Non Profit Banking : Issues and Challenges Schuyler Francine joined America’s Christian Credit Union in June of 2019 to help them “Reach, Serve & Teach” ministries with their cash management needs. Prior to ACCU he served with ECCU for 18 years. After graduating from Wheaton College Schuyler spent over two years serving with Operation Mobilization in the Indian Subcontinent. He later worked with the Orange County Probation Department, the Billy Graham Center at Wheaton College (Institute for Prison Ministries), Promise Keepers and Bill Glass Ministries before joining ECCU in 2001 and ACCU in 2019. He has spent the bulk of his career find banking solutions for large and small ministries scattered literally across the globe.

Douglas Carp has enjoyed a successful career in Corporate FX for the last 30 years.

Starting his career on the buy side as a trader for a number of multinational Fortune companies, Douglas transitioned to the sell side, working at two large Commercial as Head of FX Sales for M&T and Head of Corporate FX Sales for Bank. More recently, Douglas has spent the last 12 years working for the industry leading corporate FX brokers; AFEX, Cambridge Global Payments and Moneycorp.

Doug developed a strong appreciation for the not-for-profit sector further to being appointed Global Treasurer for World Vision International, where he witnessed first-hand, the difficulty that faith-based missions have in obtaining reliable guidance and competitive pricing on international currency transfers.

Since then, Doug has focused on providing best-in-class service to NGOs and faith-based Presenters organizations, allowing them to more cost effectively fund international projects and ultimately support those less fortunate. • Financial Institution’s (FIs)Perspective • Ministry Models • Methods of Moving Funds to International Field • Future Trends – Where are Payments Headed? • Foreign Exchange (FX) • Blockchain • Cryptocurrencies (time permitting)

What we are NOT covering… • Income tax issues for missionaries (Dave Cram, yesterday, 3:30 (website: American Citizens Abroad)) • Accounting issues related to movement of funds (Greg Capin and Frank Jakosz, today, 3:30) • Legal concerns (Dan Busby and John Wylie, Saturday, 9:30) • International grant making (Ted Batson and Matt Sheers, yesterday, 3:30) Objectives Why Does My Financial Institution Demand So Much Information?!

Compliance, compliance, compliance, risk, risk, risk

• All FIs and Money Service Providers are under increased scrutiny to understand and enforce laws and regulations

Understand that some of what ministries want, especially when moving funds to high-risk countries, things like anonymity or shielding source of funds and especially use of funds, are the same things that nefarious individuals and criminal or terrorist organizations seek.

Most FIs will be more cautious with or outright adverse to higher-risk activity.

Account closures.

Bottom Line for FIs: they want to understand….

• Source of Funds – who are your donors, especially larger donors or foreign Financial donors, other sources (foundations, grants, etc) Institution • Use of Funds – what is the purpose of the spending, how and by whom, ongoing or not?

Perspective *PSA – Please don’t mention things like “smuggling” on your website, annual reports or promo material Beneficial Owner: Effective May 2018 – ALL FIs

• FinCEN (Financial Crimes Enforcement Network) and Customer Due Diligence (CDD)

• The CDD Rule, which amends Bank Secrecy Act regulations, aims to improve financial transparency and prevent criminals and terrorists from misusing companies to disguise their illicit activities and launder their ill-gotten gains. The CDD Rule clarifies and strengthens customer due diligence requirements for U.S. banks, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities. The CDD Rule requires these covered financial institutions to identify and verify the identity of the natural persons (known as beneficial owners) of legal entity customers who own, control, and profit from companies when those companies open accounts.

• The CDD Rule has four core requirements. It requires covered financial institutions to establish and maintain written policies and procedures that are reasonably designed to:

1. Identify and verify the identity of customers 2. Identify and verify the identity of the beneficial owners of companies opening accounts 3. Understand the nature and purpose of customer relationships to develop customer risk profiles FI’s 4. Conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information Perspective Beneficial Owner: Effective May 2018 – ALL FIs – Cont’

FIs will have to identify and verify the identity of any individual who owns 25 percent or more of a legal entity, and an individual who controls the legal entity.

https://www.fincen.gov/resources/statutes-and-regulations/cdd-final-rule

https://www.fincen.gov/sites/default/files/2018- 04/FinCEN_Guidance_CDD_FAQ_FINAL_508_2.pdf

FI’s Perspective Suspicious Activity Reports (SAR)

• Under the BSA, FIs are required to identify higher risk persons, organizations and activities and to monitor such persons, entities and activities

• They are to report any activities deemed suspicious on a SAR

• Due to the confidential nature of SARs, a bank cannot disclose when or if a SAR is filed

• Enhanced due diligence by FIs is required for non-US persons

(Credit: Mark Jones, Non-Profit Treasury Solutions)

FI’s Perspective Historical Perspective

1 Corinthians 16:1-4 Now concerning the collection for the saints: as I directed the churches of Galatia, so you also are to do. On the first day of every week, each of you is to put something aside and store it up, as he may prosper, so that there will be no collecting when I come. And when I arrive, I will send those whom you accredit by letter to carry your gift to Jerusalem. If it seems advisable that I should go also, they will accompany me.

2 Corinthians 8: 1-3, 16-21 V 1-3 We want you to know, brothers, about the grace of God that has been given among the churches of Macedonia, for in a severe test of affliction, their abundance of joy and their extreme poverty have overflowed in a wealth of generosity on their part. For they gave according to their means, as I can testify, and beyond their means…. V 16-21 But thanks be to God, who put into the heart of Titus the same earnest care I have for you. For he not only accepted our appeal, but being himself very earnest he is going to you of his own accord. With him we are sending the brother who is famous among all the churches for his preaching of the gospel. And not only that, but he has been appointed by the churches to travel with us as we carry out this act of grace that is being ministered by us, for the glory of the Lord himself and to show our good will. We take this course so that no one should blame us about this generous gift that is being administered by us, for we aim at what is honorable not only in the Lord’s sight but also in the sight of man. Funding Carrying Cash on Your Person Models Funds Disbursed (ACH) Directly to Missionary’s Account

• Including (sometimes) both project and personal funds • Missionary responsible to access • Missionary responsible to disburse if necessary • ATMs • Wire to local currency account

Pros/Cons

• Pros - Convenience for the sending agency as they are somewhat relieved of the financial management of the details • Cons – Mixing of project funds with personal funds which presents accounting and potential tax implications for individuals. • Cons – FIs don’t like this kind of activity and may shut it down, more the case for the missionary’s personal bank account, especially if they are responsible for distribution to foreign nationals, etc…. Add in High Risk Funding Countries and you will have lots of questions around activity Observations/Thoughts? Models Mixed – Funds Direct to Missionary, Other Payments Direct to Foreign Vendors or Foreign Individuals (Associates, Foreign Workers)

• Separates “project” funds vs “personal/support/salary” funds • Requires vetting of foreign entities and individuals • Challenges in disbursement of fund to foreign nationals • Costly – mainly wires • Sensitive – if USD going into their local account • Difficulty in Non-US Persons obtaining US accounts

Question:

How many organizations have a need for Non-US Persons to obtain personal USD accounts?

• Non-US Persons on US corporate accounts? Funding • Non-US Persons be allowed use of corporate Debit or Credit cards? Models Note: Some agencies looking at Blue Marble’s Global Payroll services. Field/Affiliate Offices

Payroll/personal support disbursed directly to missionary

Centralized • Funds disbursed to USD field/regional accounts – sometimes maintained at same FI as the Agency • Fields access funds as deem best for their situations

Decentralized • Funds disbursed to Foreign Entity to either USD accounts (ACH) or foreign based accounts (wires) • Foreign offices are related or affiliates and responsible for their own disbursement • Methods vary significantly depending upon country, continents and high/low risk regions • Internal banks – some (not many) have a type of internal Funding banking system – legacy of former limited options Models Primary method of disbursement is ACH, International Wires and FX Transport of Cash Carried Outside the US

Bank Secrecy Act (BSA) - The Currency and Foreign Transactions Reporting Act requires US FIs to assist US government agencies to detect and prevent

• Currency Transaction Reports (CTR) • Suspicious Activity Report (SAR)

FIs are required to document and keep record of any cash purchases of monetary instruments in the amounts of $3,000 to $10,000

FIs are required to complete CTR for any currency transaction of $10,000 or larger Methods - Cash Transport of Cash Carried Outside the US – Cont’

FIs are required to complete CTR for any currency transaction of $10,000 or larger - What constitutes “Negotiable Monetary Instruments” for currency reporting requirements?

• According to U.S. Customs and Border Protection: • Currency and coin, including gold coins • Coins and currency of a foreign country • Travelers Checks • For more detailed list go to https://help.cbp.gov/app/answers/detail/a_id/332/kw/332

- Transport of Cash requiring FinCEN Form 105:

• Each person who physically transports, mails or ships, or causes to be physically transported, mailed, or shipped currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time from the U.S. to any place outside the U.S. or into the U.S. from any place outside the U.S. and Methods - • Each person who receives in the U.S. currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time which have been Cash transported, mailed, or shipped to the person from any place outside the U.S. Transport of Cash Carried Outside the US – Cont’

FinCEN Form 105 – Report of International Transportation of Currency or Monetary Instruments https://www.fincen.gov/sites/default/files/shared/fin105_cmir.pdf

• Who must report or complete this form?

Person(s) – definition of Person from FinCEN 105 itself is “an individual, a corporation, partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture or other unincorporated organization or group, an Indian Tribe (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities”.

So persons or family members (groups) traveling together cannot divide up the currency to get around the reporting requirement Methods - Cash Transport of Cash Carried Outside the US – Cont’

Discussion

• Pros/Cons of hand carrying cash and general observations?

• When is it necessary?

• How are you doing this?

• Using neighboring countries?

Methods - Cash Consumer and International Payments

- Overseen by Consumer Financial Protection Bureau (CFPB), created by Dodd-Frank act

- CFPB’s mission is to make financial markets more fair for consumers and oversees all international transfers over $15

- Costs associated with international transfers – what to watch for

• Face value fees • Exchange rates Methods – • Intermediary and receiving bank charges Retail Transfers Primary Providers for Peer to Peer (P2P) Global Transfers

According to Nerdwallet here are the top five:

TransferWise Cheap, user friendly, to over 70 countries, up to $1M Some same-day options (using debit/credit cards), but mostly 1-3 days Recipient needs bank account

OFX Cheap, over 80 countries, no max No same day, 2-4 day delivery Transfers only between bank accounts Methods – Xoom (PayPal) Fast delivery, great web, over 70 countries, max transfer up to $25k Retail More expensive but still seems lower than most banks Cash pickup at supermarkets or other locations is option in some countries, fund from bank account, debit/credit card or PayPal Transfers account Nerdwallet’s top five providers for P2P global transfers cont’

MoneyGram Over 200 countries, 350,000 locations Costs on higher end but delivery can be same day, max of $6k per transfer and per month. Can be funded from cash but also bank account or visa/debit card, and pick up option in cash

Western Union Over 200 countries, 550,000 locations Cost vary widely depending upon country, same day is possible when sent to cash pickup locations using debit, credit or cash to fund. Methods – Cheapest, require bank accounts to send and receive Retail but can take a week, generally limits below $7500 Transfers Other providers for P2P global transfers

MoneyDart – Money2Anywhere Bridge21.com (US-Mexico) Placid Express (8 countries) OrbitRemit (New Zealand based, Australia, UK and Southeast Asia) Xendpay RemitMoney (Asis Bank, India based) Remit2India Remitly Methods – Instarem (Singapore based) Retail Vianex Transfers Cards – Debit/Check

Plan for redundancies in cards - backups

(Note: will speak to contactless technologies in next segment)

Debit/Check Cards • Pros • Most anonymous way to access cash abroad (sort of) • Convenience – millions of locations • Accountability, tracking expenses

• Cons • Expense (transaction fees, conversion rates, V/M intl. charges) • Risks • Withdrawal limits • Non-US Persons limitations • Replacement delays Methods - • Access limitations • Security risks Cards Credit Cards

Retail • Convenience • International transaction fees • Rewards

Corporate • Consolidated Card Management – Critical • International transaction fees • Rewards

Methods - Cards Payment/Reloadable Cards

Some organizations have explored the use but generally face higher fees and other limitations.

Similar Pros/Cons of Debit/Check Cards

Card Use Worldwide

Primary adoption has been North America and Europe and as technology changes, other methods such as mobile use are rapidly increasing.

Methods - Cards Mobile Payments

Defined as a transfer of funds done under financial regulations with the help of a mobile device

• First patent for mobile payment tech – 2000

• Common domestic P2P payment services

• Venmo • Zelle • Google Pay • PayPal

Methods - Mobile Mobile Payments – Global Use

Worldwide rapid spread of mobile phones with fastest growth in developing economies with many transitioning directly from cash to mobile payments.

• China is largest user of mobile payments by far

• Remote Payments - Mobile Payments are conducted either over internet through browsers or apps or sent via text, or…

• Proximity Payments - They are contactless or proximity transactions – using Near Field Communications (NFC) protocal to send a payment wirelessly to a nearby cash register or other device

• Mobile wallets – store credit and debit card information on the user’s phone for use in remote or proximity payment

Methods - • Mobile money – stores cash balances on a phone, especially important Mobile in developing countries where many do not have bank accounts or cards Mobile Payments – Global Use

Growth in mobile payments driven by increase of smartphones, increase in reach of services, and increase in cooperation of FIs • E.g. – Rideshare apps and built-in payment functions

No surprise that China and India have by far seen the largest adoption and growth in mobile payments.

Mobile Money • Report (2017) states more than 170 million mobile money accounts and over half a billion accounts have been registered • GSMA (the mobile network operator industry group) counted in a report 277 mobile services in 92 countries, “more than half of them in sub- Saharan Africa, where the number of mobile accounts surpassed the number of bank accounts in 2015; in 2016, more than 40 percent of the adult population in Kenya, Tanzania, Ghana and Paraguay actively used Methods - mobile money accounts.” https://www.americanexpress.com/us/foreign-exchange/articles/mobile- Mobile payment-solutions/ Future Trends – Where are Payments Heading?

Technology and customer demands for quicker, cheaper transactions and more transparency in pricing are driving the changes. There is also an expectation of real-time tracking and easier reconciliation, especially with failed payments.

Tradition FIs are challenged with balancing quick innovation and partnerships with fintech and an eye on the regulatory environment.

Contactless Payments Expanding Rapidly • Has been around for more than 10 years but could rapidly expand in the coming months/years as infrastructure and card issuance begins to pick up rapidly. Current EMV Chips DO NOT accommodate, rather the “dual-interface chip card” or a “near-field-communication (NFC) enabled smartphone” waves card within an inch of the POS device. • American Express has already issued 38 million cards, Chase 20 mm and others beginning. Future • Benefits: Speed of transaction goes from 30 sec to 15 sec or lower Trends Just as secure as EMV Future Trends – Where are Payments Heading?

Global ACH (Resource – Nacha)

• International ACH Transactions (IATs) are now regulated under a rule with two major points: • Requires Gateway Operators (originating or receiving FI) to classify payments that are transmitted or received outside the territorial jurisdiction of the U.S. as IAT • And includes information on all parties to the ACH transactions

https://www.frbservices.org/financial- services/ach/fedglobal/index.html

Bill.com – at bill.com now has international payments to over 70 countries and 50 currencies

Veem – at veem.com – “pay any business, in over 90 countries, with just their Future email” Trends Future Trends – Where are Payments Heading?

Blockchain and Distributed Ledger Technology (DLT)

• Growth of Fintechs and Money Transfer Operators (MTOs)

• Refer to: https://fineksus.com/cross-border-payments-new-models-and- the-future/

Ripple – a fintech blockchain newcomer

• Working with both SWIFT and to speed up their processes

• Refer to: https://www.financemagnates.com/fintech/payments/the- Future future-of-cross-border-payments-ripple-and-co/ Trends Future Trends – Where are Payments Heading?

Forbes article of fintech companies to keep an eye on – list of 12

• Remitly (Seattle) • Enables those living in rich nations such as the U.S. and U.K. to make low-cost money transfers to relatives in Mexico, India and other developing countries—even if the recipients don’t have bank accounts. Remitly’s coverage grew to 56 nations in 2018. • Funding: $175 million from Naspers' PayU, Bezos Expeditions, Stripes Group and others. Latest valuation: $480 million* • Bona fides: Processing more than $6 billion in transfers annually with more than one million customers sending money • Cofounder & CEO: Matt Oppenheimer, 36, who came up with the idea while working for Barclays in Kenya

• TransferWise (London) • Founded by two Estonian entrepreneurs, TransferWise makes money transfers cheaper by shrinking the distance it travels. Its average fees are 0.5%, compared with roughly 5% for banks. • Its top five markets are the U.S., the U.K., the euro zone, Australia and Brazil, and the London company brought in $149 million in revenue in its last fiscal year. • Bona fides: $4 billion processed monthly, more than 4 million customers and live in 72 Future countries

https://www.forbes.com/sites/jeffkauflin/2019/02/04/top-payment-fintech- Trends companies/#4712d9e076c9 Helpful Links

American Citizens Abroad – resource for individuals living abroad https://www.americansabroad.org/

PYMNTS.com – to keep up with the latest in electronic payments https://www.pymnts.com/

Helpful Links Global Payments and Risk Solutions How Customizable Foreign Exchange Services can assist today’s NGOs/non-profits

Douglas Carp (West Coast Dealing Manager) - September 2019 Douglas Carp has enjoyed a fulfilling career in Corporate FX for the last 30 years

✓ Buy side trader for a number of multinational Fortune companies, transitioning to the sell side with two large Commercial Banks as Head of FX Sales (M&T Bank) and Head of Corporate FX Sales for American Express Bank ✓ More recently, Douglas has spent the last 12 years working for industry leading corporate FX brokers; AFEX / Cambridge Global Payments / Moneycorp ✓ Strong appreciation for the not-for-profit sector further to being appointed Global Treasurer for World Vision International, witnessing first-hand the difficulty that faith-based missions have in obtaining reliable guidance and competitive pricing on international currency transfers ✓ Focus on providing best-in-class service to faith-based missions (including many of our existing members), allowing them to more cost effectively fund international projects and efficiently support international missions The non-profit sector and locations served

33 Differentiation – so why would non-profits even consider an FX provider?

2019 Best Money Transfer Service Provider – Award Winner 34 Various Global Payment Gateways

35 Making life simple - technological benefits to getting ‘Online’

36 FX Risk Solutions

“My experience is that exchange markets have become so efficient that virtually all relevant information is embedded almost instantaneously in exchange rates to the point that anticipating movements in major currencies is rarely possible.

Nonetheless, despite extensive efforts on the part of analysts, to my knowledge, no model projecting directional movements in exchange rates is significantly superior to tossing a coin.

I am aware that of the thousands who try, some are quite successful. So are winners of coin-tossing contests.”

Alan Greenspan, Former Chairman of the Federal Reserve

Why FX Risk Looking at Management FX Risk should be Management considered

37 FX Risk Solutions Foreign Currency Risk is a market risk that arises from the potential for a change in price of one currency against another over time.

Currency markets are unpredictable and can exhibit excessive volatility and sharp directional moves spanning a significant time span are common. • Transaction Risk is the risk that exchange rates will change unfavorably over time; contractual commitments and actual physical exchange of currencies. • Translation Risk is an accounting risk, proportional to the amount of assets held in foreign currencies. Changes in the exchange rate over time will render financial reports and statements inaccurate. The impact of exchange rate changes on accounting profits and equity.

FX Hedging Playbook:

1. Identify Exposure

2. Formulate Policy

3. Determine Goals

4. Formulate Strategy

5. Execute Strategy

6. Evaluate Results and Adjust

38 FX Risk Solutions • Mitigate against your cause’s risks associated with FX fluctuations.

• Improve your cash flow predictability and bottom line revenues.

• Ensure the greatest possible % of raised funds end.

• Minimize anxiety from risks associated with transaction, translation and economic exposures.

• Focus on core activities

Hedging Instruments

• Forwards

• Currency Swaps

• Plain Vanilla Options

• Structured Products / Zero Premium Options

• Non-Deliverable Forwards

39 Thank You

40