The classification of a money service business (MSB) in the past has never generated positive connotations or excitement. Bankers audibly groaned when the those three words were mentioned. MSBs were often located in less than desirable locations and considered taking advantage of the poor due to the fees charged for payday lending and being havens for potential for money laundering. The payday lending fees were considered usury by almost any standard and were accused of promoting an insidious circle of never-ending consumer debt. Yet MSBs also provide check cashing and bill payment services and attract a client base because the fees are transparent and well known; customers know what they have to pay to use MSB products.
Mainstream financial institutions are often not an option for the MSB customers because of cultural mistrust, hidden fees and/or demand deposit balance requirements that are/were impossibly high and getting higher. Many folks just cannot afford to have their cash tied up for any length of time. I certainly was one of those people just starting out after collage and working in New York City. I simply could not afford to maintain a $500.00 balance in a checking account so I continued to bank by mail with my small hometown bank.
But the traditional definition of MSB is, and has been, rapidly changing as companies such as PayPal, Walmart, Google and now Facebook are in/entering the money movement space. The Atlanta Federal Reserve Retail Payments blog, Portals and Rails, recently posted an article about how MSBs are assuming larger and larger roles in the money transfer arena and now file more Suspicious Activity Reports than financial institutions. I encourage you to read Cynthia Merrit’s post: How Do New Faces Affect Risks in Money Transfer Business? The number may surprise you and she is certainly correct that regulatory oversight needs to be taken quite seriously as companies such PayPal, Facebook, Google, Walmart and now Apple become more prominent participants in the space top ensure that their risk management policies and practices are sound.
This point was solidified for me when I read about the digital wallet that PayPal plans to roll our later this spring: PayPal Unveils New Digital Wallet at SXSW 2012. It proclaims to be rich with features that automatically link discounts/coupons to the payment and allow for buyer’s remorse through generous return policies. PayPal also intends to allow customers to choose how they want to pay – in full or over time – which immediately made me see $$$ opportunities and want to know more about their borrowing terms/fees would be.
I am confident that Bill Me Later will have a prominent role in the installment payment option, but it made me think that Pay Pal and traditional MSBs may have more in common than previously thought.
Are there “dollars in them hills” for PayPal via a credit extension and what will the fees be?
So we all need to broaden our traditional definition of MSB’s and include the historical and newer money movement players like PayPal and emerging MSB’s with new product offerings and extensions like Facebook and now Apple via its recently issued mobile payment patent. Read (or re-read) my post on March 8 that covered Apple’s award of an NFC payment patent.
It’s “not your father’s Chevrolet” when it comes to MSBs anymore. We need to adapt our thinking, take a closer look at the players in terms of risk management controls and take no risk that is NOT understood when it comes to participating or partnering with these newer MSB companies.