Check cashing business is also known as money services businesses (MSB.) A check-cashing business provides customers with an easy way to turn their various types of checks into cash without opening a business account. A customer can cash in any type of check including the paycheck. A check-cashing business generally stays open 24 hours which is very convenient.
A recent study from Federal Deposit Insurance Corporation (FDIC) showed 20 percent of American households don’t have a bank account and they mostly depend on check-cashing businesses. Usually, this type of business charges fees based on the amount of the check to operate the business and make a profit. Typically; the fees of money services businesses range anywhere from .5 percent to 5 percent. The fees depend on the state and local laws.
How Check Cashing Business Make Money?
The fees are the main income source of the check-cashing business. The fees charged by check-cashing services generate the revenue to continue operating the business. This type of business charges fees depending on the amount of the check. They don’t honor any personal check and they will charge even for a small amount. For example, if you want to cash in a $1,000 check then the money services business might charge a flat fee of $5. They might also charge a 1 percent fee on the total amount. So, for a $1,000 check, you might have to pay a fee of $15. Check cashing businesses also offers payday loans. Payday loans are temporary loans that anyone can obtain by post-dating a check/cashing the check at a later date/ in exchange for cash. A check-cashing business also charges a fee for making these loans.
How To Open A Check Cashing Business
Opening a check-cashing business and operating it is not an easy task. There are lots of things you have to consider when you want to open a check-cashing business. If you want to open a check-cashing business then you have to choose a location, pick which services to provide, and write a business plan. Moreover, you have to register and acquire the appropriate licenses, secure a bank account, and compile a check-cashing protocol. Here are the steps to open a check-cashing business:
1. Choose Your Check Cashing Services
2. Register Your Money Service Business
3. Secure a Check Cashing Business Bank Account
4. Evaluate Cashing Risk and Define Compliance Program
5. Develop Your Check Cashing Business Processes
Choose Your Check Cashing Services
You have to choose what type of service you will offer to your customers. Apart from the check cashing service different MSB also offers other financial services like prepaid debit cards, short-term loans, convenient bill pay, money orders, and wire transfer. Based on the customers you should choose your service. You have to remember that check cashing services are alternative financial services for the underbanked and unbanked. For people with limited banking options or no banking options, check cashing services play a very important role in everyday life.
Register Your Money Service Business
You have to register your MSB and it’s a very important part of this business. Without a proper and current license, you can’t legally operate this type of business. Depending on the service you provide; you might or might not require registration. FinCEN defines an MSB as a business that engages the following services and products:
1. Check Cashing
2. Money Orders
3. Traveler’s Checks
4. Money Transmission
5. Currency Exchange
6. Prepaid Access
If your business is cashing checks more than $1,000 per day per customer then by law your business requires registration. You have to register your business as MSB. On the other hand, if your business cashing less than $1,000 per day per customer then you don’t have to register your business.
Secure A Check Cashing Business Bank Account
This is a very crucial part of the check-cashing business. If you don’t have a secure bank account then you can’t operate as an MSB. The check-cashing business model depends on your ability to deposit and clear funds through a bank account. So you must find and maintain a reliable bank account. Thanks to the phenomenon of derisking you can easily find a bank account for your MSB. Derisking is a type of banking service that usually ties with their check cashing clients. The trend of derisking started with Operation Choke Point and its effects are felt by check cashers and the clients they serve.
Evaluate Cashing Risk And Define Compliance Program
The check-cashing compliance program helps you assess, manage, and report the risk associated with the check-cashing business. Licensed check chasing businesses are required by law to comply with the Bank Secrecy Act (BSA). This law is in the act since 1970 and the BSA seeks to encourage cooperation between banks and MSBs for the detection and prevention of money laundering. The requirements of the BSA details are:
1. MSB Independent Reviews
2. MSB Registration
3. MSB Agent List
4. MSB Suspicious Activity Reporting
5. Establishing a written Anti-Money Laundering program
6. Currency Transaction Report
7. Record keeping
8. Processes for foreign located MSBs
9. Nature of records and retention period
If you are an MSB owner then you have to robust a compliance program to stay on top of these compliance requirements and effectively manage the risk. You can use the latest POS check cashing technology to capture the KYC data and communicate all data points to your financial institution and the appropriate reporting channels. You can hire a compliance expert and stay ahead of new regulations and in compliance with current regulations for your check cashing business.
Develop Your Check Cashing Business Processes
This is the last part of the process where you have to focus on your business processes. The business process includes employee training, a check-cashing process, a protocol for opening and closing your business, etc. Employee training is very important because it will help your employees to be aware of potential risks and able to catch red flags before they become full-blown fraud. The employee training process includes a guide, an outline for training all new hires, and a calendar for annual training of existing employees. When there is a new trend in risk management and regulation; you should organize a training program.
In the employee training, you should include a part to safely open and close your business. If you create a protocol of everyday business activity then you can easily mitigate the threat of burglary. You can write a check-cashing process that will give your employees an outline for vetting customers, cashing checks, and maintaining appropriate records and communication in accordance with the BSA. You should re-evaluate your MSB business so that you won’t get stuck in a routine. Moreover, by re-examining your business you can easily identify inefficiencies and solve them to make your check cashing business successful.
Check Cashing Business Registration Rule
There are rules named “money services businesses” concerning the application of the Bank Secrecy Act (“BSA”) to those non-bank financial institutions. The rule is based on a notice of proposed rulemaking issued on May 21, 1997. See 62 FR 27890. Registration of MSBs is required by the Money Laundering Suppression Act of 1994, which also requires MSBs to maintain a list of their agents. The MSB registration rules are:
1. MSBs must register with the Department of the Treasury and renew their registration every two years.
2. Agents of MSBs are not now required to register regardless of the dollar volume of their money service activities (in a change from the proposed rule) unless they engage in money service activities both on their own behalf and as an agent for others.
3. MSBs must maintain a list of their agents and update the list annually.
4. The initial registration form must be filed by December 31, 2001, and the initial agent list must be prepared by January 1, 2002.
5. The term “money services business” does not include a bank or a person registered with and regulated or examined by the Securities and Exchange Commission or the Commodity Futures Trading Commission.
6. The definition of money transmitter clarifies that the activity that makes a person a money transmitter must be carried on as a business and that generally the acceptance and transmission of funds as an integral part of the execution and settlement of a transaction other than the fund’s transmission itself (e.g., in connection with a bona fide sale of securities), will not cause a person to be a money transmitter.
7. Issuers and sellers of stored value are included as MSBs, but they are not required to register at this time.
8. Treasury also is announcing its intention that suspicious activity reporting requirements for money transmitting and the traveler’s checks and money order segments of the industry will be forthcoming. In the coming months, Treasury and FinCEN will be working with the industry to develop guidance to assist in identifying suspicious activity.
9. To permit effective implementation, Treasury will not begin requiring suspicious transaction reporting until the registration process is complete.
Last Updated on January 31, 2022 by
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.