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hello my name is Faizal Khan I am you know I was going through my presentations and this is a very old presentation on how the cross-border money transfer market works so I thought you know I'd run you through it you know certain things may not be valid but if you're trying to learn how the traditional money transfer works across borders and how the funds are settled well this is a good start so in any remitting territory and benefic territory there's the agent Network there's the settlement bank there's a money transfer agent and there is a remitting bank and likewise you know the same applies on the Auris beneficiary and so let's do an example of explanation of a cross-border money transfer and this is a traditional model with prief a basically pre-fund model and how it would work so the traditional model you know works in such a way that a in the traditional model a user walks into an agent Network as you can see depicted over here and you know they either use cash or use some other payment instrument to pay for a remittance and over the course of the day you know other customers will also come in and remember they're going to an agent right so this is the agent of the MTO over here and you know they put up their money and you know they say okay these are the remittances that we need to be that needs to go out to you know the beneficiary country at the end of the day the money transfer operator takes all the money from all the agents remember all the agents basically have a deposit with the MTO they are pre funded and pulls everything into a singular transaction and we just have the transactions for the agent network itself but also maybe the money transfer operator owns their own stores or their own online presence etc so they will bunch everything into a single transaction and what this means is basically along with the money that needs to be remitted across the MTO basically prepares a file that has the instructions on how to break down the remittances to the individual orders that came in for distribution and this is basically known as the settlement by you know the this file is basically prepared for the settlement bank and the beneficiary territory and what happens is you know the file is sent it's typically sent over secure FTP or secure email or maybe happen nowadays XML is the right way of doing it or maybe the web service working and basically the end you know you all the money transfer receipts are sent to be receiving MTO what happens with the money the money is then shipped off to the MTO off to the settlement bank that you know that the MTO has on the remedying side so there's a settlement bank that they work with and you know this is the bank that all it handles all the money etc not all banks handled remittance clients this is where nomenclature assigned to the banks that do work with the MTO so you know this is why we're saying this is a settlement bank or the bank it's working with same deal and they may be a different remitting bank and we'll come to that right now the settlement bank then initiates a swift wire transfer to be sent across to the beneficiary settlement bank usually through an intermediary known as a correspondent bank and you know this is the remitting bank or the correspondent bank so this case let's say it's going from USA to Philippines so this could be Deutsche Bank of Standard Chartered Bank in the US and you know they will send it across over there to the receiving bank the correspondent banks obviously sends the money it was Swift and the receiving bank on the other day gets it now with GPI and they can get it in a matter of minutes previously should take a day or two because of the time difference in the operating you know follow-the-sun cycles but now typically it arrives within the day or the same day the receiving bank then forms a settlement bank that was the local settlement back on the beneficiary chain hey guess what I got your money and the money that I have gotten and that's in this case it was Parkes and so you know what I'm going to convert them into Park Sun rupees so they could take the dollars and they surrender the dollars the dollars are surrendered to the central bank and in which case you know which improves the economy and the local currency is provided to the settlement bank settlement Bank then says you know forms the money transfer operator hey listen I have your money in local PKR here it is and you are now all set for distribution which is what the they do with the agent Network right so you know money can either be given out either direct bank deposits or cash over counter or COC you know thereby it completes the remittance cycle the empty Odin starts to distribute this money either be a direct bank account deposits or agent cash over the counter if therefore completing the cycle and you know the two users can say hey you know I sent you money did you get it yup I just got it thank you etc and this is an example that was a batch process where the two MTO's are basing their transactions on trust the two empty is do not interface or integrate with each other in any manner the only common denominator it's the file sharing that they do to break down the remittance in this person but do remember there is a pre fund that has happened over here and we'll talk about that you know but in the example I showed you it was a swift transfer so now we will show how the pre fund works the second element of trust here was the money until and unless the beneficiary MTO did not receive the money from the remitting MTO they did not distribute any money so in this example this is called funds good and settle or upon realisation of funds on the receiving end so this MTO said listen until the money comes into my settlement Bank I am NOT distributing anything I'm not using my money so if you Center remit and send the money across and then I will do it so what happens when both parties can trust each other with the money in advance and how will that change the game this is called the pre pay or the pre fund model and very quickly let me show you how this works in this case you know again let's look at the same scenario where remoter wants to send out a remittance and now it uses a pre fund model so the sending MTO places an advance deposit with the receiving bank let's say this is a hundred thousand dollars and you know this is always be available to the receiving empty or so the the sending MTO is pre funding into the beneficiary country and remember this is not it's not converted to the local currency yet it is only converted when the actual remittance arrives so same thing a user walks in they want to send a thousand dollars to Pakistan you know they pay for it the rate is quoted by the receiving bank they say okay let's say one US dollar is equal to one hundred PKR remember this presentation was made a couple of years ago you can see from here and 20 about 2014 or something like that and that was the prevailing rate at that time I wish it was today but anyway so you know so they quote the rate over there to the agent Network the agent Network assigns their fee on to it let's say which is $15 and agrees to the transfer so the hundred and few know so yes for the US law you know everything is it has to be clarified over there the funds to transfer is a thousand costs to transfer funds it's 15 total amount paid is a thousand 15 exchange rate is 100 and you know the amount that would be received would be hundred thousand rupees and the fee that is not converted as this and this is part of a regulation II of the Consumer Financial Protection Bureau or otherwise known as the dodd-frank act section 10 72 PC so over here you know the instructions are sent and you know they say basically deduct a thousand dollars from our balance and please pay out to the MTO and that is exactly what happens a thousand dollars is deducted 90 and you by the way you know I'm doing these slides you can always pause the slide on YouTube and look at it and so forth so a thousand dollars is deducted it's given to the MTO which gives into the settlement Bank and settlement bank now has a hundred thousand rupees and they give it out to the agent network and so you know they can settle it over there and the prepay fund has only ninety nine thousand and this is how the Commission was split the fifteen dollars let's assume it was a fifty fifty this is 750 this is 750 etc so with the transfer complete this is what the status looks right now but there are two elements missing can you spot them what are the two elements that are missing well let me tell you the thousand dollars the u.s. hunt thousand dollars that was received by the empty and the remitting country this needs to be sent across to the prepay account to level or top-ups it's sitting right here but it needs to go across so that is there and how does the receiving MTO make money they're receiving mantilla empty makes money on the exchange rate because you know and that was the second question how do they make money so they make money on the exchange rate they're a quote at the rate of 100 rupees when the actual street rate might be a hundred and two rupees so they're making two rupees on the transaction and stay making rupees 2000 as income and you can read this slide by Paul in the YouTube video and then you can understand what happened over here so this is the prefrontal then that $1,000 is set sent across and now the balance over here is zero and the receiving bank gets $100,000 in balance the commission was received over here the beneficiary has received $100,000 the sender has paid a thousand fifteen the fifteen is over here so everything balances out final position once all the funds have been settled and payment is sent across this is how the ecosystem would look like so that's the full and final position of a pre funded model I hope this was you know illuminating for you I will try to put up a link of this presentation PDF in the video below and you can download it at your leisure and use it as always if you have a question or a comment please do not hesitate to contact me there's a contact form in the description below you can comment generally about this video in the YouTube comments and also if there is a whatsapp number below if you have any you know other things you want me to consider or any other types of videos you want me to make please do not hesitate to contact me till next time sucessful fans signing off stay safe and see you soon