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Government watch
The ImpossIble Dream
The latest trend in state money transmitter licensing enforcement
appears to threaten innovation. But there’s hope. Here’s how licensing laws can be used to
increase payments innovation.
ViewpoinT
By Judith Rinearson, Bryan Cave LLP
In Viewpoints, prepaid and emerging pay- ments professionals share their perspectives on the industry. Paybefore endeavors to present many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore. This article is intended for general information purposes only and should not be construed as legal advice. Readers are urged not to act upon the information without first consulting an attorney.
There are many signs that emerging payments is boom- ing. With the development of mobile payments, e-wallets, virtual currencies, contactless chips, Blue- tooth beacons, photographic and geo-location capabilities, our brightest entrepreneurs are invent- ing new ways to make payments safer, faster and more efficient.
But it’s not enough to be new and innovative. Payments is a risky area that, if mishandled, can cause in- jury to consumers and businesses. Moreover, payments is “where
the money is” and is therefore a target for criminal enterprises, raising the specter of money laun- dering, financial crimes and a host of other public dangers. That means developing a new payments busi- ness often involves exceptionally costly and burdensome compli- ance obligations.
One of the most important sets of laws addressing the dangers posed
by payments—especially in the nonbank payments arena—is state money transmitter licensing laws. Most Americans have never heard of these laws, but 48 states have them, and they’re the mechanism that enables nonbanks, such as Western Union, PayPal and Google, to hold or move money on consum- ers’ behalf.
A Barrier to Entry
The problem for payments is that these laws truly create a barrier
to entry, making it difficult, if not impossible, for a startup company to get to market quickly and compliantly. For one thing, getting these licenses is quite expensive and exceedingly time-consuming. For example, some states will license a company only if it has
a net worth of $1 million or more. That’s $1 million of assets just sitting in a bank account and not being used for research, payroll, equipment or marketing expenses. As for obtaining the licenses, it’s
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