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“Money Services Businesses- Access to the Banking System” Presented to The FDIC Committee on Economic Inclusion Tom Haider MoneyGram International October 24, 2007 MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved. MoneyGram International Our Purpose:

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slide1

“Money Services Businesses- Access to the Banking System”

Presented to

The FDIC Committee on Economic Inclusion

Tom Haider

MoneyGram International

October 24, 2007

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

slide2

MoneyGram International

Our Purpose:

“To help people and businesses by providing affordable, reliable and convenient payment services.”

2

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

moneygram international
MoneyGram International

Table of Contents

  • Company Overview
  • Security vs. Economic Inclusion –

Are they Mutually Exclusive?

  • Bank Discontinuance
  • Next Steps

3

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

slide4

MoneyGram International

  • Payment services company conducting business in 170 countries through more than 138,000 locations
  • Core products
    • Money transfers
    • Money orders
    • Official checks
  • Publicly traded on NYSE
    • $2 billon market cap
  • Founded in 1940 as Travelers Express – a money order company
    • Merged with MoneyGram in 1998
    • MoneyGram started by American Express in 1989
    • Headquartered in Minneapolis

4

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

moneygram international5
MoneyGram International

Money Transfers

  • Consumers
    • Recent immigrants who want to send money home to their families
    • Debtors who need to pay overdue loan to avoid collection action
    • People who need funds in an emergency
    • Average industry transaction is $300
  • Sellers
    • MoneyGram’s services are sold through a network of “agent” locations
    • Agents include banks, supermarkets, convenience stores, post offices, and “mom and pop” retailers
      • 138,000+ agent locations in 170 countries
  • Fees
    • Consumers can send up to $1,000 to many countries for a flat fee of about $10
    • A foreign exchange between 1 to 2% is applied to most currency conversions

5

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

global agent partners
Global Agent Partners

6

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

slide7

MoneyGram International

Money Orders

  • Definition
    • Payment instrument used in lieu of a personal check to pay regular bills, like rent and utilities
    • Average face amount is $150
  • Consumers
    • Low and fixed income
    • Individuals who cannot maintain a bank account
    • Renters whose landlords require payment by money order
    • Small merchants who convert cash to money orders to reduce crime
  • Sellers
    • Many of the same entities that sell money transfers
      • 55,000 retail locations in all 50 states
  • Fees
    • Fee is determined by the seller
    • Retail average is less than $1

7

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

how can the two interests be brought into balance to better achieve everyone s goals

Security / Anti - Money Laundering vs. Economic Inclusion

How can the two interests be brought into balance to better achieve everyone’s goals?

Economic Inclusion

Security / Anti-Money Laundering

8

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

slide9

Security / Anti – Money Laundering vs. Economic Inclusion

Key Constituencies

  • Law enforcement agencies
  • Regulators
  • Elected officials

Key Issues for MSBs

  • Compliance and training
  • Transaction analysis and reporting
  • Licensing and regulation

Security/Anti-Money LaunderingEconomic Inclusion

  • Key Constituencies
  • Consumer groups
  • International development programs
  • Elected officials

Key Issues for MSBs

  • Reduce cost of service
  • Consumer disclosures
  • Increase agent network to make service more easily available and expand service delivery methods

9

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

security anti money laundering
Security / Anti – Money Laundering

MoneyGram Action

  • Know Your Agent
    • Background screening of all agent applicants
  • Ongoing training and testing of all agents
    • In-person reviews of select agents
    • On-line, computer based refresher training
    • Compliance Program set-up
  • Continuous investment in technology and staffing
    • Multi-million $ transaction analysis and OFAC screening systems
    • 5% of global workforce dedicated to compliance/regulatory issues

10

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

security anti money laundering11
Security / Anti – Money Laundering

MoneyGram Action

  • Licensed and regulated by 48 State Banking Departments
  • IRS is primary regulator for Bank Secrecy Act compliance
    • MoneyGram and agents examined by States and IRS
  • Close cooperation with law enforcement
    • 38,000+ SARs/year
    • 4,000+ CTRs/year
    • 4,500+ information requests/year
    • Regular joint-training programs

11

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

moneygram anti money laundering tools
MoneyGram Anti-Money Laundering Tools

Agent

Agent

Background Checks

Transaction Information

Tools from MoneyGram to Agent

Transaction Information

Tools from MoneyGram to Agent

MGITransaction Analysis and OFAC Screening

On-Site Reviews

Training

Tools from MoneyGram to Agent

Transaction Information

Transaction Information

Tools from MoneyGram to Agent

Compliance Program Set-up

Agent

Agent

12

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

how do msbs detect suspicious activity
How Do MSBs Detect Suspicious Activity?

MoneyGram

Agent

Agent

Agent

Bad Guy

Bad Guy

Bad Guy

Consumers

= Individual structuring transactions in small amounts at multiple locations. MoneyGram will detect and file SAR/CTR

= Individuals working together to structure transactions may be detected by agent. Regardless whether agent detects, MoneyGram will detect and communicate with agent to ensure filing of SAR/CTR

13

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

security anti money laundering14
Security/Anti – Money Laundering

CHALLENGE – Regulatory Compliance

  • Complexity of complying with different interpretations of Federal anti-money laundering laws - Bank Secrecy Act, OFAC Regulations and USA Patriot Act - by 48 State Banking Departments

14

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

security anti money laundering15
Security/Anti – Money Laundering

SOLUTION – Federal Licensing

  • Establish an optional Federal regulator for MSBs that can provide uniformity and efficiencies in compliance

15

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

security anti money laundering16
Security/Anti – Money Laundering

CHALLENGE - MSB Definitions

  • Anti-money laundering laws treat all MSBs the same
    • Who’s the MSB?
      • MoneyGram
      • American Express
      • Hilton Hotels
      • Carlson Wagonlit Travel
      • Albertsons
      • Jackson Hewitt Tax Service
      • Bob’s Deli
    • Objective standards are now overshadowed by complex

and often confusing risk-based, subjective requirements

16

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

security anti money laundering17
Security/Anti – Money Laundering

SOLUTION - Re-define MSB

  • Re-define MSBs to facilitate compliance by agents
    • Treasury Secretary Paulson and FinCEN Director Fries have stated their intent to re-examine the MSB definition
    • Treasury should adopt a “rules based” approach – not “principles based” – for smaller agents
      • Rules will improve compliance if MSB service is only an ancillary part of agents’ business
      • Policies and procedures should not be the priority

17

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

slide18

Security / Anti – Money Laundering vs. Economic Inclusion

Key Constituencies

  • Law enforcement agencies
  • Regulators
  • Elected officials

Key Issues for MSBs

  • Compliance and training
  • Transaction analysis and reporting
  • Licensing and regulation

Security/Anti-Money LaunderingEconomic Inclusion

  • Key Constituencies
  • Consumer groups
  • International development programs
  • Elected officials

Key Issues for MSBs

  • Reduce cost of service
  • Consumer disclosures
  • Increase agent network to make service more easily available and expand service delivery methods

18

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

economic inclusion
Economic Inclusion

MoneyGram Action

Consumer Cost

  • Fees and exchange rates have dropped

significantly

    • Simplified pricing has replaced multiple pricing tiers with a flat fee of $9.99 for transactions up to $1000 for Mexico and Latin America, and up to $500 to most other destinations

19

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

moneygram s average fee per transaction
MoneyGram’s Average Fee Per Transaction

20

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

moneygram s average foreign exchange rate to mexico
MoneyGram’s Average Foreign Exchange Rate to Mexico

21

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

transaction volume growth trends to mexico

45%

40%

35%

30%

25%

20%

15%

10%

MoneyGram

5%

Banco De Mexico reported overall volume changes

0%

Q1 2005

Q2 2005

Q3 2005

Q4 2005

Q1 2006

Q2 2006

Q3 2006

Q1 2007

Q2 2007

Q1 2004

Q2 2004

Q3 2004

Q4 2004

Q4 2006

Transaction Volume Growth Trends to Mexico

22

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

economic inclusion23

Money Transmitters’ Price Tag

Send Agent Commission $_____

Receive Agent Commission $_____

AML Compliance $_____

Bank Fees for Transmitter and Agent $_____

Training $_____

PC and Telecommunication for Agent $_____

Signs, Forms, Receipts $_____

Economic Inclusion

Consumer Cost

  • Fees are about as low as they can go without regulatory streamlining

23

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

economic inclusion24
Economic Inclusion

MoneyGram Action

Consumer Disclosures and Services

  • Senders receive a receipt showing
      • Amount paid
      • Transaction fee
      • Exchange rate
      • Amount of local currency their recipient will be paid
  • Senders receive free calling card to notify recipient
  • Receivers can pick up transaction within minutes after sent
  • Free, multi-lingual customer service available 24x7

24

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

economic inclusion25
Economic Inclusion

MoneyGram Action

Service Availability

  • MoneyGram’s agent network rapidly expanding globally to provide greater consumer convenience
    • Network is the key to providing consumers with service when and where they want it
    • Network provides consistency in pricing – MoneyGram receivers are never charged a fee
    • Network provides consumers certainty that funds will be available
      • Amount is guaranteed
      • Funds can be picked up within minutes of being sent

25

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

moneygram s global network expansion

138,000

MoneyGram’s Global Network Expansion
  • MoneyGram has invested heavily in building a high-quality agent network

26

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

global network expansion

5,500

5,500

11,300

11,300

+205%

+205%

+205%

+205%

28,400

28,400

28,000

28,000

37,800

37,800

29,400

29,400

4,100

4,100

+33%

+33%

+33%

+33%

+5%

+5%

+5%

+5%

9,900

9,900

+241%

+241%

+241%

+241%

16,500

16,500

4,000

4,000

9,500

9,500

20,500

20,500

4,700

4,700

11,400

11,400

+24%

+24%

+17.5%

+17.5%

+20%

+20%

+24%

+24%

+17.5%

+17.5%

+20%

+20%

Legend:

Legend:

Black = June 2006

Black = June 2006

30% year

-

over

-

year growth

Ø

Blue = June 2007

Blue = June 2007

Global Network Expansion

27

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

economic inclusion28
Economic Inclusion

MoneyGram Action

Service Availability

  • Partnering with banks around the world
    • U.S.
      • 2,500+ US Bancorp locations
    • International
      • Standard Bank in Africa; ICBC in China; Bank Pekao

in Poland; Bank of Ireland; Privat Bank in Romania;

Rosbank in Russia; etc.

28

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

south american banking relationships

Colombia

Brazil

  • Banco Davivienda

Ecuador

  • Banco del Pichincha
  • Banco del Austro
  • Banco del Pacifico
  • Cooperativa de Ahorro

Peru

  • Banco Financiero del Peru
  • FENACREP

Bolivia

Banco Nacional de Bolivia

  • Banco Itau
  • Banco Bankpar

Paraguay

  • Banco Integracion

Uruguay

  • Exprinter

Argentina

Banco Itau Buen Ayre

  • Banco Piano
South American Banking Relationships

29

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

central american banking relationships

Honduras

Honduras

Belize

Belize

Banco

Banco

Atlantida

Atlantida

Belize Bank

Belize Bank

BGA

BGA

Banco

Banco

Mercantil

Mercantil

Guatemala

Guatemala

Federacion

Federacion

de

de

Cooperativas

Cooperativas

Banco de

Banco de

Desarrollo

Desarrollo

Rural

Rural

de

de

Ahorro

Ahorro

y

y

Credito

Credito

Banco Industrial

Banco Industrial

Banco

Banco

Fichosa

Fichosa

FENACOAC

FENACOAC

Nicaragua

Nicaragua

Banco de la

Banco de la

El Salvador

El Salvador

Producci

Producci

ó

ó

n

n

Banco Agricola

Banco Agricola

Comercial

Comercial

Central

Central

Cooperativa

Cooperativa

Banco

Banco

Cuscatlan

Cuscatlan

de

de

Ahorro

Ahorro

y

y

Credito

Credito

FEDECACES

FEDECACES

Banco

Banco

Uno

Uno

Nicaragua

Nicaragua

Costa Rica

Costa Rica

ScotiaBank

ScotiaBank

El Salvador

El Salvador

Banco de San Jose

Banco de San Jose

FEDECREDITO

FEDECREDITO

Banco De Costa Rica

Banco De Costa Rica

Banco

Banco

ProAmerica

ProAmerica

Banco BANEX

Banco BANEX

Central American Banking Relationships

30

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

economic inclusion31
Economic Inclusion

Bank Discontinuance

  • Solving the Bank Discontinuance problem will improve the availability of MSB services
    • MSB industry - working with bank trade groups - has drafted legislation to address the problem
    • Regulatory support of legislation will increase the chance of success
    • Why is legislation needed?
      • Guidance issued in April 2005 by FinCEN and Federal Banking Agencies did not solve the problem
      • FFIEC’s BSA/AML Examination Manual does not provide clear examples of when banks do not need to review an MSB’s BSA/AML program

31

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

economic inclusion32
Economic Inclusion

Banks and MSBs Working Together

  • MoneyGram seeking opportunities to partner with more banks
    • Money Orders
    • Money Transfers
  • Regulators can help by reducing banks’ concerns with MSB accounts
  • Money transfers can help migrants become banked consumers

32

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

economic inclusion33

Bank

Money

Transmitter

Partners with

Bank

Economic Inclusion

Steps for migrants to become banked

Bank/MoneyGram Agent

MoneyGram Agent

Migrant

Becomes

Banked and

Remits at

Bank which is

now a

MoneyGram

Agent

Migrant

Becomes

Remitter

Migrant

Becomes

Employed

New

Migrant

Arrives in US

33

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

security anti money laundering vs economic inclusion
Security/Anti – Money Laundering vs. Economic Inclusion

MGI recommends the Committee on Economic Inclusion

  • Seek greater uniformity, consistency, and clarity in the regulation of MSBs by allowing MSBs to opt for a federal license
  • Encourage Treasury to revise the definition of MSBs to facilitate compliance by agents, focusing on a rules-based approach for smaller agents
  • Encourage greater partnerships and linkages between MSBs and banks
  • Address the critical issue of MSB banking relationships through further regulatory guidance or Congressional action

34

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.

security anti money laundering vs economic inclusion35
Security/Anti – Money Laundering vs. Economic Inclusion

Conclusion

  • MSBs provide vital services to consumers
  • MSBs work with banks around the world
  • Money transfer fees have dropped significantly
  • The regulatory environment influences the ability of MSBs to serve consumers
  • A balance is needed between ensuring that our nation’s interests are protected through strong AML regulation, while at the same time making sure MSBs are able to serve their consumers

35

MoneyGram Proprietary & Confidential. © 2007 MoneyGram. All rights reserved.