Starting an X-Border Service? Need a Money Transfer License?

Let Us Help You Get Started On Your Money Transfer License Quest!

The bad News First…

If you’re building a product/service that classifies you as a money transmitter, chances are you will be disappointed if not downright depressed when you find out the costs, effort and time associated in filing for and obtaining your own money transfer licenses.

In many instances (taking US as an example)…


The costs associated with a money transfer license are high. Most startups do not have the budget nor the patience to hold back on their program, till they get the licenses. Even after you file all your applications at once, a few licenses will trickle in, in about 4-6 months time. Bulk of them take between 6-12 months. For states like New York, Texas and California, it can take over 18 months before you are granted a license.

So screw it you say! I’ll partner up with an existing license holder. Well, this was cool for for many years, until PreCash killed it up for all. Texas in 2014 gave a ruling that essentially (read: Supervisory Memorandum – 1038) that put an end to this “rental” of licenses that everyone was pursuing. You can read the memo here:

Summed up, today if you want to be an Agent of an existing license holder, let’s call them Principal License Holder (PLH), the following three conditions apply:

  1. The clients legally belong to the PLH and not you, the Agent. It’s their license hence their clients. If you’re okay with then, cool, onto the next point.
  2. All flow of funds must traverse through the PLH’s banks. If they, the PLH cannot account for the transaction flowing through their account, then it is not covered. So your money needs to flow through their bank account. You might be cool with this too.
  3. Last point and this is the most important point: The Agent must be in the same line of business as the PLH. So if the Principal License Holder is in the business of Pizza making you can be in the business of pizza delivery, pizza topping, pizza cooking, etc. But it the PLH is in the business of Pizzas and you’re selling Stereos – then this is clearly a different line of business and implies you’re renting a license.

Today, you’d be hard-pressed to find someone willing and able to provide you with an arrangement to be their agent.

The one or two companies that do advertise that they hold money transmitter licenses in the market, you had better do research on them. Just because they pop up on Google on top, doesn’t mean they are your best bet to work with. Personally, I’d shy away from them. One or two of them are stubborn as a mule.

They are short on licenses in the key states (NY, CA, TX – you need all three, not one, not two, but all three!)

Audit their work location and you will find out, they are holding on to paper licenses, but no staff.

Audit their financial strength. If they resist or hesitate, walk away! This is a two way street, if they will do due diligence on to you, you are allowed to so the same.

And in a case or two, some money transmitter license holders are just plain greedy or not flexible enough to do business with. I cannot stress this enough. Ask around who their existing clients Agents are (they should easily be able to tell you this), fund out if such Agents are happy with their relationship? If they had a chance to swap out, would they switch? etc. etc.

Do your research well before you jump into bed in becoming an Agent of an existing license holder. Do also remember that Agent relationships can be terminated by the State Regulator and also in some states are subject to approval.

Even if you do become an agent, your responsibilities will be a mile-high. You will also need access to banking, which is difficult to get.

You may also want to read up on: US Money Transmitter License Options

Now For The Good News…

There are banks, agents of banking institutions, and non-banking financial institution who will provide coverage to your idea. Think of it as a financial institution sponsored sponsored licensing.

In order to understand this concept you have to understand the very basics of why you need to get licensed as a money transmitter in the first place.

Usually the following (two or more) are applicable to your case:

  • You are neither the originator of the transaction nor the beneficiary, i.e. you did not start the transaction, nor did the transaction end in your account, it was merely transiting through you.
  • You’re a financial intermediary (that’s the correct term when a transaction transits through you). You can/could charge a fees for providing such a facility.
  • The money flows through your banking channel/system, meaning if you wanted to, you could take it and run away with it. Buy lots of booze and waste it on vacation, while the original transaction generators, people who entrusted you with their money, get screwed!

This is why licensing is put into place! Because you get to touch other people’s money flowing through your system.

Now what if you don’t get to touch other people’s money and it does not flow through your system – but rather through the bank. Since you’re not touching the money, you’re not a money transmitter. there are are finer caveats to this statement, but for most fintech startups I have worked with, with little or no effort the flow-of-funds and the business model can be molded so that a bank will sponsor the program. Short story: You won’t need a money transfer license.

One of the caveats is that you, as a customer, must subscribe to a default bank product or service, for example the bank could be providing you with ACH services or merchant acquiring, etc. You have to be a customer of their core service, which pretty much any decent startup wanting banking services would be.

What this means is as follows:

  • The bank/bank-agent handles the money part on your behalf, under their own license.
  • You don’t get to touch the funds. Even if you wanted to, there is nothing to touch. You simply do not have access to the funds that your clients are entrusting to you (via your bank)
  • There is an agreed flow of funds, which forms the basis of the contract with the bank and how the money will be dealt with.
  • Every time a client is on-boarded by you (via your app, etc.) the account is actually opened with the bank.
  • The bank gets to act what to do with the funds, based on your instructions and the pre-agreed flow of funds.
  • The instructions are sent to the bank via an API. You can also send it via a fax, but that wouldn’t be very cool or practical. Hence the bank opens its API and you can interact with it.

Such a relationship is usually based on a revenue, share (so is the Agent relationship when you become an agent of a licensed money transmitter business).

They are easy, you get to get access to banking. The whole build-versus-lease argument comes here. You build your produce and you lease the licensing services from the bank. You get to save money and time.

So, in conclusion, look for banks and/or bank agents who would work with you on a sponsorship led model where the funds are held in an FBO (For Benefit Of) account. If you would like to learn more about obtaining an MSB License Coverage via Sponsorship, get in touch and let’s discuss this further.

This page was last updated on June 1, 2023.

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