According to the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury, money transmitters are non-bank financial institutions that accept currency, funds, or other value that substitute for currency from on person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. They are considered a type of Money Service Business (MSB), and under federal law (18 USC § 1960), they are required to register with FinCEN as an MSB.
Forty-nine states each have their own licensing laws that an MTO needs to register with and follow the state-specific requirements and regulations if they want to serve customers in the state. Most states require a money transmitter surety bond that can range from as little as $25,000 to over $1 million while also maintaining a minimum capital requirement in reserve. There has been a push to create a license that is accepted by all states with consistent regulation by financial tech companies who generally operate wholly online. However, this seems far from a reality at this moment.
These regulations were developed before the internet so the need to be able to transact across the country was not so relevant as it is today. Now, digital startups and established money transfer companies are left to take massive risks investing into the infrastructure of obtaining and managing each state money transfer license without knowing if they can actually generate the expected traction if they want to move online. This can create problems to attracting greater investment as well causing a chicken and egg situation.
The alternative includes partnering with banks and existing licensed money transfer companies to go-to-market within months rather than years. This way you can focus on getting customers rather than compliance and build your own internal regulator infrastructure as you grow.
Yokip Consulting has developed relationships with banks that will “sponsor” promising fintechs and money transfer companies by providing a For the Benefit Of (FBO) Account.