As we have noted on multiple occasions, one of the most important questions in the non-bank payments revolution — at least from a regulatory perspective — is whether a particular payments service is subject to regulation as money transmission. Almost all U.S. states regulate money transmitters under state-specific licensing regimes, and the statutory definitions of money transmission are quite broad and typically cover any entity that “receives” or “transfers” money.

Money transmission licensing laws were crafted to address companies that sell money orders or stored value products, or offer domestic and international person-to-person funds transfers. However, there are many new companies that function differently: They facilitate the receipt of payments by merchants and other payees (including, for example, utilities), rather than facilitate the transmission of funds on behalf of a sender. An entity providing this type of service may have a contractual relationship with the recipient under which the entity is appointed as an agent to receive funds on behalf of that recipient (i.e., the payee).