Money transmitters facilitate fund transfers between disparate locations and across international borders. Businesses or individuals working within this space must understand the intricacies of money transmitters and the regulatory landscape to ensure compliance and expand to new markets.

Below is a guide to the world of money transmitters: what they are, how they work, which customer segments they cater to, the regulatory framework they must adhere to, and important implications for businesses.

What’s in this article?

• What is a money transmitter?
  
• What do money transmitters do?
  
• Money transmitter vs. payment processor
  
• Money service business vs. money transmitter
  
• Money transmitter license requirements
  
• Who needs a money transmitter license?
  
• How to get a money transmitter license
  

What is a money transmitter?

A money transmitter, also often referred to as a “money service business” (MSB), is a company or individual that facilitates the transfer of funds from one person or entity to another, often between disparate geographic locations and across international borders.

These services typically involve receiving funds from customers and then transmitting them to a designated recipient. Money transmitters offer a variety of methods for transferring money, including via wire transfers and other electronic funds transfers (EFTs), mobile-based transfers, or third-party payment processors.

Money transmitters are subject to regulations and oversight to prevent money laundering, terrorist financing, and other illicit activities. In many countries, including the United States, money transmitters must register with the appropriate regulatory authorities—such as the Financial Crimes Enforcement Network (FinCEN) or state-level agencies—and comply with specific reporting and compliance requirements.

What do money transmitters do?

Money transmitters primarily provide services that enable individuals and businesses to send and receive funds. They act as intermediaries, facilitating the movement of funds between individuals and businesses, both domestically and internationally.

Here are some of the key functions and activities performed by money transmitters:

• Funds transfer
  Money transmitters facilitate the transfer of funds from one location to another. They accept funds from the sender (also known as the originator) and transmit them to the recipient (beneficiary) using various methods. The exact methods available typically vary depending on where the funds are being sent from and where they are being sent to.

• International remittances
  Money transmitters enable individuals to send money across international borders. They offer services that allow immigrants and individuals working abroad to send funds to their families or businesses in their home countries.

• Payment services
  Money transmitters often provide payment services, allowing customers to make payments for goods and services. This can include online payment processing, bill payments, and facilitating transactions through mobile apps or other digital platforms.

• Currency exchange
  Some money transmitters offer currency exchange services, allowing customers to convert one currency into another. This is particularly useful for travelers or individuals involved in international business transactions.

• Financial services for the unbanked or underbanked
  Money transmitters often cater to individuals who do not have access to traditional banking services. They provide a means for these individuals to store and transfer money, pay bills, or receive funds, offering financial inclusion and accessibility.

• Compliance and regulation
  Money transmitters are subject to regulations and oversight to prevent money laundering, terrorist financing, and other illegal activities. They must comply with regulatory requirements, such as registering with the appropriate authorities, maintaining anti-money laundering (AML) and Know Your Customer (KYC) procedures, and reporting suspicious transactions.

Money transmitter vs. payment processor

While money transmitters and payment processors both handle monetary transactions, their specific roles, services, and customer bases set them apart. Here’s an overview of the differences between them:

• Transaction types
  Money transmitters move money between senders and recipients, but there are a wide variety of reasons why funds are being exchanged in these transactions. They could include person-to-person transfers, remittances, and business payments. Payment processors specialize in processing transactional payments between buyers and sellers, where one party is giving the other party money in exchange for goods and services. This includes online purchases, point-of-sale (POS) transactions, recurring payments, ecommerce transactions, and payments made with credit cards, debit cards, and digital wallets.

• Regulatory oversight
  Both money transmitters and payment processors operate within regulatory frameworks. Money transmitters are subject to specific regulations and oversight, often requiring registration with regulatory authorities such as FinCEN or state-level agencies. They must comply with AML and KYC regulations to prevent illicit activities. Payment processors also operate under regulatory oversight, although the level of scrutiny and compliance requirements may vary based on jurisdiction and the types of transactions they handle. They must adhere to data security standards, payment network rules, and other industry regulations.

• Value-added services
  Money transmitters may offer additional services beyond fund transfers. These services can include currency exchange, bill payment services, or tailored financial services targeting unbanked or underbanked populations. Payment processors also often provide different value-added services: fraud detection and prevention, chargeback management, recurring billing solutions, and detailed transaction reporting.

• Customer base
  Money transmitters cater particularly to individuals and businesses that need to send money across borders or to individuals without access to traditional banking services. Payment processors serve a wide range of customers, including online businesses, retailers, service providers, and ecommerce platforms.

Creating a secure, efficient funds-transfer experience requires understanding the differences between money transmitters and payment processors and making an informed decision about which service best suits business needs.

Money service business vs. money transmitter

Money transmitters are often referred to as “money service businesses,” especially in the US. While some people use these terms interchangeably, there are differences between the two entities. Understanding the distinction between MSBs and money transmitters is important for regulatory compliance and for individuals or businesses seeking specific financial services. Here’s what you should know:

Scope of services

MSBs provide a range of financial services beyond money transmission. They may also offer currency exchange services, allowing customers to convert one currency into another. Additionally, MSBs often provide check cashing services. Some MSBs may offer prepaid cards or issue money orders, which are payment instruments similar to checks. Money transmitters are a subset of MSBs and primarily specialize in facilitating the transfer of funds. They may or may not offer additional services that fall within the scope of MSBs more broadly.

Regulatory requirements

Both MSBs and money transmitters are subject to regulatory oversight and compliance requirements to prevent illicit activities and protect consumers. In the US, MSBs are required to register with FinCEN, a bureau of the US Department of the Treasury. MSBs—including money transmitters—must comply with AML regulations, implement robust KYC protocols, and report suspicious transactions.

Money transmitters must also comply with additional regulations specific to their role in facilitating fund transfers. They are typically required to register with state-level regulatory authorities, maintain adequate capital reserves, and follow specific reporting and compliance procedures. These requirements aim to ensure the transparency, legality, and security of money transmission activities.

Money transmitter license requirements

Money transmitter license requirements vary depending on the jurisdiction and the specific regulations in place. However, there are common requirements that are often included in the licensing process for money transmitters:

• Registration and application
  Money transmitters are usually required to register with the appropriate regulatory authority. This could be at the federal level, such as FinCEN in the US, or at the state level, where most money transmitter licenses are issued. The application process typically involves submitting detailed information about the business, its owners, officers, and directors, as well as any supporting documentation required by the regulatory authority.

• Financial requirements
  Money transmitters are typically required to meet certain financial requirements to obtain a license. This may include providing audited financial statements, demonstrating adequate capital reserves, and maintaining a surety bond or other form of financial security to protect customers.

• Background checks
  Money transmitters and their key personnel, such as owners, officers, and directors, are often subject to background checks. This may involve fingerprinting, criminal record checks, and checks for past regulatory violations or sanctions. Additionally, regulatory authorities may assess the “fit and proper” criteria, evaluating the competence, integrity, and financial responsibility of the individuals associated with the business.

• Compliance program
  Money transmitters must demonstrate that they have implemented a robust compliance program. This includes having policies and procedures in place to prevent money laundering, terrorist financing, and other illegal activities. Compliance programs typically involve implementing KYC protocols and policies, transaction monitoring systems, staff training, and diligent reporting of suspicious activities.

• Reporting and recordkeeping
  Money transmitters are generally required to maintain detailed records of their transactions, customer information, and other relevant documentation. They must adhere to reporting requirements, which may include submitting regular reports to the regulatory authority, such as transaction reports, financial reports, or suspicious activity reports.

• Ongoing compliance and audits
  Once licensed, money transmitters are subject to ongoing compliance obligations. This may involve periodic audits, regulatory examinations, or inspections to ensure continued compliance with licensing requirements and applicable regulations.

The specific requirements for obtaining a money transmitter license can vary significantly, depending on the jurisdiction. Individuals or businesses interested in becoming money transmitters should consult the relevant regulatory authorities in their jurisdiction or seek legal advice to understand the specific requirements and processes that they would be subject to given the scope of services, target customers, and the key jurisdictions involved.

Who needs a money transmitter license?

In many countries, any individual or company that engages in the business of transmitting money needs a money transmitter license. These are some of the activities that require a license:

• Selling or issuing payment instruments: This includes activities like selling or issuing checks, money orders, traveler’s checks, or stored value cards.

• Receiving money for transmission: This includes any businesses that accept money from customers for the purpose of transmitting it to another person or location, either domestically or internationally.

• Transmitting money: This refers to the process of sending money on behalf of a customer using methods such as wire transfers and electronic funds transfers.

• Currency exchange or dealing: This refers to any buying or selling of foreign currencies for customers.

• Operating a payment platform: This includes any online platforms or mobile apps that facilitate money transfers between users.

Certain entities are generally exempt from needing a money transmitter license, such as the following:

• Banks and credit unions: Banking authorities already regulate these institutions, so these institutions don’t generally need a separate money transmitter license.

• Government agencies: Federal, state, and local government agencies are typically exempt from licensing requirements when conducting official business.

• Certain agents of licensees: Agents acting on behalf of licensed money transmitters might be exempt from obtaining their own licenses, but they must operate under the supervision and compliance program of the licensed entity.

How to get a money transmitter license

Obtaining a money transmitter license is a multistep process that can take several months or longer to complete. Businesses seeking this license typically need to register with federal authorities and secure licenses in each country where they plan to operate. Consider working with legal and compliance professionals to ensure you meet all necessary requirements.

Here’s a step-by-step guide to registering and applying for this license:

• Research country-specific regulations: Review the laws, rules, and regulations governing money transmitters in each location where your business operates. Pay close attention to any unique requirements or restrictions.

• Register with the authorities: Register with the national financial supervisory authority in each country where you provide services. For example, the US has the Financial Crimes Enforcement Network (FinCEN), and Germany has the Federal Financial Supervisory Authority (BaFin). In the US, money transmitters must also obtain licenses in each state where they plan to conduct business.

• Secure a bond or other financial security: Secure a surety bond or other acceptable form of financial security, usually in amounts ranging from $50,000 to several million dollars. The amount depends on the jurisdiction and your anticipated business volume.

• Develop an AML compliance program: Establish comprehensive policies, procedures, and controls to prevent money laundering, terrorism financing, and other illicit activities. Designate a compliance officer, conduct ongoing employee training, and implement transaction monitoring and reporting systems.

• Submit the application: Submit the completed application package along with all required supporting documentation and fees to the regulatory agency responsible for overseeing money transmitters. The regulatory agency will review your application, conduct background checks, and might request additional information or clarification.