MSBs Are Shut Down While Big Banks Run Rampant

De-Risking: Distrust, Disruption, and Destruction

February 15, 2016

Before continuing, make sure to read Part I: Where Did We Go Wrong

Part II: Why Are MSBs Shut Down While Big Banks Run Rampant?

Bankers don’t go to jail, they don’t get publicly shamed, and they don’t have to deal with any operational interruption.   In fact, the laws are set to ensure that bank operations remain uninterrupted in the midst of corruption. If an MSB improperly debited a consumer account or ignored fraudulent behavior warnings (not to mention if they acted in a way that allowed fraudulent behavior to continue), they would be thrown in jail and forced to halt all operations.  In cases of suspected fraud or risk, MSBs are very publicly dragged through the mud, hit with punishment, and then forced to shut-down due to the burden.  No one cares to avoid disruption when it comes to money service businesses. So why is it that we are complacent as bankers escape the law and MSB operators are crushed beneath regulation? Why do large corporations pay fines while small businesses face devastating consequences?

MSBs Go Down in Flames as Banks Remain Unscathed

The reality is that MSBs are an easy target, the perfect scapegoat. When regulators can easily blame “risky” industries, they avoid costly engagement with institutions who can readily pay legal fees and stay in operation. Engaging with big banks is messy and expensive. Handing down fines and sweeping allegations to money transfer operators is clean and easy.  

There is also an idea, propagated by big banks, that any increase in regulation and safety-measures will hinder growth.  But is this really true? It seems that banks are more than capable of rising to the occasion to meet regulations. This option requires work, expanded compliance departments, and even decreased profits. As a result, it is not even perceived as an option for banks.  They can vote “no” with their dollar. Smaller MSBs, however, cannot vote with big pockets and are consequently choked by these safety-measures that are deemed too-restricting for banks. Why are we OK with letting one financial sector run wild while we fence-in and trample another? Money talks and the Justice Department listens.

Banks also like to confuse the situation by alleging that it’s “too complicated” and the general public doesn’t understand the intricacy of the banking sector.  And the general public agrees because, after all, the transgressions of bankers are not as obvious as the transgressions of leaders in other more physical industries.  What if we held bad bankers to the same punishment we hold airline executives when a plane crashes? Is a financial crash not a similar failure?  A mistake can be devastating, even without bodies to recover. (The Foreign Policy Podcast)

When the mistakes become visible (ahem, 2009), it is too late to right the wrong and everyone suffers. Well, everyone except big banks. Of course, when it comes to corporations it seems that even when there are bodies, no one is prosecuted. Is The Justice Department intimidated by the cost to go to trial with big companies? Is slapping on a fine simply easier than dealing with an opposition with unlimited legal funds? Even in the case of General Motors, where 124 people lost their lives, no executive was held responsible, instead GM paid a fine that amounted to a fraction of their annual revenue for that year (1/172 of their annual revenue to be exact). (Boston Globe)

Loosening the Chokehold

If we can’t change the fact that big banks are being protected by “law,” how can we work to protect MSBs?  Can POS identification help loosen the chokehold and keep MSBs up and running?  The biggest perceived risk for banks when doing business with a money service business is the inability to confirm exactly where transferred money ends up on the receiving end. Regulators point to AML and every case where transferred money is traced to terrorist groups.  As a result, the majority of money transferrers using services for the greater good (to send money home, pay bills, etc.) are hurt as their access to non-traditional financial services is cut-off when MSBs find themselves de banked.

Perhaps the largest hurdle to overcome for MSBs is their unearned reputation for risk. This is a major battle since “reputation and compliance risk are driving factors in the decision to accept or avoid risk. “ (ACAMS Today)  Thanks to Operation Choke Point and the FDIC’s risky business list, this reputation will be hard to wipe clean.  Advanced technology for identification will hopefully bring transparency and truth to the table.

NCC is committed to bringing this transparency to every level of a transaction, from the consumer to the check-cashing operator to the bank. The software systems that NCC integrates with allow us to take a single scan at the point of sale (POS).  Once the item has been processed, every snippet of information collected is delivered to our remote capture company, who in turn deliver it to the underwriting financial institution.  This creates a seamless channel from the POS through the settlement process.

In a traditional environment, the bank supplies a scanner to their money service business. The MSB processes checks throughout the day, and then bulk scans the checks at the end of the day or shift. process all checks during the day, then scan at end of the shift.  This bulk scanning of checks provides financial institutions with only a snippet of the information available.  The clear benefit to our POS technology is that the financial institution for an MSB has a direct line to the heart of every transaction.  NCC gives financial institutions access to every piece of consumer data (up to 30 points of consumer data for every transaction). A bank can then drill down to see a picture of the consumer during the transaction, their photo ID, biometric identification (fingerprint), a time and date stamp, the picture of the check, and so much more. This level of transparency is simply unprecedented and the flow of information takes the mystery and guesswork out of the equation.

When financial institutions enjoy an uninterrupted electronic channel for transactions between the  consumer and MSB, they can reach into system and collect info on unusual, irregular, or suspicious transactions. The check-cashing operator essentially becomes a branch of the bank because they can see activity happening in real time, just like with their own branches- they are fully integrated.

Why is this so great for MSBs? This gives money service businesses comfort knowing that their probability for bank discontinuance is mitigated by the extra step taken to fully integrate with bank. The level of transparency is unparalleled.  The banks, if they choose, have the opportunity to follow a check all the way through the transaction without wondering or asking for permission.

Beyond brick-and-mortar money transfer, the boom of mobile money transfer and online gambling is forcing regulators to direct their attention beyond MSBs, towards crowdfunding, mobile transfer apps, and fantasy sports gambling.   Will this diversion give the money service industry a little breathing room? Only time will tell.

NCC, a Partner to Help You Weather the Regulatory Storm

MSBs have a misplaced reputation of being untrustworthy centers for money laundering, and have become the scapegoat for all of the problems in the financial system.  At NCC, we know how MTOs service unbanked areas and offer access to MSB financial services. Our team of experts works tirelessly to keep you banked, even when the unthinkable happens.  NCC keeps you up and running even when regulation ties your hands behind your back. We are committed to helping create a future where MSBs are not the enemy, but a valuable and respected piece of the financial industry puzzle.

Take me back to Part I: Where Did We Go Wrong?

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