Author: Arash Singh

What is an MSB?

According to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), a money service business (MSB) pertains to a business that deals with transferring monterey values between different parties. 

For example, a business is an MSB if it deals with foreign exchange, money transferring, issuing money orders, and redeeming traveller’s cheques. Scheduled to come in full force in Canada on June 1, 2020, businesses dealing with virtual currency can be considered as MSBs as well. 

This paper provides what business owners need to know when it comes to whether or not a company is an MSB. Examples are also included in addition to what steps one should take in order to comply with the MSB policies set out by FINTRAC.

Firstly, a business may be an MSB if it deals with foreign exchange. This is in the form of exchanging one type of currency to another. An example of this would be converting and exchanging USD currency for CAD, or even exchanging EUR for CAD. 

It should be noted, however, that when an individual buys items with foreign currency, the action is not considered a foreign exchange. For instance, let’s say an individual enters a store and purchases coffee using a $20 USD bill. The individual then requests for their change to be in CAD. This type of transaction is not considered as foreign exchange. 

On the other hand, let’s say an individual has a $100 USD bill and a traveller’s cheque of $100 USD. A traveller’s cheque is a form of payment this is pre-printed and commonly issued by a bank. These cheques are in fixed amounts and cannot bounce, since they are already paid for by the traveller. 

The individual wishes to purchase a scarf for $35 and wants their change to be in CAD. While the change for one of the $100 USD is not a form of currency exchange, the $100 traveller’s cheque is considered one. 

As for money transferring businesses, they pertain to the transfer of funds from one party to another via either an electronic funds transfer (EFT) network or other methods such as Fei ch’ien and Hawala. There are various types of EFT. For example, they entail automatic teller machines (ATMs), wire transfers, direct deposit systems for payroll purposes, as well as electronic billing using online banking. 

When it comes to issuing money orders and redeeming traveller’s cheques, a business is considered an MSB if it handles these responsibilities. A key term to take note of in this case is ‘issuing,’ which is when one’s business is the party that gives money orders and travellers’ cheques to individuals. As for ‘redeeming,’ it pertains to buying back one’s own business’ money orders and cheques from an individual. 

Although businesses that deal with virtual currency cannot currently register with FINTRAC, they will be able to on June 1, 2020.

Your Guide to the FINTRAC Pre-registration Process

The FINTRAC registration process can be a lengthy one, however, it is nonetheless an important step in the right direction when it comes to complying with the policies set out by the Canadian government.

To make sure that one’s business is covered in the event of legal consequences and unforeseen fees, they should be prepared for registration beforehand with the required material and information. 

Firstly, a business owner will need to fill out the FINTRAC pre-registration form. The first type of information required is the definition of one’s business structure. These can be in the form of a partnership, a corporation, or a sole proprietorship. 

A business is considered to be a partnership if it involves two or more individuals who are responsible for the MSB’s actions. Meanwhile, a corporation is defined by being authorized by either Canadian federal or provincial law. A corporation also has permission to act as a distinct legal entity in addition to having the ability to acquire rights and assume the relevant liabilities. Lastly, a sole proprietorship is a business run by an individual. There is no distinction between that individual and the business entity, which means that the former party is solely responsible for the debts of their unincorporated business. 

In addition to knowing one’s business structure, one should also have their business’ legal name, language of the legal name, street address, city, country, province, business email address, and postal code at the ready. 

As for contact information, FINTRAC requires one to state their salutation, full name, initials, phone number and, if applicable, the phone extension number. Of course, a preferred callback time is requested along with the preferred language of correspondence. FINTRAC offers two languages of correspondence, English and French.

Additional information to have at hand include all the business activities that apply. For example, these activities can include cashing money orders, cashing cheques, dealing with foreign exchange, selling money orders, transferring money, as well as providing payday loans.

Finalizing Your FINTRAC MSB Registration

After fully completing FINTRAC’s pre-registration form, business owners can expect a response within five business days. 

Upon the completion of the pre-registration steps, business owners should then sign in to the MSB registration system with their user ID and password. 

Once signed in, the business owner would be sent to the MSB registration system’s homepage. This page will contain a plethora of information such as the status of the MSB registration form, registration information, as well as the previous login information. There will also be a section with links that allow one to edit the information of their MSB administrator, enter information about data entry officers, change one’s password, cancel the registration process, as well as contact FINTRAC should there be any questions. 

The user can then navigate through the FINTRAC registration form and fill out the required information before their final submission. Information to have at hand should pertain to the owning individuals, owning businesses, business name, and business licence. 

When it comes to the operational side of the MSB, account information, business transactions, record keeping language, reporting entity information, as well as the conduct of MSB transactions should be at the ready. 

Of course, other information such as the business’ main address, mailing address, and contact information should be filled out before submitting the registration form. Business owners get the option to print out the form as well for their own record keeping purposes. 

Before submitting the form, the user will be prompted to review it and make sure all the applicable sections are complete. It is critical to pay attention to the alerts and notification messages that may appear on each page as well, as they indicate which sections have not been filled out yet. 

Once the registration form is submitted, it will be processed within 14 days. Business owners can then expect a notice of approval, a request for clarification, or the reasons for why the registration was rejected. Rejected registration forms can be either be requested for review or put into appeal with the Federal Court of Canada. 

PayFrame has a team of dedicated experts who are ready to help businesses with the MSB pre-registration and registration processes. The team is also experienced in finding the best payment processing solutions for MSBs. To contact PayFrame, one can either email info@payframe.com or call 1-888-668-0733.

The State of the Canadian Cannabis Business Since Legalization

The legal battle for the sale of cannabis in Canada has been a long one, and the day it came into fruition was on October 17, 2018. 

In the first 24 hours after legalization, about 100,0000 orders were made on the Ontario Cannabis Store (OCS) online store. OCS also found that its website had about 1.3 million unique visitors in the first 24 hours. This was in addition to getting 12,000 online orders in the very first hour.

“The OCS has been truly amazed by the volume of sales,” Patrick Ford, the president of OCS, said. “It’s way beyond what we anticipated and we appreciate customers’ patience as this exciting new business gets off the ground.”

Two weeks after the legalization of sales, Statistics Canada found that the total sales of cannabis in stores amounted to $43 million. The popularity of cannabis in Canada was not necessarily a surprise, as prior to the legalization of sales, about $5.7 billion was spent in 2017 on the product. 

This value was based on both the recreational and medical use of cannabis. The parties involved in spending this amount were Canadians between the ages 15 to 64. “This was equivalent to around $1,200 per cannabis consumer,” Statistics Canada added.

In a recent report that was released on October 30, 2019, it was found that seniors are the leading age group when it comes to the growing use of cannabis. This is despite being the age group that uses cannabis the least compared to the other groups. 

For instance, in 2012 alone, 1 per cent of Canadian seniors reported on their usage of cannabis. This is a contrast to 2019, when over 400,000 seniors have used the product in the last three months before October 2019.

According to the information that was collected during quarters two and three, more than one-quarter of Canadian seniors used cannabis for the first time as well. It was also found that the first-time usage of cannabis is affected by age. While seniors in the 45 to 64 age group account for 25 per cent of usage, individuals aged 25 to 44 who used cannabis for the first time account for 10 per cent.  Adding to this, users aged 65 and older makes up for 27 per cent of cannabis usage.

The most common reasoning behind the use of cannabis among seniors pertains to medical needs. While 52 per cent of seniors who are 65 and older use cannabis for medical reasons, 48 per cent of the remaining seniors are evenly split in terms of using cannabis medically and non-medically at 24 per cent each. 

This is in contrast to the 15 to 24 age group, which had about 60 per cent account for using cannabis for non-medical reasons. Users in this age group who use cannabis for both medical and non-medical purposes account for 35 per cent. As for exclusive medical use of cannabis, Statistics Canada stated that, “the youngest age group was rare, making the estimate too unreliable to be published.”

When it comes to obtaining cannabis, seniors are the age group that is the most likely to get it from legal sources. According to the data, 41 per cent of users who are 65 and older noted that they obtained cannabis through legal means. This is a sharp contrast to younger consumers who, depending on their age, account for only 23 per cent to 29 per cent of obtaining cannabis from legal sources.

The Tension Between U.S. and Canadian Cannabis Immigration Policies

The interest in cannabis is not lost to Canadian investors, and some of them have looked to the U.S. for potential growth opportunities. 

However, for interested Canadian investors, it should be noted that there exists contensions when it comes to doing business within the states. 

On November 14, 2018, an individual who requested to remain anonymous received a lifetime entry ban into the U.S. The ban was on the basis of being part of the cannabis industry itself. That is, the investor’s purpose for visiting the states was to attend the Marijuana Business Conference and Expo in Las Vegas. The conference was an event for lenders, lobbyists, cannabis producer executives, investors, and entrepreneurs to network and generate new business leads. 

That was not the only case of an investor being barred for life when it comes to U.S. entry. Prior to the legal sale of cannabis in Canada, another investor was already subjected to the same consequence. 

In May 2018, Vancouver-based investor Sam Znaimer was heavily scrutinized at the Washington border. In an interview, he recalled that he spent about four and a half hours at the border station before being issued the permaban. 

The reason for this was because of U.S. federal laws. Therefore, the connection to the cannabis industry is a risky one for Canadians dealing with U.S. Customs and Border Protection.

“You might as well be doing business with Pablo Escobar, selling cocaine in the U.S.,” Len Saunders, a Canadian immigration lawyer, said. Saunders also noted that cannabis remains a “so-called Schedule 1 substance in the U.S., defined by having no medical use and a high potential for abuse.”

Before the end of 2018, another Canadian was called into question. Roderick Elliot was on his way to the same cannabis conference as the aforementioned anonymous individual when he was subjected to heavy screening. 

Elliot was not an investor, but rather the senior vice-president at the lobbying firm Global Public Affairs. His plan was to depart from Toronto to Las Vegas. In an interview with the Financial Post, Elliot recalled that, “The first border guard asked us specifically why we were going to be in Las Vegas, and when we said we would be dropping by at the Marijuana Business Conference, he said ‘I’m going to need you to come with me.’”

He also recalled that he and his colleagues were sent to a large room with 10 other conference attendees. He said that within the room, they were prohibited from using their mobile phones and talking with each other. 

Elliot noted that in hindsight, he should have thought more about his travel route from Toronto to Las Vegas, as opposed to opting for the direct route. “But I can’t lie at the border, so I had to say I was going for a cannabis conference,” he said.

The Current State of Cannabis Legalization in Canada and U.S. Federal Law

At the time of writing this paper, U.S. Customs and Border Protection continues to enforce its laws regardless of Canada’s legalized sale of cannabis. 

According to the U.S. Embassy and Consulates in Canada, “Although cannabis is decriminalized in several U.S. states, cannabis possession remains against federal law. U.S. Customs and Border Protection enforces federal law at the border.”

It is for this reason that the legalization of cannabis sales in Canada do not affect the legality of the product within the U.S. 

“A Canadian citizen working in or facilitating the proliferation of the legal marijuana industry in Canada, coming to the United States for reasons unrelated to the marijuana industry will generally be admissible to the United States,” the embassy stated. “However, if a traveler is found to be coming to the United States for reasons related to the marijuana industry, they may be deemed inadmissible.”

Due to the strict policies upheld by U.S. Customs and Border Protection, Canadians who wish to get involved in the cannabis business may look within their own country when it comes to investments and sales. 

An inevitable part of selling cannabis within Canada is having a smooth payment process, and PayFrame is at the forefront of providing business owners with the best deals and solutions on the market. 

To learn more about PayFrame services and rates, as well as get a consultation, contact the team at either info@payframe.com or 1-888-668-0733.

The Prevalence of E-commerce and M-commerce Fraud

Whenever fraud occurs, it is essential that a company executes an immediate response. This would, in turn, prevent the erosion of trust between the company and its customers, as well as ensure that the bottom line is well-protected.

In the current landscape, e-commerce and mobile transactions are increasing in popularity among merchants and their customers.

According to a study conducted by LexisNexis, when it comes to the increase of mobile transactions, merchants who have adopted selling digital goods have increased from 57 per cent to 70 per cent. In this case, the term “adoption” refers to a means of business growth through the increase of new customers and improve the connection between current customers with the merchant. Through mobile transactions and the sale of its associated digital goods, merchants noted an increase of efficiency by virtue of a faster transaction process. 

However, it should be noted that there is a cost that comes with selling digital goods via mobile transactions. For instance, the LexisNexis study found that retail fraud has had a continuous increase year-over-year. “And, the level of fraud as a percentage of revenues has moved upwards (1.58 [per cent] to 1.80 [per cent] on average),” the study noted.

In addition, merchants who sell digital goods are being subjected to higher fraud costs compared to other channels. According to the study, the cost of fraud represents 2.10 per cent of merchants’ annual revenue affected by mobile-purchased digital goods. 

“And, every $1 of fraud costs these merchants an average of $3.29, which is a 24 [per cent] increase over 2017,” the study found. Comparatively, this is much higher to the $2.78 when it comes to mobile commerce merchants who are only selling physical goods. 

Identity fraud is another issue that merchants who are selling digital goods must tackle in order to maintain good business practices. For instance, the study found that 39 per cent of revenue loss attributed to fraud is caused by identity theft.

Therefore, it is integral for merchants to find effective payment strategies for the sake of fraud prevention.

The Key Perpetrators of Fraud

In order to properly execute fraud prevention methods, a business owner must first understand the reasoning behind the theft of monetary values. There is no all-encompassing reason as to why people commit fraud, as the explanations point to several factors. 

Typically, however, fraud occurs based on opportunity, motivation, and rationalization. This is in accordance to a study conducted by Donald Cressey, the criminologist who developed and coined the term “fraud triangle.” 

According to Cressey’s research and his interviews with embezzlers, people commit fraud based on the opportunity to do it in the first place. If a company has a weak system when it comes to internal controls, for instance, employees may be tempted by the opportunity. A business owner should then create clear company policies that have equally as clear consequences should they not be followed by employees. 

Let’s say an individual has gained tenure within a company by virtue of working there for a long period of time. The individual’s bosses, therefore, hold them in their highest regards based on their experience and familiarity with the company itself. 

Along with this high level of regard, there is also a great amount of personal trust. Therefore, the individual has been trusted with business cheque books when it comes to billing and personal finances. Seeing this opportunity, the individual would then forge signatures and issue checks to themselves, ultimately contributing to payment fraud. 

As for an individual’s motivations, they may have a personal situation that requires a need for large monetary values. These situations can range from gambling addictions to medical emergencies and the financial difficulties of a significant other. 

Greed is another potential motivator, where an individual commits fraud not out of need, but rather the desire for items such as luxury goods. In turn, the psychological effects can lead to addiction and the inability to stop committing fraud.

Another key element that contributes to the reasoning behind why an individual would commit fraud is rationalization. It should be noted, however, that this also requires the benefits to outweigh the possibility of detection.

This is in addition to the justification for fraud in the first place. For instance, an individual may feel entitled to more compensation at their job. Another possibility is that an individual may feel dissatisfied about the trajectory of their position and the company. 

For example, let’s say an individual justifies their actions by convincing themselves that the fraudulent payments are out of necessity for the success of the company itself. This justification can also be coupled with the belief that they deserve to take funds because they have dedicated numerous years into the business. The individual may convince themselves to believe that the company’s profits are so great that missing sums would not be noticed by others and that the company can lose that sum without much consequence. 

Given these opportunities, motivators, and rationalization strategies at play, business owners should therefore look for effective fraud prevention strategies and solutions.

Fraud Prevention Strategies and Solutions

There are several fraud prevention strategies and solutions currently out there on the market. While a business owner can take on preliminary fraud assessments as one option, another possibility is through working with fraud prevention services that offer specific products. 

In terms of fraud assessments, a business owner can first take a deeper look into the landscape of their company in order to understand the current opportunities for fraud. One such landscape pertains to a company’s own social culture. 

Whether or not a company has an environment that is of low or high risk for fraud depends on the ethical standards it practices and perpetuates. A company’s employees with higher tenure may typically suffer more lenient consequences. Similarly, petty theft can be committed by other employees on a consistent basis if not nipped in the bud with the appropriate consequences. With well-defined ethics and policies, as well as proper follow through, a business owner can decrease the likeliness of fraud from the get-go. 

Another means of effective fraud assessment is to conduct them on a consistent basis, as well as make sure that particular employees are aware of and know how to watch out for fraud risks. Employees, for example, can be informed of fraud risks through formal training, meetings, posters around the office, as well as a clear understanding of payroll rules.

In addition, a business owner can encourage whistleblowing to prevent fraud. However, it should be noted that there are challenges that come with this method of choice. The individual in question may experience conflicting emotions when it comes to co-worker or familial loyalty, as well as be subjected to jealousy and therefore file false reports. A way to overcome these challenges is for a company to have a culture of open communication and transparency. 

Of course, verification and scoring tools can be used when it comes to fraud prevention services and products. Services can include comparisons between billing addresses with ones that are already in an issuer’s database. This type of service can involve data authorization requests for a cardholder’s address number and either their postal code or ZIP code. 

In terms of fraud scoring tools, they can come in the form of payment processors, PayFrame works with its clients to get the best suited versions, as well as the best rates out there on the market. What forms of payment processors can do is go into a database and determine what looks like legitimate transactions. Whether or not a transaction is legitimate can be determined by data such as card security codes, fingerprints, face scans, as well as IP addresses. 

PayFrame has a team of dedicated experts to help business owners mitigate fraud through the strategies detailed in this paper. To get started and get an in-depth consultation, call 1-888-668-0733 or email info@payframe.com.

Introduction to Opportunities, Challenges, and Expectations

After almost a century, the prohibition on the sale of recreational marijuana was lifted in Canada. Since October 17, 2018, the payments ecosystem shifted due to the return of this player. The production is regulated on the federal level, while the provincial government must decide on how cannabis is distributed among the population. 

The different rules and policies set in place have both created opportunities and challenges for the nation’s FinTech industry. For instance, the FinTech industry can create payment models that are compliant with the new policies. On the flip side, banking partners that support cannabis payments may also be challenged, especially in the case of cannabis companies that have their headquarters located outside of Canada. 

Nonetheless, cannabis companies and businesses within the FinTech industry have collaborated in order to innovate new and improved payment processing solutions. Businesses and their customers want transactions to be both fast and secure, no matter what medium they are done through. Ideal mobile phone transactions should be processed quickly without hassle in addition to transactions made through a desktop computer. 

It should be emphasized that while creating efficient payment solutions, be it by virtue of speed or automation, it is integral that all parties involved comply with federal and provincial regulations. This ensures that fines are avoided, which ultimately benefits the bottom line. 

Building the Framework for Efficiency and Innovation

Canadian businesses may look to the U.S. when it comes to building the framework of payment solutions. 

Payment platforms in the U.S. offer a variety of services for merchants, which can involve invoicing and deposits using the Automated Clearing House (ACH). ACH is a digital system in which funds can be transferred by individuals. Run by the National Automated Clearing House Association (NACHA), one of the system’s most recent innovations is the ability to allow for same-day clearance when it comes to debit and credit transactions.

As for Canada itself, Electronic Fund Transfers (EFT) is becoming a common payment solution for cannabis. Businesses that are familiar with the EFT ecosystem have an advantage when it comes to creating and choosing the most suitable payment processors. 

Another way to increase efficiency when it comes to payments and cannabis is through adapting to ISO 20022. ISO 20022 is a global standard designed for the sake of simplifying communication among businesses. Efficiency comes with this simplification, as the global standard allows businesses to get used to the involved language and syntax. 

There are a variety of reasons for the implementation of ISO 20022 in Canada. Although the nation has had a payments infrastructure that lasted and worked well for decades, the emergence of innovative technology in the digital realm has changed the game. In order to make the most out of this new technology and the increasing tendency of consumers to complete digital transactions, the launch of ISO 20022 was necessary. 

With the proliferation of digital technology, the modernization of businesses come into play and stakeholders who are a part of the cannabis industry are no exception to this. In addition to the reasoning behind the implementation of ISO 20022, there are several benefits that should be taken into account when getting involved with the industry. 

ISO 20022 helps to support automated processing, as well as to give involved parties remittance information. This type of information comes in the form of invoices that can be sent to stakeholders using a single digital payment. As a result, the need for manual work such as reentering data has decreased, which allows for stakeholders to increase business efficiency. 

Another benefit of ISO 20022 is the ability to consolidate payment standards to one global standard. This consolidation not only improves the efficiency of businesses, but also contributes to innovation. Third parties that provide services, and merchants who use payment systems, are then able to find better ways to bring about payment and remittance information using a single message. 

There is also the added benefit of paperless transactions. With ISO 20022, businesses are able to utilize eye-catching digital payment options to decrease the confusion that comes to multiple inconsistent formats, as well as save on costs and help with waste reduction. With the digitalization of transactions, businesses no longer have to print multiple drafts with every minor reitateration. 

Since numerous businesses across the globe are adapting to ISO 20022, it makes sense that Canadian businesses join in for the sake of better business practices and the benefits by virtue of efficient cross-border payments. 

The State of Cannabis Payment Processor Solutions

As the Canadian cannabis industry continues to grow, the expectation from consumers to experience maximum efficiency when it comes to the transaction process is also at the forefront of business owners’ minds. 

In order to meet these expectations, remain competitive, and ultimately benefit the bottom line, business owners are working with payment processors and involved industry stakeholders including PayFrame. By seeking out advantageous partnerships within the industry, business owners would then be able to get the best and most suitable processor rates. 

The ability for merchants to quickly implement their businesses into a trusted payment processor is another key component to growth. To satisfy the aforementioned consumer expectations and needs, the user experience should be taken into account. Depending on each unique demographic, payment processing tools should be reasoned based on the current trends. For instance, when it comes to a younger demographic, digital transactions through mobile phones would be appealing due to the ease of access, as well as familiarity with the technology. 

PayFrame understands that selecting the best credit card processors can be a challenge. There are several options available in the market, as well as the need to learn the details of how each processor operates in order to fully comply by federal and provincial policies.  

In order to ensure that businesses are operating at maximum efficiency and able to have increased monetary profits, PayFrame is connected to several industry leaders that, when in collaboration with the team, are able to offer the best rates. 

Even with AMEX, for example, PayFrame can negotiate for lower rates on a business owner’s behalf. PayFrame also helps to expedite the equipment delivery process, so business partners are able to receive their equipment quickly after approval. 

The goal of PayFrame is to mitigate as much risk as possible, as well as ensure the confidentiality of our current and potential business partners. Above all, PayFrameprides itself with stellar customer service by virtue of making the process as stress-free as possible while yielding the best results. 

Driven to serving clients and helping the cannabis industry as a whole, PayFrame is prepared to hit the ground running for clients of all backgrounds and circumstances. For a full consultation and to take your business to the next level, contact PayFrame’s team of dedicated experts at either 1-888-668-0733 or info@payframe.com.