Two banks in organization plan to target business customers that many banks would not touch with a 10-foot pole: check cashers and other money-services businesses.
USBC Bank in Bethesda, Md., is raising capital and is shooting to open its doors late this year or early next year, according to Russell J. Grimes Jr., who would be its president and chief operating officer.
It plans to focus exclusively on MSBs, because "most other community banks have many types of customers and have chosen not to serve this sector," he said. "We believe we can do really well focusing all of our resources specializing in this industry."
Organizers at First MSB Bank in New York also are raising capital and plan to set up shop next year, according to a spokesman.
The USA Patriot Act of 2001 required check cashers, remittance firms, and other money-services businesses to follow the Bank Secrecy Act's anti-laundering requirements, and federal regulators told banks to ensure their MSB customers were in compliance.
But hundreds of banks, deciding that the requirements were more trouble than they were worth, closed the accounts instead.
Regulators have tried to lure banks back into the business by drafting guidelines that distinguished between a high- and low-risk money-services businesses. But the efforts failed to entice bankers, who argue that examiners still expect them to act as these outfits' regulators.
Scott McClain, deputy general counsel for Financial Service Centers of America Inc., a trade group representing money-services businesses, said that banks like USBC and First MSB would be meeting a serious demand, particularly if they could serve companies in less urban areas. The trade group is expected to help market the two banks to its members, by word-of-mouth and by inviting the banks to its conventions.
Still, he said, regulators should stop requiring banks to police the activities of MSB customers, so that more banks would do business with them.
As of now nearly 90% of such businesses in the state of New York are being served by just two banks — Capital One Financial Corp.'s North Fork Bank Corp. and Banco Popular North America — and MSBs in many of the country's smaller markets may have just one bank willing to serve them, he said.
"When you have a limited number of banks serving a particular industry, there's limited competition, which results in a significant increase in the cost of banking services," Mr. McClain said.
For example, he said he has heard of businesses that had to post a $50,000 certificate of deposit, in addition to other collateral, simply to open a checking account at a bank, "whereas five or 10 years ago they were treated just like a typical commercial customer."
Mr. Grimes said that he and other organizers are looking to raise $12 million, and that, once opened, USBC Bank would offer business loans, checking accounts, remote deposit, and other cash management products and services to money-services businesses.
The start-up would serve MSBs in its local market and nationwide through online banking, he said.
Marcelo Luiz Sacomori, who would be USBC's chief executive officer, said that it would hire compliance experts to handle the increased scrutiny surrounding money-services accounts.
Established banks also could hire compliance experts, but many have decided not to, because they would not have enough money-services customers to justify the additional expense, Mr. Sacomori said.
"It really doesn't make good business sense for banks to do a significant amount of personnel training and invest in new systems and documentation just to service a very small percentage of their customers," he said. "But since we're going to specialize in these businesses, we're going to be able to fulfill our BSA obligations and service these customers very well at the same time."
Mr. Grimes said that USBC plans to charge competitive rates, but that its services would be priced "based on the risk" of monitoring the overall cash-intensive money-services industry.
Mr. Sacomori, who was once a fixed-income bond trader at Banco de Credito Nacional in Brazil, founded a Delaware online money-services business in 2004, CambioReal.com. He plans on selling that business before USBC opens.
Mr. Grimes was the president and CEO of the $92 million-asset First Liberty Bancorp in Washington before the neighboring WashingtonFirst Bank bought it last year.
