What legal steps and requirements are needed to build a PayPal-like service in the U.S. and globally?
Payments
Asked by Question Bot01/Jul/20161 answer
1 Answer
F
Faisal Khan
Answered 01/Jul/2016
In order to become a PayPal (or equivalent) provider in the US, you need to apply with each State's regulator and obtain a money transmitter license. You will also have to register with FinCEN (Financial Crimes Enforcement Network) as an MSB.
The road to licensing is a long and arduous task. You have to submit the following (in no particular order):
You do this for all 50 States and additional US Territories. (List of all the State Regulators can be found here: Money Services Business (MSBs): US Money Transmitter Licenses).
In addition to this, you will have to undergo a couple of Audits (Financial, FISMA, etc.) Some State Regulators will do their own audit.
The entire process can take between 3-6 months for the smaller (more easily obtainable States), 6-12 months for medium States, and 1-2 years for States like Texas, New York, California.
This would essentially enable you to run wallet services in the US.
In Europe, the process is much easier with passporting rights. You obtain one license in UK, which is called the E-money license, and you make sure you apply for passporting rights, which basically allows you to onboard transactions from all over the EU, on a single license.
In Singapore, if your net outstanding is less than $15 Million (IIRC), you don't even need a license, you can get started right away.
Everywhere else, it is the same nightmare. Getting these licenses is no easy task. In South Asia for example it is extremely difficult for a 3rd party to obtain one of these licenses. Some countries have a closed licensing regime (like Kenya, etc.)
The road to licensing is a long and arduous task. You have to submit the following (in no particular order):
- Fill out detailed application on obtaining a money transmitter license with each State.
- Submit your Business Plan
- Get Background checks done
- Submit fingerprints
- Satisfy the minimum net worth requirements
- Be able to provide E&O insurance
- Be able to provide Surety Bonding for the amount slated by each State Regulator
- Be able to manage your permissible investments on a daily basis
- Obtain access to banking
- Have extremely detailed process and funds flow diagrams and descriptions of your transaction set
- Have a comprehensive AML/KYC policy
- Have an AML/Legal Officer on board
- Impart AML training to existing employees
You do this for all 50 States and additional US Territories. (List of all the State Regulators can be found here: Money Services Business (MSBs): US Money Transmitter Licenses).
In addition to this, you will have to undergo a couple of Audits (Financial, FISMA, etc.) Some State Regulators will do their own audit.
The entire process can take between 3-6 months for the smaller (more easily obtainable States), 6-12 months for medium States, and 1-2 years for States like Texas, New York, California.
This would essentially enable you to run wallet services in the US.
In Europe, the process is much easier with passporting rights. You obtain one license in UK, which is called the E-money license, and you make sure you apply for passporting rights, which basically allows you to onboard transactions from all over the EU, on a single license.
In Singapore, if your net outstanding is less than $15 Million (IIRC), you don't even need a license, you can get started right away.
Everywhere else, it is the same nightmare. Getting these licenses is no easy task. In South Asia for example it is extremely difficult for a 3rd party to obtain one of these licenses. Some countries have a closed licensing regime (like Kenya, etc.)