FROM DERISKING TO DETENTE

Facebook
Twitter
LinkedIn
Email

Key positive developments in banking for MSBs

It’s been a bleak period for money transmitters over the past several years. The specter of derisking —that business-killing policy of many banks in the US and globally—may be disappearing. At least in the US where other entities are stepping up. Our colleagues in other parts of the world are still seeing their local banks derisking yielding to the pressure of large global banks.

So, in preparing for the panel on “Derisking and MSB Friendly Banks” that I am coordinating with Hugo Cuevas-Mohr for IMTC WORLD 2017 I came up with 7 emerging factors that are giving hope to a strong, but beleaguered industry.

Emergence of de novo entries:
At least 3 groups have received or applied for a bank charter this year. Each has a mission to fill the void of the paucity of banks supporting the industry. Consistent with banking regulations, potential MSB clients, the Due Diligence process will match similar requirements in order to be approved. Stay tuned.

Strategy shift among progressive banks:
the great thing about open markets is the natural tendency to fill the void left by the major banks. The hurdles thrown at MSBs by the national and regional FIs make it nearly impossible to obtain and retain a trust account. However, new banks are emerging with a mission to accept MTOs as clients

OCC Charter
Whether or not it goes thru, the notion of a federal charter for MSBs is not only appealing, it also may signal creative approaches to working with the industry. Even if this idea gets blocked by the states, it’s a good start.

Growth of Online/digital services:
The need for a branch network has been diminished, effectively expanding the playing field for smaller regional and community banks. Online providers have no agents; they simply need an FI for settlement purposes: ACH and wires.

Greater understanding of MSBs:
it’s no longer “one size fits all” for MSBs. Some FIs encourage relationships with Check cashers, while others welcome 3rd party payment processors, etc. Banks are building their risk-based schemes and looking for MSBs that fit their risk profiles. MSBs should have a variety of options in the years ahead. Each IMTC we see more banks coming to the industry to offer their services.

Globally, other types of banks are emerging:
In the UK, for instance, 2 new banks (Clear Bank and BFC) are courting MSBs. And the FCA (the UK regulatory authority) is openly encouraging banks there to reconsider their position on derisking. India has developed their “Payment Banks” to open the space for large MSBs. Puerto Rico has implemented the “Entidades Financieras Internacionales” and these new banks, often formed by MSBs are beginning to offer their services to other MSBs.

Regulators are more pro-MSBs
in some cases, they are recommending certain MSBs to banks, saying they are a smart investment. Earlier this year the DFI for State of Texas drafted a bill to pave the way for startups and early stage MSBs to have lower hurdles for licensure. The bill has not been introduced, but shows a sensitivity to our industry challenges. Regulators in many jurisdictions are requiring banks to fill complete reports on bank closures or account opening denials of their licensed entities so they can closely monitor the issues and complaints.

Keep your eyes on the road
So, you see, it’s not all bleak for MSBs; the sky is not falling, some banks are friendly and regulators are coming to your side. As we look toward 2018, there are signs on the horizon that one of the industry’s critical issues may be scalable.