The MSB banking industry is in flux. Over the past year, money service businesses report a sharp increase in the closure of their MSB banking accounts. In most cases, little warning or explanation is given. It can be deduced, however, that banks are shedding risk to reduce compliance costs and regulatory burden. As banks close MSB accounts, check cashers are finding it harder and harder to secure a reliable MSB bank account.
The MSB banking industry is facing stiff regulation and increased competition. These two factors are contributing to the derisking trend. Derisking occurs when banks shed risk in order to reduce their compliance burden in the face of federal and state regulation. In 2013, the United States Department of Justice announced an initiative to curb risk that is now known as Operation Choke Point (OCP). OCP included the publishing of a list of “risky businesses,” including payment processors, check cashers, and other money service businesses. Banks received this list and took action to close the accounts associated with these risky businesses.
Even though the DOJ has since retracted the list, the damage has been done to the MSB industry. Instead of mitigating risk through robust compliance and streamlined communication, banks are choosing to close MSB bank accounts. As a result, MSB banking is becoming harder and harder to find. With account closures rising, even those check cashers and MSBs who have MSB banking relationships are no longer safe.
Another factor affecting the MSB banking industry is the debut of check cashing services by traditional financial institutions. Traditional banks are entering the check cashing arena to grow their share in this profitable market. Offering check cashing is a way for banks to diversify their income and reach a new customer base. For many check cashers, this competition will not be local. Most big banks do not have branches in low income or minority neighborhoods, where check cashers serve the community.
Finally, both banks and money service businesses are facing competition from alternative financial services technology and the FinTech industry. Financial apps like Venmo and Paypal are making it easier than ever before to transfer money between peers. Check cashers are adding new financial products to provide a more appealing bundle of services for their clients. Additionally, check cashers are embracing technology and redeveloping rewards programs to encourage customer loyalty.
Derisking not only threatens MSBs and check cashers, it threatens financial inclusion for millions of households around the world. When combined with the lower appetite for risk that stems from the Great Recession, derisking is squeezing out alternative financial service providers.
The World Bank recently found that money service businesses face the largest threat from derisking. This is no surprise to check cashers, but the consequences extend beyond local check cashing businesses to the individuals they serve. As MSBs are unbanked, the services they provide disappear from the community. While banks are starting to offer check cashing to non account holders, it is still much more efficient and affordable to cash checks at an MSB.
Money service businesses also provide financial services like money transfer, wires, prepaid debit cards, and bill pay. For immigrants, MSBs provide a way to send money to family back home through remittances. These remittances stimulate the global economy and are a sign that immigrants are making more money. As immigrant earning power increases, these individuals need more financial services to serve both their immediate family and their extended family abroad.
While illicit activity is sometimes conducted through money service businesses, the small size of the average remittance makes it an inefficient method for laundering money. As a result, the remittance market is disproportionately affected by the MSB banking trend of derisking. One way that banks and regulators can adapt is to implement more efficient sender-identification methods. By clearly identifying individuals (in accordance with KYC regulations) and communicating this data to the financial institution, both banks and MSBs can stay compliant and reduce the risk for illicit financial activity.
National Check and Currency provides MSB banking solutions for check cashers and money service businesses. These MSB services work together to increase efficiency, ensure compliance, and keep money service businesses up and running. First and foremost, NCC provides real MSB bank accounts through a network of redundant MSB banking partners. This network acts as a safety net in the face of derisking. When your check cashing business has a reliable bank account, you can focus on serving your customers and growing your business.
To increase efficiency, NCC provides advanced POS technology. These terminals help MSB clients collect identification data, check information against a database, and complete the check cashing process. MSB owners can easily monitor multiple locations with a birdseye view of activity, delivered in real time. Once a transaction is complete, NCC’s systems offer multiple cash delivery methods. Armored cash transportation, ACH capabilities, and expedient deposit turnaround improve cash flow.
Finally, NCC keeps MSB and check cashing clients compliant. The NCC team has extensive check cashing experience. Even more impressive is the fact that NCC employs two former special agents with hands-on experience fighting financial crimes. This comprehensive skillset is at your disposal as an NCC client. Customer support is available 24/7 – no matter what comes up, NCC will work tirelessly to find a solution and keep your business open.
If you are ready to put your MSB banking drama and derisking uncertainty behind you, it’s time to call NCC. Or, you can simply fill out an “open an account” form on our website. Staying banked has never been easier. Please reach out to us with your MSB banking questions and concerns – we are standing by to help you.