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What is a money transmitter?

What is a money transmitter?

Dec 20, 2023
Checkout.com

For your business to ensure compliance and tap into new markets, you’ll need to understand the nuances of money transmission. Thankfully, you’re in the best place.

This page will explain what money transmitters are, how they work, and who needs a money transmitter license. We’ll also show you how Checkout.com can help your business optimize cross-border payments by leveraging money transmission.

What is a money transmitter?

A money transmitter, or money service business, is a company or individual that transfers funds for businesses. They collect funds from clients and then send them to specified recipients, providing diverse transfer methods including wire transfers, electronic funds transfers (EFTs), mobile-based transfers, or third-party payment processing.

Any business engaged in issuing money orders, traveler’s checks, or other forms of monetary value is considered an MSB, with some of the most popular payment platforms, like Square and PayPal, considered licenced money transmitters.

Money transmitters are regulated and monitored to curb money laundering, terrorist financing, and other unlawful practices. In many countries, including the US, money transmitters are mandated to register with relevant regulatory bodies like the Financial Crimes Enforcement Network (FinCEN) or state-level agencies. Compliance involves adhering to specific reporting guidelines and meeting compliance standards.

What do money transmitters do?

Money transmitters serve as intermediaries, moving funds for both individuals and businesses and facilitating domestic and international fund transfers. Their essential functions include the following:

Transferring funds

Money transmitters manage the movement of funds, receiving money from the sender and delivering it to the intended recipient through various transfer methods, which vary based on the origin and destination of the funds.

International money remittance

MSBs enable individuals living abroad to send money back to their families or businesses in their home countries, supporting immigrants and workers overseas.

Currency conversion

Certain money transmitters provide currency exchange services, allowing users to convert one currency into another. This feature is particularly beneficial for travelers and those involved in international business dealings.

Compliance and oversight

Money transmitters are strictly regulated in order to prevent illicit activities like money laundering and terrorist financing. For example, they have to register with relevant authorities, maintain anti-money laundering measures, conduct Know Your Customer procedures, and report suspicious transactions.

Payment solutions

Money transmitters enable users to pay for goods and services, including online payment processing, bill payments, and facilitating transactions using mobile apps or digital platforms. For example, they can allow you to send payment links to your customers.

Financial inclusion

Money transmitters offer avenues for the unbanked or underbanked to store and transfer money, pay bills, and receive funds. This helps to improve global financial accessibility.

Who needs a money transmitter license?

If your business engages in fund transfers, regardless of the sum, you must get a money transmitter license and renew it every two years. To get started, you need to fill out and sign FinCEN Form 107, Registration of Money Services Business, within 180 days of establishing your MSB.

Re-registration may be necessary if there's a change in ownership or control based on state laws, a transfer of more than 10% of voting power or equity interest, or if the number of MSB agents increases by over 50%.

Be warned: not meeting the registration requirement can result in civil and criminal penalties. However, there are Federal-level exemptions available for businesses falling into three categories: payment processor, agent of the payee, and authorized delegate exemption. 

Each of these exemptions has its own specific reasoning, justifying why certain payments or money movement services don’t need to be regulated under FinCEN.

What are the requirements for money transmitter licenses?

The requirements for a money transmitter license vary based on jurisdiction and specific regulations. Despite this, we’ve found that certain common criteria consistently appear in the licensing process for money transmitters:

1. Registration and application

Money transmitters typically need to register with the relevant regulatory body, whether at the federal (e.g., FinCEN in the US) or state level (where most licenses are issued). The application involves providing comprehensive business details, owner particulars, officer and director information, and required supporting documents as mentioned by the regulatory authority.

2. Financial obligations

To secure a license, money transmitters must fulfill specific financial requirements, whether it’s presenting audited financial statements, proving adequate capital reserves, or maintaining a surety bond (when an insurance company guarantees the successful performance of your business).

3. Background verification

Background checks are customary for money transmitters and their key personnel, including owners, officers, and directors. These checks include fingerprinting, criminal record assessments, and reviews for prior regulatory breaches or penalties. 

Regulatory bodies may also check the suitability of associated individuals within your business, considering competence, integrity, and financial responsibility.

4. Compliance program

You must also demonstrate a robust compliance program within your business. This involves implementing anti-money laundering (AML) and anti-terrorist financing policies, including Know Your Customer (KYC) protocols, transaction monitoring systems, staff training, and stringent reporting of suspicious activities.

5. Reporting and record-keeping

Maintaining comprehensive transaction records, customer data, and pertinent documentation is a standard requirement. Compliance involves meeting reporting obligations, which may involve submitting regular reports to regulatory authorities, such as transaction logs, financial statements, or reports on suspicious activities.

6. Continuous compliance and auditing

Post-licensing, money transmitters must adhere to ongoing compliance obligations, which may include regular audits, regulatory examinations, or inspections to ensure continued adherence to licensing requirements and relevant regulations.

What’s the difference between money transmitters and payment processors?

Both money transmitters and payment processors handle financial transactions, but they have distinct roles, services and clientele. Here's an overview of their differences:

1.Transaction types

Money transmitters facilitate a broad spectrum of money movements between senders and recipients, including person-to-person transfers, remittances, and business payments. 

In contrast, payment processors specialize in managing transactional payments between buyers and sellers, mainly in exchange for goods and services. This includes online purchases, point-of-sale (POS) transactions, recurring payments, ecommerce transactions, and payments through credit cards, debit cards, and digital wallets.

2. Regulatory oversight

Both operate under regulatory frameworks, with money transmitters facing specific regulations and oversight, often needing registration with entities like FinCEN or state-level agencies. 

For both, compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations is mandatory. Payment processors also function under regulatory oversight, varying in scrutiny and compliance demands based on jurisdiction and transaction types. They must adhere to data security standards, payment network rules, and industry regulations.

3. Extra services provided

Money transmitters may extend services beyond fund transfers, including currency exchange, bill payments, and tailored financial solutions for unbanked or underbanked populations. Payment processors typically offer value-added services like fraud detection and prevention, chargeback management, recurring billing solutions, and comprehensive transaction reporting.

4. Customer base

Money transmitters primarily cater to individuals and businesses needing cross-border fund transfers or those lacking access to traditional banking services. Payment processors typically serve a diverse user base, including online businesses, retailers, service providers, and ecommerce platforms.

Optimize your cross-border payments with Checkout.com

Ready to expand your business into new markets and accept cross-border payments seamlessly? Checkout.com can help.

Our Unified Payments API provides effortless access to diverse local payment methods across multiple international markets, spanning digital wallets and global card schemes. With this comprehensive toolkit, expanding your customer base and enhancing payment acceptance become a breeze.

Let's explore how Checkout.com can optimize your global payment strategy and fuel your business growth. Get started today by reaching out to our sales team.

Unlock your payments potential today

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December 20, 2023 16:21
December 20, 2023 16:21