About crowdfunding and alternative finance
How to facilitate the cash flow management of crowdfunding platforms outside the SEPA zone?
Operating the cash flow management of crowdfunding platforms
Crowdfunding platforms in SEPA zone
Within the SEPA zone, a platform that receives third-party funds as part of crowdfunding operations must be certified to provide payment services. It can :
-Either be certified as “a payment institution” (1) and provide the payment services itself. It is a very cumbersome and complex procedure for the platform to meet the criteria defined in the article L. 314-1 of the Monetary and Financial Code, in France for example.
The Single Euro Payments Area (SEPA) aims at providing common means of payment in Euros at a European level by enabling consumers, companies, vendors and administrations to carry out payments on equal terms all over the European zone as easily as in their own country. The SEPA zone comprises 34 countries (28 European Union member countries — of which 19 are part of the Euro zone — as well as Island, Liechtenstein, Norway, Switzerland, Monaco and Saint-Marin). >For more informations.
- Or through a smoother and quicker route: by registering as a payment service provider agent with the "Autorité de contrôle prudentiel et de résolution" and benefitting from a partnership with a certified payment service provider (Payment Institution or Electronic Money Institution) and entrust them with the fund collection.
This second option has the advantage of delegating the management and automation of cash flows to a competent organism that can operate various means of fund collection (donations, loans, royalties, titles) and methods of payment (credit card, Visa, mobile payment, cryptocurrencies), while respecting regulatory standards, especially in Europe. This allows platform managers to focus on their core business. In this way, the Payment Institution administers the link between the crowdfunding platform and the bank, each party playing an important role in the orderly operation of cash flows.
Circulation and cash flow management of a crowdfunding platform in a SEPA zone:
- The crowdfunding platform manages a database of users who have opened payment accounts either in a Payment Institution or an Electronic Money Institution.
- The Payment Institution or Electronic Money Institution operates the payment accounts and holds a centralizing account that mirrors an account opened in a bank, also known as a segregation account.
- The bank operates and manages the segregation account. It has custody of the money (by isolating it).
- Bank reconciliation is done automatically between the Payment Institution or Electronic Money Institution and the bank.
Crowdfunding platforms outside the SEPA zone
In countries where Payment Institutions are lacking, crowdfunding platforms are limited to managing user databases by opening a simple account, in a bank, that centralizes payments. In this context, the management of incoming and outgoing cash flows is complex due to the lack of automation tools. Therefore, crowdfunding platforms are forced to carry out “simple” and small operations.
Analysis of the operating procedure:
- The management of incoming and outgoing flows is analytic and “manual”,
- Platforms can only carry out “simple” and small crowdfunding operations(on the fly donations for example) by using payment solutions such as PAYPAL or STRIPE. All other more complex operations (such as loans, obligations, royalties etc) that may require movements between payment accounts quickly become impossible to manage.
In many countries, particularly on the African continent, the lack of Payment Institutions or Electronic Currency Institutions is a major impediment to the development of crowdfunding platforms. Yet, innovation and entrepreneurship are burgeoning in these regions even though the challenges around banking and interests rates are numerous, which is why we must support crowdfunding and provide the tools to aid its development.
The MIPISE solution: an alternative tool to the Payment Institution
To favor the growth of crowdfunding activities outside the SEPA zone, MIPISE has focused its R&D efforts on the development of a new innovative solution of cash flow management that serves to compensate for the lack of Payment Institutions or Electronic Currency Institutions. Practically, the MIPISE solution enables the creation of a platform that has all the technical features needed for managing a payment account from a Payment Institution, in partnership with a local banking institution.
Therefore, the plan is the following:
- The platform operated by MIPISE manages a user database, analytic payment accounts and a centralizing account that mirrors an account opened in a bank (also known as a segregation account).
- The bank operates and manages the segregation account. It has the custody of the money (by isolating it).
- Bank reconciliation (analysis and cash flow monitoring) is facilitated. It can be automated.
In this context, it must be noted that the safety of operations, the fight against fraud and money laundering as well as the protection of the public all fall under the responsibility of the Bank that must guarantee the platform’s seriousness (in a SEPA zone this task is assigned to the Payment Institution or the Electronic Currency Institution).
For the platform manager, this enables the opportunity to streamline and increase incoming and outgoing flows and to offer diverse means of collection (donations, loans, royalties, titles) just like a platform in a SEPA zone backed by a Payment Institution. In this way, MIPISE allows a crowdfunding platform to become its own Payment Institution by partnering with a local bank that will benefit from this new opportunity to receive commissions, bank with new clients, monitor projects.