On 9 May 2022 the UK government published the results of research commissioned by HMRC to understand the economic and social benefits of the Money Service Business (MSB) sector in the UK.

MSBs are businesses that allow customers to send money, exchange currencies or cash cheques without the need for a bank account. The business may be operated by a company or an individual. For the purpose of the money laundering regulations an MSB is an undertaking that operates a currency exchange office, transmits money by any means or cashes cheques that are made payable to customers.

HMRC considers that these businesses, because of the nature of their activities, may present a risk of being used for illicit activities and may be vulnerable to exploitation by criminal groups. The negative features of the MSB sector have been the subject of other research projects, but positive aspects have received less attention.

HMRC commissioned the research to look into the economic and social benefits brought to the UK economy by MSBs, to help them reach an overview of the positive as well as negative features of this business sector. The research was carried out between March and May 2021 and conducted by means of qualitative research with certain important stakeholders in the MSB sector, and through a comprehensive review of the published literature on MSBs.

The report notes that MSBs are very heterogenous, but the main service that distinguishes them aside from other businesses is the provision of services in relation to international remittances. Issues arising from international remittances were therefore the focus of much of the consultations held by the researchers.

The vast majority of people who use MSBs for international remittances are migrants. It has been estimated by the World Bank that more than 1.7 billion adults do not have a bank account, and most of them are living in the developing world. By using mobile transfer money services, it is easy to save time on paying money. The digitalisation of finance, the ease of using money transfer services and the lower costs for the services make MSBs attractive for international remittances by migrants.

MSBs were considered by many stakeholders to provide a competitive and accessible alternative to traditional banks. UK and foreign tourists tend to use MSBs for currency exchange, and lower income individuals often use them to cash cheques.

With regard to the choice of which particular MSB to use, accessibility and convenience are important. In the case of international remittances some MSBs specialise in, or can only transact with, certain foreign countries. Their customers may have no alternative to using them. The circumstances of the overseas recipient of the transfer may also affect the choice of MSB. Another factor affecting choice is that a small MSB may perform the function of a social hub in the local community.

The research report noted that the MSB sector in the UK is larger than the equivalent sector in comparable EU economies. This could be due to the regulatory climate in the UK which is seen to allow easier entry to the sector; the diversity of the UK population; the reliance on migrant labour; and the size of the financial sector.

While stakeholders considered that the MSB sector contributes sizeable revenue to the UK economy, they also pointed out the valuable indirect contribution made to the economy through the role of MSBs in supporting other business sectors that rely on migrant labour. The dynamism of the sector has increased employment around the growing MSBs in London and helped to create skills and technology that spill over into the wider FinTech sector.

MSBs are considered essential for migrant communities who have no real alternative to using MSBs for cross-border remittances. Stakeholders differed in their view of the benefits of the sector as compared to the challenges created for regulators, and more research needs to be carried out on this issue.