Banking Issues Continue While Surety Bond Underwriters Embrace MSBs

MSB Talk 4


Authored by: Brian Nelson, Bond Manager at Alpha Surety Brokerage

Why are MSBs are locked out of the traditional banking sector while at the same time surety bonds are becoming cheaper and underwriting requirements continue to loosen? I know I’m oversimplifying this a bit, but surety bond underwriters understand that claims on MSB bonds are typically caused by a breach in compliance. Naturally, banks understand the same. However, as banks continue to close MSB accounts, surety underwriters are issuing approvals on lower underwriting requirements and at premiums that have previously been reserved for only the top revenue companies. It used to be that new money transmitters, check cashers and prepaid access companies would pay at least 3% for their bonds if they could even qualify based on verification of substantial personal assets or substantial cash in the business bank account. Things have changed. Recently, a company with neither a large amount of cash in the bank or a strong personal financial statement for the owner, received an approval for 1.5% on a multi-million dollar aggregate bond need. According to the underwriters, the reason for the low quote was because competition for these types of bonds has increased significantly. (For a state-by-state list of bond amount requirements, click State by State Bonds.)

Wouldn’t it be nice if banks felt the same way about competition? MSBs around the country are dying to find banking partners that will treat them fairly. I recently spoke to an MSB about a potential partnership that would have brought them a substantial amount of new business. After my presentation, I was told that their bank wouldn’t allow for them to partner with other MSBs. I’m still confused by the comment because both entities involved in the partnership would have been licensed money transmitters. Since when does a partnership between two licensed companies create a compliance risk for banks?

Unfortunately, it is the poor, underserved and deprived populations that suffer the most when MSBs are cutoff from serving them. Organizations like the NMTA, NBPCA and others have been fighting the banking battle for years with little to no progress. We can only hope that newer industries like the digital currency and the electronic payments industries will bring their resources, connections and energy to the fight. Without them, I’m afraid we’ll be talking about the same banking issues for many more years.

If you know of any groups or efforts focused on the non-banking issue, please share details in the comments section.


3 thoughts on “Banking Issues Continue While Surety Bond Underwriters Embrace MSBs

  1. Great article. However, the truth is today out of the major carrier, very very few (if at all) are willing to work with MSBs. Ever since the Obopay debacle, getting surety bond coverage for MSBs is a huge issue, and those working with Bitcoin, can pretty much forget about it. Its like trying to find a needle in a haystack.

    • I appreciate you taking the time to comment. However, my niche is in writing bonds for MSBs and I’ve seen the trend mentioned in the article evolve over the past few years. I’m appointed with 16 different carriers and I’ve never had one of them tell me that they won’t work with MSBs. Also, my company, Alpha Surety, was the brokerage that wrote $5M of Obopay’s bonds for four years before they had issues and none of the carriers we wrote their bonds through has ever used Obopay as an example of increased risks presented by MSBs. Underwriters like license and permit bonds like MSB bonds because history has shown few losses and no massive industry issues. That is to say that it would take much more than one failed company to cause underwriters to back out of writing bonds to other members of the industry. I can get bonds at great rates for any MSB…that’s not dealing with or perceived to be dealing with digital currencies. For my digital currency clients, I have one carrier that is happy to write their bonds, but they require an additional risk mitigation compliance review. It’s a great solution for companies that are willing to work within the underwriting model of the carrier.

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