The article seems to overlook the main obstacle: the banking cartel. The big bankers in the U.S. are among its most powerful lobbyists. The current system benefits them plenty. They like it the way it is. They'll sure push to streamline red tape where possible but a near-zero barrier to entry would eat into their profits.<p>So, they'll continue paying politicians to ensure the status quo and collecting all kinds of fees/interest. Changing the situation will require Congress or courts to go in a different direction. That <i>usually</i> doesn't happen if big, banks' profits are concerned. The voters pushed against the banks in 2008 and the banks (mostly Goldman) won. I'm not getting my hopes up on this.
That's something that I noticed when looking through Standard Treasury's Series A deck yesterday [1]. Their cost allocation for "Regulatory work" will cost almost $3mm over the next 2 years, <i>pre-lauch</i>.<p><i>And</i> it looks like they're going to become a bank in the UK rather than in the US. It must have been even more costly to do the work in the US for them.<p>[1] <a href="http://www.slideshare.net/linhir/standard-treasury-series-a-pitch-deck?ref=http://blog.zactownsend.com/standard-treasurys-series-a-pitch-deck" rel="nofollow">http://www.slideshare.net/linhir/standard-treasury-series-a-...</a><p>Screenshot of slide: <a href="http://gyazo.com/f2a23c97e1ef652ddbe6cdb5fadbf737" rel="nofollow">http://gyazo.com/f2a23c97e1ef652ddbe6cdb5fadbf737</a>
Ripple consented to pay a fine and restructure their operation, to settle civil charges related to Ripple's failure file a SAR on the aborted purchase of xrp by Roger Ver (who by the way was a Ripple investor). The underlying behavior that drew the attention of regulators was that their compliance program was basically a sham during the period in question. The transaction was not "suspicious" in any conventional sense of the word -- Ver was a Ripple investor and well known to the company; his prior criminal history relates to selling fireworks by mail or something, when he was 18 or so. But technically, yes, this is a transaction that Ripple should have reported. People make a big deal of this, but keep in mind that BSA compliance, FinCEN registration, and filing SARs is the EASY part of compliance. Just file SARs on every transaction that meets the definition, that's easy. If that were the only requirement, the US would be a bastion for fintech startups. The hard part is complying with 50 state laws, many of which are non-standard and contradict each other. It is a joke that we don't have a preemptive federal regime to set a consistent rule for compliance.<p>At the same time, on a real level, any payment provider has to be aware that a convenient and privacy-promoting platform inevitably becomes a sort of honeypot for people who are shut out of the conventional system. This is true of any data hosting company, whether financial or otherwise. We would like to think that there's no responsibility on the part of the platform provider to police content, b/c that seems a violation of freedom. On the other hand, if you look into the activity on your platform, and realize that a significant portion of it, in terms of usage, or money, relates to illegal and <i>immoral</i> activities that hurt other people...well, it's a hard question to balance that with notions of freedom and innovation. Unfortunately I don't think the answer is as easy as just letting providers self-police, or following a European model where banks have historically turned a blind eye toward (or even actively courted) criminal clientele.
I testified before Congress on this issue.<p><a href="http://www.aarongreenspan.com/writing/20131118.hsgacstatement.pdf" rel="nofollow">http://www.aarongreenspan.com/writing/20131118.hsgacstatemen...</a><p>CFPB comment (mostly the same, some exhibits also) here:<p><a href="http://www.thinkcomputer.com/20140214.cfpbcomment.pdf" rel="nofollow">http://www.thinkcomputer.com/20140214.cfpbcomment.pdf</a><p>Nothing has changed, and Y Combinator certainly hasn't helped. In fact, they and just about every VC-backed portfolio company have made the situation far worse by convincing legislators that everything is fine. After all, look at the proliferation of innovating startups (who are all breaking multiple federal and state laws so numerous that no one in political office can keep track)!<p>Also, the article contains an error (really, two) regarding California: the law has been amended so that it is basically moot, and the theoretical surety bond is now $250K, not $500K.
The title should be "4 nasty truths about becoming a money transmitter in the U.S." ... FinTech is much larger than just payments and transmission.
> To perform due diligence in New York, you need: audited financial statements, a certificate of good standing, bank account details, background checks, credit checks, and criminal records from each and every single executive. Essentially, getting a license in New York means a two-year financial colonoscopy in the 10th circle of hell.<p>I'm not a fan of overzealous regulation, and there is plenty of regulation in financial services that is ridiculously overzealous, but it would be interesting if the author provided specific proposals.<p>I mean, is he really complaining that folks running a company handling customer money need to have background checks?<p>> What’s worse is that the actions being penalized are rarely flagrant in nature — we’re not talking money laundering for cartels here but administrative oversights. For example, the failure to file an SAR, failure to train, or failure to implement policy.<p>Does the author believe a customer is going to be relieved that his or her money has been put at risk (or lost) only because of "administrative oversights"?<p>Again, there's a lot of overzealous regulation in financial services, but there are also a lot of people trying to "innovate" in the market who clearly don't fully recognize the responsibilities they have to their customers.
The inefficiencies of federalism comprise one of the inherent trade-offs in the U.S. system, and it is worth remembering that you can't actually transfer value over a wire: you can only transfer a promise. The value of promises is based on the integrity of the entities making them, and so the barriers to entry into the business of moving money are high, as they were high 150 years ago when the only mechanism available was letters of credit exchanged between well-known international bankers. I'm not sure you want those barriers lowered.
If you haven't seen it already (was posted yesterday I think), check out Standard Treasury's Series A deck: <a href="http://slideshare.net/linhir/standard-treasury-series-a-pitch-deck" rel="nofollow">http://slideshare.net/linhir/standard-treasury-series-a-pitc...</a><p>They explain why they decided to start their bank in the UK instead of the US. For once, the USA seem to have no competitive advantage.
`New York’s banking department defines money transfer as the “business of selling or issuing payment instruments, such as checks, or engag[ing] in the business of receiving money for transmission.”`<p>I don't see how this could be mistaken to be applied to "any website that receives commerce" - the important part here is transmission - i.e. only sites that receive money for the purpose of transferring it to a different location.
Good piece, but more specific to money licensing companies.<p>One more thing: Unlike most regulated industries, this is not a space where you "do and ask for forgiveness later". You have to be super aggressive when it comes to compliance. Otherwise you will get shut down. Think of it as "preventative health" to the extreme :)
This is sort of easy to explain, the United States makes the processes difficult because it wants the money kept here.<p>What interest are you to the United States if you work here and then don't spend any of the money in the economy? If a majority of your paycheck is being spent in other markets, then you're actually running against the US economy.<p>This is just a short lay-man's terms explanation of how I see the situation, but it seems to be somewhat true.
It's understandable that there are some hurdles involved in businesses that handle customer money like this. But obviously the current situation is far from ideal.<p>I know there's at least one company (Precash) where you can sort of rent their licenses. I'm not familiar with how forward thinking they are or how onerous/costly their service are.
I'm OK with all of the fees as long as they go towards enforcement and regulation. If they exist just to increase the price of entry, then they need to be lowered. 2008 was a great reminder of how a lack of oversight and enforcement can cause huge problems for everyone. I hope we have not already forgot that.
Is it possible to argue that these hurdles are in place for some systemic or historically-shaped reasons? Would be curious to hear someone explain the regulation and high cost of entry outside of banking cartel and government incompetence.
It's not really a fair comparison is it? The U.S. is 50 semi-independent sovereigns covering 315 million people. What's the cost of registering to become a money transmitter in all the Eurozone countries (which have a similar aggregate population)?