In the second video of the Crypto Crow Bitcoin ATM Business series, you will find out more about banking, AML/KYC, Compliance, and FinCEN. Jason will also reveal some shady practices performed by Bitcoin ATM Operators which will trigger a discussion about business ethics.
After going through all of the options that we mentioned in the previous post, from General Bytes to Alibaba, he decided to buy the machines at BitAccess. The thing he liked the most is that they were very helpful from the start all the way up to the shipping of the machines.
His first order was 4 two-way machines which cost him $6.000 apiece without shipping. The shipping itself was even more expensive at $9.000 per machine which comes up to $60.000 in total. It was not a bargain.
Even though he bought two-way machines, he says that he will use them to sell Bitcoin only. It is because the buying option adds a whole other layer of complexity with compliance, and he is not ready to deal with that at the beginning. At later stages, he will think about going two-way.
Further on Jason explained how the money is handled. You basically need to hire an armored car pickup service and provide them auditable locks. That way they can be accountable and you can keep track of every withdrawal.
When you decide to start your own Bitcoin ATM business one thing is certain. You will not be able to get a bank account at any regular bank, no matter who you are. They simply consider these types of businesses very risky.
Fortunately, there is a company called BankLine that will bypass the cooperation with the bank. But the trick is that you need to have a $500.000 minimum monthly volume to be eligible to work with them.
However, they connected Jason with a partner company that will support his newly established business. He didn’t want to reveal their name because the cooperation was not official but he said that this company will allow people to send their cash to the bank, after which it will get converted to Bitcoin and sent to the designated wallet. And all of that within 24 hours. He claims that a lot of businesses are going this way now because it eliminates some intermediate steps like going to the exchange and buying the Bitcoin manually.
As mentioned in the previous video, Compliance is one of the most important things that you need to handle when starting a Bitcoin ATM business. Hence, you need to have a compliance officer from the beginning.
Jason recommends BitSource AML and their compliance officer, Todd. He will be the guy in charge of monitoring the overall business from a legal perspective and he will make sure that there’s nothing fraudulent. In other words, he will keep everything compliant. If there’s any suspicious activity he will flag it, report it and take appropriate action.
BitSource AML charges $500 a month minimum for their services. The price rises a $100 for each additional machine if you grow a fleet over time.
AML/KYC Policies and FinCEN
If you want to get banking services from anyone, you need to get a complete AML/KYC policy package drafted up by an attorney. After a long search, Jason chose BitAML and Joe Ciccolo to write his.
Keep in mind that there is no template for AML/KYC policies because it has to be relevant to the state you plan to operate in. Especially if you plan to do your business in multiple states. Your policy needs to reflect that.
Joe’s service did not come cheap at $4.500. But this is one place where you do not want to save money because it will be a kind of foundation for your Bitcoin ATM Business.
Last but not the least, you have to go and register with FinCEN. Basically, it means that you have to announce the fact that you are operating your ATMs and officially name your compliance officer. Todd or whoever your compliance officer may be, can help you here, and guide you through filling the necessary forms.
After you are done with legal procedures, it is time to put your machines at good locations.
Jason shared an interesting story he came across while scouting for the locations. So, he went to a friend of his who is a store owner to make him a business offer. He then learned that his friend already has a Bitcoin ATM at his store which intrigued him to find out about the conditions.
Apparently, the operator is charging a 6% fee and paying his friend 4%. This was immediately suspicious because it is simply too small of a margin for any business. After some asking around he was shown what it was all about. When he went to this machine the displayed price of Bitcoin was $52.300, while the real price was $43.000. A big difference.
Now this raises an ethical question.
On one side they are jacking up the prices and making money off of retail investors that don’t have a clue that they’re overpaying their Bitcoin. They add a 6% fee on top of that which also makes them appear as the operator with the lowest fee on the market (average Bitcoin ATM fees).
On the other side, the price difference serves as a kind of buffer that protects the operator from market volatility. Let’s say the operator sells the Bitcoin once a week. The price on the day of selling may be much lower than at the time it was bought. And if you take into account the endless procedures on the exchanges, you can say that the operator is at risk of losing serious money.
Jason concluded that some buffer needs to exist, to protect the business owner from going broke. But if you choose to jack up the prices, the ethical thing to do is to put up a disclaimer letting your customers know that they are overpaying and what is the reason for that.
This was an insight into the administrative tasks needed to start the Bitcoin ATM Business. After you ordered the machines, you need to acquire a business account. This is not possible through a bank, but a third-party company. Next, you will need to fulfill your legal responsibilities and obtain AML/KYC policy and register with FinCEN. To help you with these, you will have to hire a compliance officer and an attorney. After you are done, it is time to put your ATMs at the locations, which will be the main topic of the next video.