5 Currency and Payments Law Mysteries Solved

1. Can a money transmitter license be rented? No. Licensed MSBs, such as money transmitters are licensed based on their specific business model, financial position, AML procedures and overall compliance profile. Some licensed money transmitters will, however, appoint authorised delegates or agents that assist in operating their licensed business.  Here are money transmitters licensed in New York and California.

2. Can and ISO Aggregate? Sort of. In the old days, ISOs had to treat merchants as stand-alone entities, each getting their own unique merchant account. The new Payment Services Provider (PSP) concept has allowed ISOs to step into the shoes of acquiring banks and actually create sub-merchants and MIDs for each of them.  The PSP remains liable for the transactions of each of the sub-merchants, but the PSP has the ability to quickly board merchants. See, for example, Square, Stripe and WePay.

3. Why isn’t ApplePay an MSB? Good question. It looks like ApplePay has managed to soak up all four corners of a payment transaction, less only the settlement of funds. It stores and tokenizes cardholder data, merchant transaction data within a proprietary gateway. Apple might eventually have to slog through the licensure process like everyone else in at least some states that cast the net wide on what constitutes money transmission, like Maine.

4. How much is your payments business worth? Generally, a multiple of the monthly revenue net of agent payouts. You should also look at the residuals on a static pool of clients. For example, look at the monthly revenue on your clients of one year ago and compare that to the revenue on those same old clients today. The difference between those two numbers is called ‘attrition’. You’ll want attrition to be as low as possible. There are many other factors, but concentration of clients of one kind or another will put downwards pressure on valuations.

5. Is Bitcoin Illegal. No it’s not. Just like other forms of barter, it is not illegal to sell goods or services in exchange for Bitcoin.  For example, a merchant selling computers can sell a computer for Bitcoin and not be in breach of the law. Where legal issues arise is on the accounting and tax treatment of the Bitcoin received and the process by which, if any, the merchant then elects to turn the Bitcoin into ‘real’ currency. Virtual currency exchanges, being businesses that exchange Bitcoin for real currency are also likely to need MSB licensing.

ETA. Our next show is the acquiring industry’s annual gathering, Transact15 March 31-April 2.

Adam Atlas Attorney at Law is licensed in New York and Quebec. Nothing in this e-mail should be construed as a legal opinion or commentary on laws other than in the two jurisdictions where the author is admitted.

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