Global Trends Affecting MSBs & Money Transmitters

February 17, 2017

Money service businesses face a myriad of global trends, risk, and regulations, spanning from wire fraud to increased competition and derisking. In the face of banking uncertainty and confusion around risk, it is important to understand and stay ahead of these global phenomena. This article presents a quick breakdown of the current money service business industry landscape.

P2P Money Transfer & the Rise of FinTech

Peer to peer (P2P) payment platforms like Venmo are all the rage right now. Consumers are increasingly turning to P2P payments to conveniently transfer money, spurring monumental growth in the industry. So are P2P payment platforms a direct competitor for check cashers and MSBs? Not exactly. These are the top 5 uses for P2P payments according to The Payments Review: roommates splitting the rent and the utilities, diners sharing the bill, friends sending monetary gifts for a birthday, and travelers splitting vacation costs.
MSBs and check cashers have an edge in their market because they offer money transfer right where their customers are cashing their paycheck and paying their bills. Plus, for individuals without a bank account, Venmo isn’t a real financial solution since a bank account is required to access your Venmo funds outside of the app. Another element of the P2P landscape is a recent push by banks to market their own consumer payment platform, Zelle. In the midst of FinTech buzz and P2P wars, MSBs and check cashers should focus on their strengths: financial inclusion and convenience.

Banks Entering the Check Cashing Industry

As banks work to stay relevant in a world driven by technology and convenience, they are entering the check cashing industry. In a game long dominated by check cashing outlets, retail check cashers, and MSBs, there is a new player in town. It was only a matter of time before banks worked to diversify their products and reach out to the lower income individuals they have long neglected. As the check cashing industry enjoys success, big banks want a seat at the table.
When you dig deeper, it becomes clear that the check cashing services offered by banks are more competitive than their MSB counterparts. And banks are still plagued by a lack of transparency and the inability to connect with their customers in a digital world. Check cashers have an edge as community centers. Many check cashing clients form a relationship with their check casher, much like a personal banker relationship of the past. Some individuals even tip their check casher to say thank you for the personal service – a clear indicator that the personal financial relationship isn’t dead.

Unbanking of MSBs and Check Cashers

In both Canada and the United States, banks are severing ties with small money service businesses in an effort to shed risk. The unintended consequences of AML regulation are nothing new – money service businesses are familiar with FinCEN’s Operation Choke Point and the resulting derisking trend. Even though FinCEN has since revoked their list of “risky businesses” and regulators assure banks that it is possible to stay compliant with MSB clients, the damage is done.
Unbanking and tightening regulation are taking their toll on both the money service business industry and on the ancillary industries that use MSBs to conduct business. Specifically, derisking is having a negative impact on NGOs who depend on donations to operate. A report by the Charity and Security Organization finds that nearly two thirds of U.S. NGOs operating abroad are experiencing banking difficulties as a result of derisking efforts. Of the NGOs surveyed, 10% reported that banks refused to open accounts for them and another 6% reported that their bank accounts had been closed. This has resulted in project delays and cancellations (Devex). As you can see, the lack of MSB friendly banks is spreading beyond the industry itself.

Wire Transfer Fraud In the Spotlight

Colorado-based Western Union is facing a $586 million settlement with the Federal Trade Commission (FTC) and U.S. Justice Department. The fine comes after the money transfer company admitted to aiding in the transfer of fraudulent funds. In this case, consumers came forward alleging that Western Union was helping them send money to parties who were defrauding them. In the resulting investigation it came to light that Western Union was not implementing an adequate MSB compliance program. In addition to the settlement, the company will retrain employees and institute a robust anti-fraud effort.
This case illustrates the importance of comprehensive employee training and a smart compliance program. When Western Union failed to catch, document, and report the suspicious activity, they did so in direct violation of the Bank Secrecy Act. The financial transactions were executed in amounts designed to skirt regulation. The case purports that Western Union should have implemented a more diligent compliance system to catch the fraudulent activity. (Lexology)

The Digital Currency Debate

Bitcoin has been circling the money transfer industry for years now, raising concerns over how to regulate the virtual currency. There are two competing camps: one that believes Bitcoin is a valid currency and another that does not recognize Bitcoin as a currency. In a windfall moment, a Miami judge recently ruled that Bitcoin is not a currency (Legal Solutions).
The ruling was handed down during a fraud case where a Bitcoin dealer sold Bitcoin to an undercover federal agent who made fraudulent intentions known. The judge decided that the defendant could not be found guilty because there was no proof of intent to carry out illegal activity. In this situation, the activity was not illegal because Bitcoin is not viewed as a valid US currency.
This, however, doesn’t mean that Bitcoin is outside the realm of regulation. In 2015, FinCEN issued a ruling declaring that commodity-backed token services are money transmitters (CoinDesk). As money transmitters, these services are subject to BSA regulation just like regulated MSBs.

Navigating Global MSB Trends

In the face of increased competition, risk of fraud, and regulatory burden, MSBs and check cashers need an ally for business success. This is why NCC is committed to helping the MSB industry thrive through smart compliance, improved efficiency, and increased transparency.
To meet the needs of the money service business industry, NCC provides real MSB bank accounts for both regulated check cashers and unregulated retail check cashers. Every bank account is secured by NCC’s network of reliable MSB friendly banks to protect against derisking. In addition to check cashing banks, NCC offers supported MSB financial services like armored cash delivery and extended deposit times. These services work to rotate your working capital quickly and keep your business open.
The check cashing experts at NCC are available to support you 24/7. If you are ready to open your very own check cashing bank account, reach out to us today!

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