In the US, licensing money transmitters is one of the biggest challenges that startups face in the fintech space. Getting money transfer licenses isn’t easy. It takes a lot of paperwork, money, and time. Obtaining all 50 state permits can take up to two years.
It goes without saying that not all fintech startups require license coverage for money transfers. In general, licenses are not a requirement, but for those who manage money as part of their business model, it is important to obtain licenses for money transfers in the countries where customers are located.
While there is a lot of legal documentation and opinions on who is classified as a buyer, the basic principles are:
• You are not the originator of the transaction or the beneficiary of the transaction.
• You are a financial intermediary.
• A fee may be charged for processing such a transaction, even if it is a de minimis fee.
• As part of transaction processing, you have access to funds, meaning funds raised on behalf of the parties go through your bank account (even if only for a short time).
If you adhere to one or more of the above principles, you are likely to be considered a money-laundering business and must have a money transfer license (or MTL for short).
MTLs are issued by the financial regulators of each state. You can click here to see a list of all financial regulators in all 50 US states and territories.
I’ve written extensively about the various options associated with MTL coverage (read: US Money Transmitter Licensing). However, there is another option that many are unaware of.
This is called bank sponsorship, which means that a bank handles the transfer and truncation of money on your behalf. You can’t touch the money and the bank offers driver’s license coverage.
The sponsor works with an entity called the Program Manager (PM). In this scenario, you have two contracts: one with the bank and one with the program manager which covers the entire sponsorship program at the bank and APIs, etc.
The way the transaction works is that the bank handles your money. You can’t touch the back. You just need to instruct the bank to move/manage the money. These instructions are sent via API, after which the bank takes action.
The main responsibilities of the program manager include:
1. Introduce the API specifically targeting / the payment industry. This means implementing additional identity checks, AML checks, accounting, filters, personalization, etc. (Remember that a transaction has two components, the US and the payee. The prime minister adds everything in a compatible way, not just for the bank, but as well as for the state / federal money transfer rules (example: Reg E, etc))).)
2. Add other technologies and processors, for example, if you set up a card processor that can be used, this processor is integrated into the PM.
3. General monitoring and ensuring that everyone complies with the rules, detects deviations, etc.
Find a sponsor for you.
A mini business plan is required to get a sponsor. The mini business plan (or file) is then adapted to the model/format required by the banks I work with.
Since there are banks behind them trying to take control of their business, they don’t want to be announced right away, so my company approves.
The business plan allows them to discreetly visualize the opportunity and determine whether they want to proceed. The file contains basic information about the fintech company (or startup), photo identity, business plan, website, LinkedIn profiles, compliance program, expected volume for the next 12 months and abroad. the visit ends (if applicable).
Based on the interest that the bank receives, another agreement is concluded between two parties (of course after I have signed a referral agreement for myself).
After the bank shows interest, the whole process takes 60 to 120 days to approve. The average time is 90 days.
A flow chart of funds over time is required. It is required in the final form when it is presented to the bank, but you can submit your cash flow schedule.
Under the agreement, the bank sponsors the product and all accounts opened by its customers are actually bank accounts opened with the bank. Note that you don’t have your own AML / KYC etc. I can not stand it. You must follow the bank’s AML / KYC guidelines.
To work at the bank, you must use one of the basic/main services. It is not possible to unilaterally request collateral from the bank. This is not what the bank is looking at. What the bank wants to do to guarantee you is share an agreement with you. Hence, you must have access to one of the main services such as ACH, card processing, etc. You cannot include third-party payment processors in the comparison unless your bank approves it.