks
  • Data protection systems
  • Corporate governance codes
  • Cybersecurity safeguards
  • Ongoing training for employees

Regulators like the FCA will want to review your manuals in detail, so they must meet all legal standards. Work with a compliance specialist consultant in this domain.

Step 4: Build Technology Systems & Reporting

A fast, reliable technology platform is critical to running a remittance company. The software connects into global payment networks to instantly send and settle transfers. It also maintains ledgers for reconciliation and delivers real-time reporting data.

You have a few options when it comes to money remittance technology:

  • Hire developers to custom build end-to-end proprietary software
  • License an off-the-shelf money transfer software solution
  • Integrate different application programming interfaces (APIs) from vendors around payments, foreign exchange, compliance, etc.

No matter what route you choose, ensure capabilities around:

  • Multi-currency handling
  • Payment tracking
  • Customer account management
  • Agent hierarchy structures
  • Commission tracking
  • Robust reporting on transfers processed, fees collected, FX spreads earned, payout sums, settlements, and more

Ongoing costs range from £15,000 to over £50,000+ depending on customization needs.

Step 5: Establish Banking Partnerships

To facilitate international money transfers, establishing a robust network of banking partnerships is crucial for your remittance company. This involves negotiations with financial institutions on both the sending and receiving sides of the transaction.

On the sending side, you’ll require a GBP account to receive funds from UK immigrants who intend to send money back to their home countries.

On the receiving side, you’ll need linked accounts across the target recipient nations, supporting various currencies such as INR, PHP, NGN, ZAR, and more. These accounts are essential for facilitating domestic payouts to recipients in their respective countries.

The expansion of your services to cover more countries and offer diverse payout options necessitates a considerable effort in identifying and partnering with the right financial institutions.

In addition to banking partnerships, establishing relationships with payment processors such as Visa and Mastercard is essential. This enables your remittance platform to offer a range of options for recipients, including debit cards, mobile wallets, or cash pick-up points. These partnerships enhance the flexibility and convenience of your services, catering to the diverse preferences of your user base.

Step 6: Building a Team

A key component of running a successful money remittance company is assembling a skilled team to manage operations, compliance, marketing, customer service and tech support.

Initially you may play multiple roles as the founder. But over time, aim to bring on specialized employees:

  • Compliance officer = Ensures all regulations, licenses and reporting met
  • Finance manager = Oversees accounting, audits, contracts
  • Business development executive = Manages partnerships and agent network
  • Marketing manager = Drives advertising and customer acquisition
  • Customer service reps = Multilingual support via calls, email, in-person
  • Tech/IT staff = Maintains software platform and hardware

Consider both in-house and outsourced roles to control costs.

Step 7: Establishing Branch Locations

To enhance physical accessibility and cater to diverse customer demographics, consider establishing branch locations in addition to online services. Focus on major cities like London, Birmingham, and Manchester, known for their migrant enclaves. Staff these branches with employees who speak the languages of the target countries to provide personalized service.

In addition to full-service branches, forge partnerships with independent retail agents such as convenience stores and cell shops that are frequently visited by foreigners. Offer these agents commissions for every customer they refer for money transfers. Support agent locations with branding materials and technology to facilitate seamless transactions.

Aim to have at least 5-10 agent/branch locations within the first 12 months of founding your agency. As demand proves to be sustainable, gradually expand nationwide over the following 1-2 years.

This approach helps in gaining visibility, building trust, and generating word-of-mouth referrals within cash-based ethnic communities. Support your marketing efforts by sponsoring local events and forming partnerships with community groups to strengthen your presence and reputation within the target demographic.

Step 8: Market & Sell to Prospective Customers

To actively engage with the UK immigrant community for remittance services, focus on developing a strong brand, positioning, and a user-friendly online presence. Tailor your messaging to resonate with your specific target audience, adapting culturally to establish a connection.

Once your foundational elements are in place, employ various strategies to drive customer acquisition:

  1. Advertising: Utilize ethnic shops, radio stations, and newspapers to reach your target audience effectively.
  2. Community Engagement: Attend cultural events and partner with community groups to establish a presence and build trust within the community.
  3. Online Advertising: Use search ads to directly target foreigners in the UK from specific countries, ensuring your digital marketing efforts are culturally sensitive.
  4. Referral Programs: Implement referral incentives to encourage organic word-of-mouth marketing within the community.
  5. Direct Marketing: Leverage direct mail and email campaigns, ensuring compliance with legal regulations.
  6. Local Signage and Flyers: Place eye-catching signage and distribute flyers in high-traffic areas frequented by your target audience.
  7. Partnerships: Establish partnerships with immigration law firms to tap into their networks and client base.
  8. Social Media: Utilize social media platforms for lead generation, specifically targeting certain diasporas with culturally relevant content.

For customer service, prioritize multilingual support through call centers and agent locations to enhance convenience for users. To attract business, combine brand visibility with competitive exchange rates and fees, positioning your services as a more attractive option than larger remittance providers. Aim for 20-30% profit margins on foreign currency conversion spreads, along with fixed transaction or percentage-based fees per transfer.

Key Business Tips for Successfully Starting and Running a Money Remittance Agency in the UK

Conduct In-Depth Market Research

Thoroughly analyze target demographics and competition. What unmet needs can you serve better than larger incumbents? Track trends in migration, digitalization, and financial access to identify opportunities.

Build Remarkable Compliance & Security

Adhere to all licensing requirements and follow best practices around fraud prevention and risk management. This protects the business and establishes trust. Prioritize tech and staffing investments here.

Obsess Over Customer Service

Migrants sending money home depend deeply on consistent support. Break language and access barriers via multilingual call centers, convenient branches, and user-friendly apps. Move fast on inquiries and issues.

Watch the Margins Closely

While transaction volumes matter, profit margins determine viability. Carefully set foreign currency spreads and transfer fees to balance affordability and returns.

Start Niche, Expand Slowly

Launch with a specific corridor like UK to India or Nigeria. Get all operations smoothed before adding new geographies and payment options. Stretching yourself too thin early on elevates risk.

Reinvest For Innovation

Complacency kills in fintech. Consistently plow profits back into improving systems, rates, partnerships and customer acquisition. Later, expand into adjacent products like business payments, loans, investments and insurance.

Conclusion

Launching a compliant and profitable money remittance agency takes substantial capital and effort. But serving an underbanked demographic also provides huge social rewards alongside long-term business growth. With attention to regulations, technology, and marketing, significant incomes can be made in the booming global remittance market.

If working through the nuances of launching a start-up money transfer company seems daunting, consult with an industry expert. Specialists can advise on licensing, operations, banking, and technology to give your new remittance business the best shot at thriving. Don’t go it alone – get professional guidance tailored to the UK market.

Image Credits: All images on this website are sources from Getty Images, Pexels and Unsplash.

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