Money Transmission in the United States: Licenses, Requirements, Exemptions and Alternatives for Payment Companies and Fintech

Money Transmission in the United States: Licenses, Requirements, Exemptions and Alternatives for Payment Companies and Fintech

A guide to the money transmission licensing regime in the U.S., its federal and state structure, associated costs and available paths to operate without holding your own license.

Any company that receives money from one party to transmit it to another in the United States faces one of the most fragmented regulatory structures in global finance. Unlike banking regulation, where a dual but coordinated system exists between federal and state authorities, money transmission is regulated almost exclusively at the state level. There is no single national license. The result is a patchwork of 49 distinct state regimes (Montana is the only state that does not require a license), plus the District of Columbia and several territories such as Puerto Rico, Guam and the U.S. Virgin Islands, each with its own definitions, financial requirements, timelines and exemptions.

For a fintech, a payment processor or a digital asset platform seeking to operate throughout the United States, this means, in practice, filing dozens of license applications in parallel, each governed by its own body of law. Understanding the logic of the system, the common requirements, the available exemptions and the structural alternatives is indispensable before designing any market entry strategy.

What Constitutes Money Transmission

In general terms, money transmission is the activity of receiving money or monetary value from one person to transmit it to a third party. Depending on the jurisdiction, the definition includes the sale or issuance of payment instruments, stored value, the operation of electronic wallets and, in a growing number of states, the exchange, transfer or custody of virtual currency and digital assets. Connecticut, for example, defines money transmission as the business of issuing or selling payment instruments or stored value, receiving money or monetary value for present or future transmission, or transmitting money by any means. Maryland uses a different approach focused on the commercial activity of transmission. The lack of a uniform definition means that the analysis of whether a specific activity constitutes money transmission must be conducted state by state.

Business models that typically fall within the definition include person-to-person (P2P) payment platforms, domestic and international money transfers, payment processors for marketplaces, bill payment services, payroll providers that deposit salaries into employee accounts, wallets and stored value products, cryptocurrency ATMs (kiosks) and digital asset exchanges that hold or transmit crypto assets on behalf of third parties.

Regulatory Structure: Federal and State Levels

Federal Registration with FinCEN

At the federal level, any company engaged in money transmission is considered a Money Services Business (MSB) and must register with the Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury. Registration is completed through FinCEN Form 107 and must be renewed every two years. Registration alone does not authorize operations; it merely fulfills the federal identification obligation. Operating as a money transmitter without the required registration is a federal crime under 18 U.S.C. § 1960, carrying penalties of up to USD 250,000 in fines and five years in prison.

Registration with FinCEN carries substantive obligations. The MSB must implement an anti-money laundering (AML) program that includes internal policies and procedures, a designated compliance officer, periodic staff training, independent program auditing and transaction monitoring. It must also file Suspicious Activity Reports (SARs) with FinCEN when suspicious activity is detected and Currency Transaction Reports (CTRs) for cash transactions exceeding USD 10,000.

State Licenses (Money Transmitter Licenses)

It is at the state level where complexity multiplies. Each state has its own regulator (generally the department of financial services or the state securities commission), its own application form, its own fees and its own standards. Most states use the Nationwide Multistate Licensing System (NMLS) as the platform for managing applications, which allows multiple licenses to be processed from a centralized system, although the substantive requirements of each state remain independent. Some states, such as Florida, New Jersey and the U.S. Virgin Islands, still require direct applications outside the NMLS.

The state license is generically called a Money Transmitter License (MTL), although the name and scope vary. In New York, for example, the Department of Financial Services (NYDFS) issues both the MTL for fiat money transmission and the BitLicense for virtual currency activities, and both may be required if the company operates in both segments.

Common Requirements for Obtaining an MTL

While each state has its particularities, certain elements are repeated across nearly all regimes. The most relevant are outlined below.

Surety Bond

Virtually all states require the posting of a surety bond as a condition for obtaining the license. The amount varies by state, projected transaction volume and, in some cases, the number of agents or physical locations. Ranges span from USD 10,000 (in smaller states with minimal requirements) to over USD 1,000,000 (in large states with high transaction volumes). New York requires a minimum of USD 500,000. California applies a formula based on 50% of the average daily outstanding obligations, with a minimum floor. Arkansas uses a tiered system of USD 50,000 plus USD 10,000 per additional location, with a cap of USD 300,000. The actual cost of the surety bond for the company is the annual premium charged by the surety company, typically between 1% and 5% of the bond amount depending on the applicant's credit profile.

Minimum Net Worth

Most states require demonstrating a minimum tangible net worth. Alabama requires USD 25,000. Arizona requires USD 100,000. California may require USD 500,000 or more depending on the activity. Minimum net worth is not static: some states adjust it based on transaction volume or outstanding obligations. The applicant must submit financial statements demonstrating compliance, and in several states these must be audited by an independent accounting firm.

Background Checks

All states require personal background checks for controlling shareholders, directors and principal officers of the applicant. These include criminal background checks, FBI-processed fingerprints, credit history and litigation history. Generally, any person holding 10% or more ownership in the company is subject to these checks. Convictions for financial crimes (fraud, money laundering, embezzlement) are grounds for automatic rejection in most jurisdictions.

AML/KYC Compliance Program

Each application must be accompanied by a detailed description of the anti-money laundering and customer identification program the applicant will implement. State regulators evaluate the strength of KYC policies (identity verification through official documents), transaction monitoring, procedures for detecting and reporting suspicious activity, and internal training mechanisms. A weak AML program is one of the most frequent reasons for application rejection or delay.

Business Plan and Corporate Documentation

States require the submission of a business plan detailing the operating model, target markets, fund flow structure, distribution channels and financial projections. In addition, standard corporate documents are required: articles of incorporation, bylaws, certificates of good standing from the state of incorporation and the states where the license is sought, corporate organizational chart and detail of the control chain.

Permissible Investments

Licensed state money transmitters are required to maintain a volume of permissible investments (high-quality liquid assets) equal to or greater than their outstanding customer obligations. The logic is the same as that underlying the GENIUS Act reserve requirement for stablecoins: customer funds must be backed at all times. Permissible investments typically include deposits in insured banks, Treasury bills, and in some states, state bonds or certificates of deposit. Regulators periodically verify that the licensee maintains the required level.

Costs and Timelines

Application fees range from a few hundred dollars to over USD 5,000 per state. If a company seeks to operate in all 49 states requiring a license plus the District of Columbia, application fees alone can exceed USD 100,000. To this must be added surety bond costs (which are sustained annually), legal and compliance consultant fees (which can range from USD 10,000 to USD 50,000 per state depending on model complexity), financial audit costs and internal investment in monitoring and reporting systems.

Processing timelines are equally variable. In states with lower application volumes, approval can be obtained in three to six months. In large states such as California, New York and Texas, typical timelines range from six to twelve months, and in some cases exceed a year. The good news is that the NMLS allows parallel application filing, so the company can advance simultaneously in multiple states. The bad news is that each state may request additional information at any point in the process, extending timelines unpredictably.

Licenses must be renewed annually. Renewal involves payment of fees, submission of updated financial statements and, in many states, periodic reports on transaction volume, outstanding balances and composition of permissible investments.

Harmonization Efforts: The Model Act and the MMLA

The Conference of State Bank Supervisors (CSBS) has been working for years to reduce fragmentation. Its primary tool is the Money Transmission Modernization Act (MTMA, also known as the Model Act), a model text that seeks to standardize definitions, net worth requirements, surety bond amounts, permissible investments and exemptions. As of this article, 31 states have adopted the MTMA in whole or in part, and money transmitters licensed in at least one state that adopted the model law collectively represent 99% of reported money transmission activity in the country.

However, harmonization is far from complete. Several states that adopted the MTMA introduced significant deviations. Some expanded the scope of the money transmission definition to explicitly include virtual currency activities; others maintained specific exclusions or requirements not found in the model text. The treatment of payroll processing, for example, is one area where MTMA adoption produced more divergence than convergence among states. In practice, compliance management remains a state-by-state operation for any transmitter of national scope.

In parallel, the CSBS administers the Multi-State MSB Licensing Agreement (MMLA), which allows a lead state to conduct the comprehensive review of an application while other participating states accept that review, focusing only on their specific requirements (bond, fees, local conditions). Over 30 states participate in the MMLA, which can significantly reduce processing times and costs for licensees operating across multiple jurisdictions.

Exemptions from the License Requirement

Not all activity involving fund transfers requires an MTL. Exemptions are a central piece of the regulatory analysis, and their correct (or incorrect) application can mean the difference between operating legitimately without a license and incurring a federal violation.

Banking Exemption

Banks, credit unions and other financial institutions with a federal or state charter are typically exempt from obtaining an MTL, both at the federal level (FinCEN excludes banks from MSB registration) and at the state level. The exemption generally extends to bank subsidiaries when acting in that capacity.

Agent of the Payee

This is one of the most widely used exemptions by fintech platforms. Under the agent of the payee doctrine, a company that collects payments on behalf of a seller or service provider (the payee) may not be engaged in money transmission if certain conditions are met: there must be a written contract between the agent and the payee whereby the payee designates the agent to collect on its behalf; the payee must publicly present the agent as a payment recipient; and the payment must be deemed received by the payee at the moment the agent receives it, so that the payor is released from its obligation. The rationale is that if the payor's obligation is extinguished upon paying the agent, there is no "transmission" but rather a collection on behalf of the creditor.

Thirty-nine states recognize some form of this exemption, but the specific requirements vary. Applying it incorrectly is a common mistake among fintech startups: a company that assumes it qualifies for the exemption in all states without a jurisdiction-by-jurisdiction analysis exposes itself to significant regulatory risks.

Payment Processor Exemption

At the federal level, FinCEN provides an exemption for companies that facilitate payments for the purchase of goods and services through a clearance and settlement system that only admits entities regulated under the Bank Secrecy Act, operating under an agreement with the merchant. A payment processor that uses regulated networks such as ACH or Fedwire under a contract with the merchant, without retaining funds beyond the time necessary to settle the transaction, may qualify for this exemption. At the state level, the availability and scope of this exemption vary.

Agent of the Bank

Thirty-five states recognize an exemption for entities that conduct money transmission on behalf of a bank or other exempt financial institution, under a written contract establishing the agent's specific functions, where the bank assumes all risk of loss and legal responsibility for the operations. This is the conceptual basis for the fintech-bank partnership model analyzed below.

Other Exemptions

Depending on the state, exemptions may exist for government entities, securities brokers registered with the SEC or FINRA (with respect to their regulated activities), certain payroll services and, in some cases, operators with no physical presence in the state (although the MTMA has closed that gap by defining that providing services to persons located in the state triggers the license requirement, regardless of the provider's location).

Alternatives to Obtaining Your Own MTL

The cost, time and operational complexity of obtaining licenses in multiple states have generated an ecosystem of structural alternatives that allow a fintech to operate in the U.S. payments market without holding its own MTLs. These alternatives do not eliminate regulatory obligations, but redistribute the compliance burden.

Banking-as-a-Service and FBO Accounts

The most widespread model is the bank partnership. The fintech enters into a contract with an insured financial institution (a sponsor bank) that is the entity legally conducting the money transmission. The fintech's customer funds are deposited in a "for the benefit of" (FBO) account in the bank's name, with the bank as the legal account holder. The fintech operates as the technology and user experience layer, but the movement of funds occurs through the banking infrastructure.

If the structure is properly designed, the fintech falls outside the flow of funds in a regulatory sense: the bank is the one receiving and transmitting money, and the fintech acts as a technology service provider or as the bank's agent. Several states have recognized that in these arrangements the fintech does not require its own MTL, provided the bank assumes responsibility for operations and the risk of loss. The strength of the contract between the fintech and the sponsor bank is critical: it must precisely define the delegated functions, risk allocation, AML compliance obligations and oversight mechanisms.

Operating Under a Third Party's License (Piggybacking)

Another alternative is for the fintech to operate as an authorized delegate or agent of a money transmitter that already holds the necessary state licenses. In this model, the licensed transmitter assumes regulatory responsibility and the fintech operates under its umbrella. The transmitter charges a fee for the use of its license infrastructure. This model is common in the early stages of startups that plan to obtain their own licenses in the future.

OCC Fintech Charter

In 2018, the OCC announced it would accept applications from fintech companies for a special purpose national bank charter. The main advantage of this charter is that, as a federal banking license, it would preempt state laws, eliminating the need to obtain MTLs state by state. The initiative was challenged in court by the NYDFS and the CSBS, arguing that the OCC lacked authority to grant charters to non-depository institutions. After an initial NYDFS victory in 2019, the appellate court reversed the decision in 2021, leaving the door open for fintech charters to proceed. In 2025, the OCC received 14 national trust bank charter applications and conditionally approved five, all linked to digital asset services and crypto custody. The most prominent case was the conditional approval granted to Circle in December 2025 to establish a national trust bank to manage USDC reserves.

State Trust Company Charter

Another path is obtaining a charter as a trust company under a state's banking legislation. In New York, for example, a limited purpose trust company can conduct custody and money transmission activities without a separate MTL, and if it obtains NYDFS approval, can also operate with virtual currency without a BitLicense. Several crypto companies (Paxos, Gemini, among others) chose this route instead of the BitLicense. The trust company charter entails a heavier regulatory burden (stricter capital requirements, ongoing banking supervision), but offers a broader regulatory perimeter and the ability to exercise fiduciary powers.

Virtual Currency and Digital Assets

The intersection between money transmission and digital assets is one of the areas of greatest regulatory complexity. FinCEN has maintained since 2013 that exchangers and administrators of convertible virtual currency are money transmitters and must register as MSBs. At the state level, the situation is heterogeneous. Most states regulate crypto asset activities under their general money transmission laws, whether through explicit definition or broad interpretation of the concept of "monetary value." Some states (Arizona, for example) apply their broad definitions without specific mention of virtual currency, but in practice require a license. Others have legislated specifically.

New York is the paradigmatic case. The BitLicense, in effect since 2015, requires a separate authorization for any company conducting virtual currency business activity with state residents.

California is implementing the Digital Financial Assets Law (DFAL), whose main provisions will take effect on July 1, 2026. The DFAL establishes specific criteria for digital asset businesses, creating a regime separate from the Money Transmission Act but with comparable requirements regarding licensing, capital and compliance.

At the federal level, the enactment of the GENIUS Act (July 2025) created a separate regime for payment stablecoins that excludes stablecoin issuance from state money transmission laws. But that exclusion does not extend to broader digital asset activities: a cryptocurrency exchange that does not issue stablecoins still needs state MTLs to operate legally.

Considerations for Latin American Companies

For a fintech or payment platform from Latin America seeking to offer services to users in the United States, or that facilitates cross-border transfers between the region and the U.S., the money transmission regime is a significant operational hurdle that must be addressed from the business model design phase, not as a post-launch compliance matter.

The first question that must be answered is whether the proposed activity constitutes money transmission under the laws of the states where users are located. If the platform receives funds from a user in Miami and transmits them to another in Mexico (or converts them to pesos and sends them), it is conducting money transmission in Florida at a minimum, and possibly in other states if it has users there. The answer does not depend on where the company is domiciled but on where its users are.

The second issue is the choice of structure. For most Latin American companies entering the U.S. market, obtaining their own MTLs in 49 states is not viable in an initial stage for reasons of cost and time. The most common alternatives are a partnership with a U.S. sponsor bank (FBO/BaaS model), operating as an authorized delegate of an already-licensed money transmitter, or limiting the offering to states where the company may qualify for an exemption. Each of these paths has its own risks and limitations that must be evaluated on a case-by-case basis.

The third issue is cross-border regulatory coordination. A company registered as a PSP with the BCRA in Argentina, or as an electronic payment fund institution in Mexico, does not by that fact alone obtain authorization to operate in the United States. Regulatory regimes are not mutually recognized.

Summary

The U.S. money transmission regime is a decentralized, costly and complex system whose logic responds to consumer protection and the prevention of illicit use of the financial system. For a company that moves money or value on behalf of third parties, the question is not whether it needs to comply with this regime, but how to do so efficiently.

Alternatives exist: bank partnerships, operating under third-party licenses, exemptions for payee agents and processors, and federal or state charter paths for more ambitious models. But none of these alternatives eliminates the need for rigorous regulatory analysis, tailored to the specific business model and the states where the company intends to operate. The cost of getting it wrong is high: civil penalties, federal criminal liability and, no less importantly, the loss of banking relationships that are indispensable for functioning within the U.S. financial ecosystem.

At JFC, we advise fintech and payment companies on designing their regulatory strategy for operating between Latin America and the United States, including business model assessment against the money transmission regime, selection of compliance structure and coordination with regulators in both jurisdictions.

This note is for informational purposes only and does not constitute legal advice. For a specific analysis, please contact our team at contact@jfcattorneys.com.