If you’re thinking about offering e-wallets, gift cards, or other stored value payment services to your customers you will be subject to a number of state and Federal regulations for money service businesses (MSBs).
Your company is designated as an MSB if the primary function of your business is sending or receiving money. All MSBs must register with the Financial Crimes Enforcement Network or FinCEN, a Department of Treasury agency concerned with curtailing money laundering and other financial crimes. They must also comply with a number of government regulations including the Bank Security Act (“BSA”), which entails monitoring transactions and filing Suspicious Activity Reports (“SARs”) or Currency Transaction Reports (“CTRs”) if warranted by the circumstances.
In addition to Federal regulations, each state requires MSBs to obtain a money transmitter license (MTL) to do business in their state. You must also obtain a license in each state from which you receive and to which you send money. The process to obtain licenses in multiple states can take several months and exceed $1 million to purchase the licenses plus a few hundred thousand dollars more each year to maintain them.
For many companies determining whether they actually need an MTL can be unclear. Examples of new marketplace businesses such as AirBNB, Zimride and AvenueHQ, can argue that their core service is the rental of a room, car or apartment, and that the movement of funds between their buyers and sellers are just incidental to that service. It’s a gray area and experts and state regulators can differ in their views. It’s best to get legal advice to ensure you don’t inadvertently engage in practicing unlicensed banking. Failure to comply with state and federal regulations can have serious consequences, including fines, penalties and even worse.
For many businesses, the cost and complexity of obtaining MTLs is prohibitive. But companies like BancBox can simplify this process. We have worked for years with our partner banks, and done the due diligence to research and understand the regulatory requirements and obtain the MTLs.
Because we manage the payment services part of your business for you with our API-driven platform, you don’t have to worry about obtaining and MTL or meeting compliance. This frees you up to focus on the core services of your business and allows you to easily add more payment services as necessary.
More and more businesses are adding payment services to their offerings. We believe the BancBox approach is an attractive alternative to tackling the complex process of transmitting money.