Money service business bank accounts are more elusive than ever before. AML regulation and the resulting trend of derisking are putting pressure on banks, which is then transferred to the money service business industry. Even compliant and profitable MSBs are challenged to find a stable MSB bank account to keep their business up and running.
Money service business bank accounts are essential for running any kind of MSB, including check cashing outlets, a currency exchange businesses, and any other nonbank financial services company. A reliable bank account is the foundation for all of the banking services an MSB requires. In addition to an account for depositing checks, MSBs need the ability to wire money and armored cash delivery to efficiently rotate their working capital. Without a bank account, none of this is possible and MSBs are forced to close.
MSB bank accounts are different from other business bank accounts because they require a special compliance program. Banks who serve MSBs must comply with federal and state regulation to manage the risk associated with money service businesses. Thanks to Operation Choke Point, the MSB industry has an undeserved reputation as being unmanageably high risk. While MSBs do present an opportunity for financial crime, this risk can be successfully managed through a robust approach to compliance.
Many big banks are closing money service business bank accounts or shutting down their MSB departments in the act of derisking to avoid managing this risk. This wholesale derisking, in turn, negatively impacts MSBs whose daily operations require a full service MSB bank account.
Derisking ramped up when the United States Department of Justice and the FDIC published a list of “risky businesses” in 2013, an action that has been dubbed Operation Choke Point. The list sought to formally point out businesses that present a higher risk for financial fraud, such as money laundering. A year after publishing the list, the FDIC issued a letter to banks encouraging them to take an individualized approach to risk rather than shutting down services to entire industries.
Even though the list was rescinded in 2014, the negative label it placed on the MSB industry remains. Derisking also disproportionately affects smaller banks, smaller countries, and nonprofits – and other entities whose fees do not far surpass the cost of risk management. American nonprofits working abroad have experienced loss of access to funds as derisking severs ties between US banks and smaller financial services companies abroad. Without access to their operational cash, these nonprofits are forced to delay or cancel projects.
On the home front, MSBs with longstanding and compliant banking relationships are dealing with abrupt account termination and refusal of banking services. NCC client Jagdeep Hans decided to take matters into his own hands before his bank could send him a termination letter. Hans owns and operates Olney Financial Services with 4 MSB locations in the Philadelphia area. At each location, his core offerings are check cashing, bill pay, money orders, state lottery, ATM transactions, and fax/copy services.
Even though Hans had a bank account, he was unsettled by the derisking phenomenon he witnessed among his peers who were losing their bank accounts left and right. Instead of waiting around for his number to be called, Hans reached out to NCC and secured a reliable MSB business bank account. Other MSB clients are not so lucky, instead finding NCC in a mad scramble to stay banked after opening up their bank termination letters.
Beyond derisking, MSBs face tightening regulation, an increased compliance burden, and new competition from an unlikely source. As banks either shed risk or work to manage risk, the compliance burden is passed onto the MSBs themselves. Compliant MSBs now need advanced POS technology in addition to robust compliance programs. AML regulation intended to identify, stop, and prosecute money laundering is having unintended consequences.
These regulations are increasing the compliance responsibility and associated costs for banks and MSBs. To avoid these increases, banks opt to sever ties with MSBs and opt out of AML regulation altogether. Instead of managing their risk, they choose to avoid it entirely. Compliant MSBs are left with a dwindling pool of banking options and increased pressure to keep meticulous records and report suspicious activity – putting the burden of risk management squarely in their court. In many cases, MSBs are over reporting suspicious activity, which is evident in rising SARs filed through FinCEN.
Fintech is also disrupting the MSB banking industry with a new mobile money solution around every corner. American fintech companies are looking to M-PESA’s success in Kenya to model new products for the unbanked and underbanked population. Banks are also working to enter the MSB industry with new check cashing services for non account holders. Both big banks and Fintech companies are realizing that money service businesses fill an ever-growing gap in banking services. MSBs still have an edge over their two new competitors because they are often located in areas without bank branches or Fintech pop-ups.
Amidst these changes, regulators are working to clarify rules around virtual currency. In New Hampshire, a bill that would give Bitcoin an MSB exemption is being debated. As the definition of an MSB is challenged, regulation becomes even more challenging and confusing. This combination of regulatory change, a shifting regulatory burden, derisking, and increased competition make securing an MSB bank account harder than ever before – and more important than ever before.
In 2007, NCC formed in response to derisking and bank discontinuance by big financial institutions. NCC services the MSB industry with reliable bank accounts, compliance-centric financial services, state-of-the-art software technologies, extraordinary AML/BSA compliance, and stellar customer service. NCC works to safeguard both their MSB clients and their network of financial partners through a proactive approach to risk management and above standard compliance requirements.
NCC clients don’t have to worry about derisking because they receive a real bank account from an MSB friendly bank that is backed by NCC’s growing network of banking partners. MSB clients also enjoy extended deposit times, money wiring services, local cash vaulting, and armored cash delivery. These supported MSB services work together to keep cash in play and support business growth.
With NCC as your banking and compliance partner, you can focus on expanding your services, growing your customer base, nurturing relationships through loyalty programs, and training your employees. NCC’s team of MSB industry experts is at your disposal 24/7 to help you manage your risk, stay ahead of changes in regulation, and strengthen your banking relationship. Learn more about NCC’s MSB banking solutions and expanded banking services....
As a check casher, you face financial risk everyday. A big part of your business plan is devoted to detecting and preventing financial fraud to protect your check cashing business. You have a clear check cashing process that you use to vet new customers and monitor potentially suspicious activity. As you record information and file reports, there is another type of risk that deserves the same level of careful preparation.
Your check cashing business is a financial institution, which makes it a potential target for criminals looking to rob a business of cash. Like your financial compliance risk, this threat can be monitored, reduced, and managed. The key to preventing a robbery is to stay alert and follow a safe plan for opening and closing your business each day. Pay attention to your surroundings and vigorously adhere to your procedures – the worst thing you can do is become lax in your routine.
The most important thing to remember when you open your check cashing business each day is to stick to your procedure and stay alert. If a criminal decides to rob your business, they will likely case the building and make note of your general opening and closing routine. If they have watched you, they will know if you are typically alert or if you often seem tired or distracted. By staying alert, you will send the signal that you are on top of your game – and maybe even deter a robbery all together.
When you create your own opening procedure, take into account the risks and obstacles that are unique for your location or specific business. This could include how your business is situated on its lot, visibility issues like hedges or other blind spots, location in a high crime area, or having a large cash vault and high volume business. Your opening and closing procedures should be in writing and you should review them with all new employees. Every employee, new or old, should review the procedures once a quarter.
Here is a basic example of an opening procedure for a check cashing business:
This outline will help give you an idea of the minimum requirements for a safe opening procedure. You should create your own procedure in conjunction with state licensing requirements and your insurance agent to fully understand your risk and the implications of your procedure. If you would like to discuss what this looks like for your business, reach out to NCC’s customer service team directly. All of NCC’s check cashing clients receive bank accounts, compliance systems, business processes, and innovative technology to protect their businesses from risk.
You can prepare both your physical business location and your employees to prevent robbery. The key to setting up your physical location for success is to limit objects or practices that reduce visibility around and inside your business. To do this, you can 1) keep the inside of your business well lit at all times, 2) shine spotlights on entryways, 3) keep windows and doors clear of signs and other obstructions, and 4) put your cash register in view of a window or door, rather than tucked out of sight, so that police can see it during patrols.
In addition to maximizing visibility, you can install cameras and an alarm system. Make sure to set a schedule to periodically check your camera and alarm system and ensure they are working properly. In the event of a robbery, having a detailed description of the suspect(s) is vital to help police catch the criminal(s). To assist in this, you can mark the edge of your main entrances with measuring tape to help you gather accurate height information in event of robbery.
Inside your business, you should also set-up a check cashing process that promotes safety. It is important to never “flash the cash” and to use a drop safe when possible. By keeping cash out of view and minimizing cash on hand, you give robbers less incentive to target your business. When transporting cash for deposits or picking up cash on a cash run, vary the time of day and route you take to the bank. When possible, make cash runs in pairs and hide the cash bag in a plain backpack or grocery bag.
Beyond your regular training and detailed processes, you can take a few more steps set your employees up for success. First, always open and close your business in pairs. Never have an employee open or close alone as this puts them at increased risk. Second, advise your employees to trust their instincts. If something feels “off” it probably is. Finally, encourage your employees to greet each customer with eye contact and conversation. Your employees can make note of the check cashing customer’s appearance, while discouraging hesitant robbers or thieves with their firm and direct approach.
As we mentioned above, if something doesn’t feel right, you should trust your instincts. While a robbery can happen when you least expect it, there are some common red flags you can spot.
Red flags to watch for around your business location(s):
If you see a suspicious person, notify the police immediately and make note of their appearance, associates, car make and model, and license plate if possible. In addition to your opening and closing procedures, every check cashing business should also develop a robbery response procedure. This will detail instructions for employees in the event of a robbery. As a part of your risk management strategy, cultivate a professional environment and make sure your employees know that safety is top of mind – in addition to sales.
Learn more about NCC’s commitment to risk management and compliance....
Money service businesses need cash vaulting and armored cash delivery services to support their operations. Access to the cash vault of a local depository institution enables an MSB to place cash orders and arrange for the funds to be delivered to their business. Cash logistics are essential to MSB operations since check cashing clients rely on their neighborhood money service business to cash payroll checks and perform routine financial activities. A gap in cash flow leaves an MSB unable to serve its clients and results in temporary or permanent business closure.
Before we discuss cash vaulting, it is important to note the other MSB banking services required to operate a check cashing business. First and foremost, MSBs need real, reliable MSB bank accounts. A solid bank account is essential to daily operations and without it, an MSB can not stay in business. Both licensed and unlicensed MSBs need to secure a bank account through a financial institution. Whether you are a licensed MSB cashing over $1,000 per customer per day or a smaller unlicensed retail check casher, you need an MSB bank account.
Securing a bank account for your check cashing business is harder than it sounds since the banking industry continues to engage in indiscriminate derisking. Rather than managing the risk associated with a bank account, financial institutions are choosing to shut down the bank accounts entirely to avoid the risk. This derisking activity leaves MSBs unbanked on short notice, creating a business nightmare.
NCC works with MSBs who are searching for reliable banking or those who have already lost their bank accounts. Some clients find NCC upon receiving notice of abrupt account termination after 25 plus years with a bank. In these cases, no explanation is offered for termination accounts in good standing. The MSBs simply received a letter with 30 days warning that their account will close as the bank restructures their approach to risk management.
Compliant MSBs with a secure bank account still need additional supportive financial services to run efficiently and profitably. These MSB services include extended deposit times, wire transfer capabilities, compliance guides, check cashing processes, POS technology, and cash logistics. Together, these services allow an MSB to operate in compliance with federal regulation and to focus on serving their check cashing customers.
Without a cash vault, MSBs typically wait up to three business days or longer to receive cash from their deposited items (funds from cleared checks). In some cases, MSBs are not able to receive cash easily from their funds locally and have to travel to great lengths to stay operational. These MSBs are left in a lurch, scrambling to find cash to cover their daily flow of checks.
MSBs with a local banking partner are able to turn deposits into cash easily. Unfortunately, derisking has made local banking partners difficult to find. One of the consequences of derisking is the restriction of cash logistics services. As banks terminate MSB bank accounts and shut down their MSB banking departments, the pool of potential financial institutions for MSBs dwindles.
With cash vaulting services and armored cash logistics, MSBs can rotate their working capital efficiently. The MSB no longer has to secure a bank account with a local depository institution. Even better, MSBs can work with NCC to gain access to an entire network of cash vaults and armored courier services. This allows MSBs to operate virtually, or apart from a local bank.
MSBs can use cash vaulting and armored courier services to order and receive “next day” cash in their local markets. This eliminates gap in cash flow and keeps MSBs operating at full capacity. The cash vault is an actual vault at a local bank where cash is stored. MSBs can place cash orders every day to request cash from their deposited funds. This cash is then transported from the cash vault to the MSB business location by an armored cash courier.
With cash worries solved, MSBs can focus on growing their business through customer loyalty programs, cross promotions, and community initiatives. When paired with a real MSB bank account, cash vaulting ensures that MSBs never have to close unexpectedly due to derisking or logistical cash flow issues.
National Check and Currency offers cash vaulting and armored courier services as part of their cash logistics for MSBs. Through NCC, MSBs in Southern California, the New York Tri State area, and Southern Florida can receive next day cash delivery of funds. These cash logistics are in addition to the myriad of supported banking services NCC provides. Since 2007, NCC has grown to better serve the MSB community with comprehensive compliance solutions, refined check cashing processes supported by the latest technology, and around the clock customer support.
During a time when derisking is the norm, MSBs have a true partner in NCC....