Fintech Banking and SouthState
A “Money Services Business” or “MSB” is the term used by Financial Crimes Enforcement Network (FinCEN) to describe and identify businesses that issue or exchange currency, checks, and stored-value cards, including those entities that transmit money as part of their core business offering. MSBs must register with FinCEN at the federal level and then obtain licensure from each individual state regulatory agency that has purview over granting and administering Money Transmitter Licenses (MTLs) in their respective states. Typically, this falls under the jurisdiction of the state Banking & Finance Commission (or equivalent). This registration and licensure process is time-consuming and comes with significant expense.
First things first...what is a Money Services Business (MSB)?
Money Services Businesses, or “money transmitters”, are defined in multiple ways. However, a core principle involves the transmission of client funds. The caveat for most fintech’s is that these funds are owned by their customers and each state has its own interpretation of these activities and what exactly constitutes a money transmitter. Individual states have broad supervisory authority to regulate Money Services Businesses, with the objective of protecting citizens against fraud, money laundering and terrorism-financing activities.
What are Fintechs?Fintech is a broadly used term, but for the purposes of this article, fintech is used to generally describe companies that provide a product, service, or similar benefit/value to a consumer or business. Customers rely on the fintech’s ability to safely and effectively facilitate the movement of money (generally from Point A, to a temporary point B, to a final point C). In other words, the fintech is moving money in order to meet its obligation to the customer. By doing so, it may be exposed to federal and/or state money transmissions regulations.
Banking OperationsTechnology companies are by nature able to innovate, reach a large target audience, and scale quickly. Financial technology companies are no different with one notable exception: the additional burden of successfully navigating the complex web of federal and state financial regulations.
And while banks are often not able to innovate, pivot and grow quickly, they are experts in financial regulation and compliance. This expertise is invaluable for fintechs to achieve success.