Setting Up a Business to Receive Payments for Others

Summary Guide to Money Transmitter Licenses for Payment-Handling Businesses

This guide encapsulates the key points regarding the necessity and scope of money transmitter licenses for businesses involved in handling payments across different regions.

1. Terminology Variations:
   • United States: Known as “Money Transmitter Licenses”.
   • UK, Canada, Europe: Termed as “Money Transfer License”.
   • Other Regions: Often referred to as “Money Transfer Operator License”.
2. Common Business Scenario:
   • Businesses often want to receive payments for third parties, such as freelancers or small companies, particularly in countries where access to services like PayPal, Stripe, Venmo, or Zelle is restricted. This includes countries like India, Pakistan, Bangladesh, Kenya, Nepal, Sri Lanka, Tanzania, Philippines, etc.
3. Requirement of a License:
   • If a business intends to receive payments on behalf of others, it is mandatory to have a money transfer license (as a very minimum)
   • This requirement is critical to understand the origin of payments. For example, if a business in New York receives payments from California, it must be licensed in both states.
   • In the U.S., a nationwide operation requires money transmitter licensing in all 50 states.
4. International Operations:
   • If based in the UK or EU and receiving payments from the US or Canada, licensing is required in both the base country (UK/EU) and the payment originating countries (US/Canada).
   • This principle applies globally. For instance, receiving payments from the US, Singapore, Canada, UK, EU, Japan, Korea, Australia, New Zealand, and Hong Kong necessitates licensing in each respective territory.
   • Holding a license in one country (e.g., Canada, UK, or Hong Kong) does not permit worldwide operation.
5. Strict U.S. Policies:
   • The U.S. has stringent policies regarding payments involving American businesses, individuals, or residents. Licensing is mandatory in the U.S. for such transactions.
6. Exemptions and Limitations:
   • Direct service providers who invoice under their own name may be exempt, but this comes with various caveats.
   • The “agent of payee” status offers exemptions in certain U.S. states, but these are increasingly being revoked. States like New York, Texas, and California are moving towards requiring a money transmitter license, even for agent of payee relationships.
7. Conclusion:
   • To operate a business that handles payments for others, it’s essential to obtain a money transmitter/transfer/operator license not only in the country where you’re based but also in the countries from where the payments originate.

Failing to comply with these requirements constitutes a serious criminal offense, potentially leading to significant legal troubles that are best avoided.

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This page was last updated on December 26, 2023.

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