Brands and companies in the United States have long relied on traditional banks to offer financial services like co-branded cards, payouts, or money transfers to their customers, partners, and employees. As a licensed money transmitter throughout the country, our team is often asked what that means – and why it matters. In this three-part series, we’ll focus on what a licensed money transmitter is, the process to secure money transmitter licenses (MTLs), and what’s unique about this in the United States.
In the first article of the series, we dive into the difference between licensed money transmitters, Money Services Businesses (MSBs), and banks in the United States. In the context of regulatory compliance in the United States, both Money Services Businesses (MSBs) and licensed money transmitters fall under the regulatory scope of the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The distinction between an MSB and a licensed money transmitter primarily involves the scope of activities and the specific licensing requirements.
Money Services Business (MSB) is a broad category
The Money Services Business Association (MSBA) notes that MSBs could be categorized as Non-Bank Financial Institutions (“NBFIs”) and thus broadly defined as “financial institutions other than banks that offer financial services.” According to FinCEN, MSBs include currency dealers or exchangers, check cashers, issuers of traveler's checks or money orders, sellers or redeemers of traveler's checks, money orders, or stored value cards, money transmitters, and, in some contexts, even the U.S. Postal Service. It’s a broad category covering various financial functions. Entities identified as MSBs must register with FinCEN, adhere to Anti-Money Laundering (AML) program requirements, keep certain records, and report certain transactions. While registration with FinCEN is required, being categorized as a MSB does not require a specific license. However, based on the services the MSB provides, state licensing may be required (e.g., for money transmission).
Licensed Money Transmitters are specific types of MSBs
Money transmitters are a specific type of MSB in the business of transmitting money or monetary value from one person or company to another, often across borders. This can include businesses facilitating payments, sending remittances, or providing virtual currency exchange services. In addition to registering with FinCEN as a Money Services Business, money transmitters must obtain licenses in the states where they facilitate money movement. There is no federal money transmitter license (MTL) in the United States. Instead, money transmitters must seek licensing state by state.
Licensed money transmitters are subject to a range of compliance obligations, including:
- Maintaining an effective Anti-Money Laundering (AML) program
- Conducting regular reporting and record-keeping
- Adhering to consumer protection standards
- Submitting to state regulatory examination and oversight
While all licensed money transmitters are considered MSBs, not all MSBs are money transmitters. The distinction lies in the specific services offered and the need for state-level licensing to legally operate as a money transmitter in the U.S.
What activities can licensed money transmitters perform?
Licensed money transmitters can play a significant role in onboarding businesses and individuals to the U.S. financial system, especially for those who might not have full access to traditional banking services. Here are four areas licensed money transmitters can support:
- Financial inclusion: Money transmitters provide essential services to the unbanked and underbanked population in the United States, enabling them to perform financial transactions without a traditional bank account. This includes sending and receiving cross-border remittances, paying bills, and purchasing goods and services.
- Digital wallets and prepaid cards: Many money transmitters offer digital wallet services or prepaid cards, which can be used for transactions online or in physical stores. For individuals without traditional bank accounts, these tools are very valuable to ensure they can participate in and access the wider economy.
- Merchant services: Money transmitters can offer businesses the ability to accept electronic payments, including credit and debit cards, online payments, and mobile payments. This is particularly beneficial for small and medium-sized enterprises (SMEs) that may not qualify for traditional merchant accounts due to their size, credit history, or the nature of their business.
- Global money transfers: For businesses engaged in international trade, money transmitters can provide cross-border payment services, facilitating faster and more cost-effective transactions than traditional banking channels might offer.
Licensed money transmitters vs. banks
While money transmitters can enable access to certain financial services, they do not necessarily offer credit products or investment services that many individuals or businesses would expect with a traditional bank. Some financial services in the U.S. require a banking charter with the Office of the Comptroller of the Currency (OCC), and can only be offered by federally regulated banks. However, licensed money transmitters could partner with a bank to offer those services.
Depending on the services, there can be several advantages to working with a licensed money transmitter over a traditional bank:
- Technology: MSBs often adopt new technologies more quickly than banks that rely on legacy infrastructure. API-based or tech-forward platforms expand options for businesses that want to offer embedded financial products.
- Accessibility: Traditional bank branches typically limit their operating hours. While not guaranteed, MSBs can operate through retail networks with hours that include evenings and weekends to offer greater flexibility and access in managing finances.
- Affordability: One of the most important factors for consumers in choosing how to send cross-border remittances is low fees (Mastercard). For remittances and other services, MSBs may offer more competitive fees and exchange rates compared to banks.
In the next article of the series, we dive into How to secure & maintain money transmitter licenses (MTLs). Learn more about Alviere’s commitment to Security & Compliance here.
