Can Startups & Incumbents have access to Money Transmitter Licenses?
Startups and incumbents who are in the payments space and would like to work in the US, sooner or later come face to face with the money transmitter license (MTL) obstacle. Depending who you talk to, the answers can be simple or a long drawn sales pitch. The fact of the matter is – understanding money transmitter laws is not to inherently difficult. People would like to make it so – but it is not.
At the core of understanding MTLs is to understand why and when you become an MSB and are required to have money transmitter licenses?
First, I would like to point you out to a very important page: money transmitter license law. Keep this handy for I will be quoting from it.
A money transmitter is a type of an Money Services Business (or MSB), i.e. it is a subset of an MSB (refer to the money transmitter law page, and look under Definition of a Money Services Business.
So who exactly constitutes as a money transmitter? Well, the definitions vary from State to State, but again, from the same page, if we were to look at the definition of a money transmitter as published by the Department of Banking for the State of Georgia, the answer is:
As used in Georgia law, ‘Money transmission,’ ‘transmit money,’ or ‘transmission of money’ means engaging in the business of receiving money or monetary value for transmission or transmitting money or monetary value within the United States or to locations abroad by any and all means, including, but not limited to, an order, wire, facsimile, or electronic transfer. The term does not include closed-loop transactions.
To simplify this in English it would mean the following two conditions have to be met (both conditions, for you to be a money transmitter):
- You are a financial intermediary, i.e. you are not the owner of the transactions, you are executing the transactions on behalf of someone else, i.e. you are neither the Payer (Sender) not the Payee (Beneficiary). AND
- You are touching the funds, i.e. you have the ability to physically &/or electronically have access to the funds being transferred.
Now, I want to bring in one other definition:
If a person is receiving money for transmission on behalf of another person or persons, they will need to be licensed. If a person were sending money on their own behalf, they would not need to be licensed.
So it clearly states, that if you’re an intermediary, and are touching the funds, you will need to be licensed.
Herein lies the good news…
If you do not touch the funds, you are NOT deemed a money transmitter and hence do not need a money transmitter license. [emphasis supplied].
It cannot be more clearer. So from the two points above, you can still be #1 (financial intermediary) and if you don’t touch the funds (#2), then you are essentially exempt from money transmission.
The caveat being that the funds that you are now not touching, are being touched by someone else, and these entities must be licensed or exempt entities, i.e. Banks, Post Offices, Credit Unions, Licensed Money Transmitters, etc. As long as you don’t touch the funds and let someone else touch the funds who is licensed, you’re all set.
So what does this make you then? In all honestly, it just makes you as an affiliate. This is how many money transmitter who hold valid MTLs are now on-boarding clients, rather than going the route of an Authorized Delegate.
Do I need a Money Transmitter License?
Truth be told, if you’re going to be moving money, yes, but a better question to ask is Can I operate as an MSB without needing a Money Transmitter License? The crude answer is yes, but I have to be caution when I say this yes.
I say “Yes” that you can run your business idea – but just not be an MSB. Let someone else handle it for you. If you become an Affiliate of an existing Money Transmitter License holder, then you don’t need to go through the hassle of being an MTL holder. The kick here is that you have to find MTL holders who subscribe to your business model, for they would be signing an affiliate agreement with you.
This is not too difficult to find. In fact, this is what we provide as a service. If you would like to learn more, simply schedule a call and we can discuss this further.
The options available to you are more than what people will often tell you. No one writes about this stuff as much as I do.