For Virtual Asset Service Providers (VASPs), compliance with the FATF Travel Rule isn't just about adhering to regulations—it's also a significant operational consideration that impacts the bottom line. 

Travel Rule solutions come with a variety of pricing models, each with its distinct advantages and challenges. To simplify it, we have prepared this comprehensive guide that demystifies these models, providing VASPs with the insights needed to make informed decisions that balance cost with compliance.

Sign-up Fee + Annual Fee Model

In the sign-up fee plus annual fee model, VASPs pay an initial fee to gain access to the Travel Rule compliance service. After this initial payment, they are charged recurring annual fees that cover ongoing access to the service, including regular updates and customer support. 

Sygna Bridge, for instance, follows this model. It requires VASPs to pay an upfront fee for integration into their network, followed by an annual fee that provides ongoing compliance support and secure information exchange capabilities.

Pros:

• Predictable annual budgeting due to fixed costs.
• Continuous access to compliance updates and support.
• Potentially lower costs for VASPs with high transaction volumes due to spreading the fee across numerous transactions.

Cons:

• High initial sign-up costs can be a barrier to entry for smaller VASPs.
• Annual fees apply regardless of actual usage, which may not be cost-effective during periods of low activity.
• Less flexibility to scale costs with the business’s transactional demands.

Monthly Charge Model

The monthly charge model entails a regular monthly fee that covers the operational costs of the compliance solution. This cost often becomes more economical as more members join, thanks to shared expenses. 

An example of this is TRUST by Coinbase, which allocates operational costs across its members on a monthly basis, with the cost per member potentially decreasing as more join the initiative.

Pros:

• Consistent monthly expenses make financial planning straightforward.
• As more members join, individual costs can decrease due to shared operational expenses.
• No large upfront payments are required.

Cons:

• Costs may be relatively higher for smaller VASPs with fewer transactions.
• Monthly fees accrue regardless of service usage, which can be inefficient for intermittent compliance needs.
• Possible overpayment during slower business months.

Two-Tiered Pricing Model

A two-tiered pricing model offers a base service tier at a fixed cost and an advanced tier with more features, which may have customized pricing. 

Notabene, for example, provides a 'SafeTransact-Rise' plan for basic compliance requirements and a 'Full-Feature' platform that caters to more complex needs, with specific pricing determined following a product demonstration.

Pros:

• Offers a choice between basic and advanced services to match different compliance needs.
• Lower tier may provide an affordable entry point for smaller VASPs.
• Higher tier can be customized, potentially offering a better fit for larger VASPs with complex needs.

Cons:

• The basic tier may not be sufficient for all compliance requirements, leading to eventual upgrade costs.
• Customization in the higher tier can be more expensive and time-consuming to negotiate.
• VASPs may end up paying for unused features in the tiered structure.

Free Trial and Premium Plan Model

This model offers a complimentary trial period with fundamental service access, after which users can opt for premium plans that provide a wider range of services for a fee. 

Sumsub exemplifies this model by giving VASPs a six-month free trial for their compliance services, after which there are options to upgrade to more comprehensive premium or enterprise plans.

Pros:

• Free trial period allows for testing the service without financial commitment.
• Opportunity to evaluate the solution’s effectiveness before investing in a premium plan.

Cons:

• After the trial, VASPs must commit to premium plans, which can be costly.
• Transitioning from free to paid service may require budget reallocation.
• Premium plans may include features that some VASPs don’t need but still pay for.

Membership Fee Model

With a membership fee model, organizations pay an annual fee based on the company's size and type, which grants them access to the service network and its resources. 

Open VASP, for example, uses this model where the fee structure varies based on the size and type of the company, catering to both VASPs and non-VASPs.

Pros:

• Annual membership provides clarity on yearly expenses.
• Access to a network of compliance solutions and peers in the industry.
• Fees can be tailored to company size, making it fairer for smaller organizations.

Cons:

• Fees are due regardless of the level of service utilization.
• Membership costs can be substantial, especially for larger VASPs.
• Additional costs may arise for services not covered by the membership fee.

Pay-as-you-go Model

The pay-as-you-go approach is flexible and cost-efficient, particularly suitable for entities with fluctuating service needs, where they pay solely for the services utilized. 

Veriscope is the only Travel Rule Solution that offers this model, allowing VASPs to pay in alignment with their transaction volumes, avoiding upfront costs, and ensuring the scalability of the compliance solution.

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Pros:

• Ultimate flexibility with payments aligned to actual service usage.
• Ideal for VASPs with fluctuating transaction volumes.
• No upfront costs, allowing better cash flow management.

Cons:

• Can become expensive, in general, if transaction volumes are consistently high.

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Concluding Thoughts

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The diverse pricing models of Travel Rule solutions, as we have explored, cater to the varied needs and capabilities of VASPs—ranging from startups to established financial institutions. 

Each model presents a distinct approach to cost management, from the predictability of sign-up and annual fees to the flexibility of pay-as-you-go options, such as the one offered by Veriscope. This particular model is designed to adapt organically to the VASP’s activity levels, providing a cost-effective solution for those with fluctuating transaction volumes.

VASPs must weigh these options carefully, considering both short-term financial implications and long-term compliance strategies. Whether seeking a trial to test the waters, a simple membership to join a community of peers, or a comprehensive service plan for extensive transaction needs, the key lies in selecting a model that aligns with the organization's transaction patterns, size, and growth trajectory.

Ultimately, the decision is a testament to a VASP's commitment to not only meet the regulatory standards but to embrace the evolving digital asset landscape with a forward-thinking approach to compliance and operational excellence. The pay-as-you-go model exemplifies this commitment, offering an agile and scalable financial framework that stands as a testament to Veriscope's understanding of the sector's dynamic nature.

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VASPs need a Travel Rule Solution to comply with the FATF Travel Rule. Have you zeroed in on it yet? Check out Veriscope, the only frictionless crypto Travel Rule compliance solution. 

Visit our website to read more, and contact our team for a discussion.

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