Part 1 of 4: Why Most FinTechs Start with MSB and Money Transmitter Licenses. By Bryan Reyhani, Sean Ruff, Cristofer Kelman and Enrique Ubarri, Taft‘s FinTech Practice
Series overview
This article is Part 1 of a four-part series, Fastest Route to Market: Licensing Roadmaps for FinTechs. The series traces the main licensing paths available to FinTechs seeking to move, hold, or manage customer funds or value in the United States. Part 1 explains why most companies begin with federal Money Services Business (MSB) registration and state money transmitter licenses. Part 2 will focus on digital assets, digital asset licensing beyond MSB registration and state money transmitter licensing and the evolving regulatory road map. Part 3 will evaluate sponsor banks and banking-as-a-service (BaaS) arrangements, and Part 4 will focus on when a specialised charter makes sense. The common thread is speed to market: how a startup can reach customers quickly without locking itself into the wrong regulatory lane.
Executive summary
Most early-stage FinTechs do not need a bank charter. They need a practical way to move customer funds or value, hold balances, or operate a wallet within a realistic timeline. For payments companies, remittance providers, wallet operators, and businesses building on digital asset rails, that means starting with federal MSB registration and state money transmitter licenses. This path is not a workaround. A de novo bank charter typically takes well over a year, and often much longer, and demands experience, personnel, and capital that most early-stage companies do not have and are not in a position to commit. The MSB registration and state money transmitter licensing route may get founders to market sooner, with a compliance structure matched to the actual size and scope of the business today. Companies operating in the digital asset space will encounter additional licensing requirements on top of this foundation, including state-specific regimes like the New York BitLicense, which will be addressed in Part 2 of this series.
The threshold question: do you really need a bank charter?
Launching a new financial services business almost always begins with a deceptively simple question: do we actually need a bank licence? The answer shapes time to market, capital requirements, headcount, and the very scope of the product set the firm can credibly offer in its early years. A full de novo bank charter can provide deposit-taking authority, lending powers, and the ability to offer interest-bearing accounts under a single national framework, but it also demands substantial initial capital, a mature governance and risk infrastructure, and a regulatory review process that is typically measured in years rather than months. For most early-stage FinTechs, that pathway is misaligned with startup runway and investor expectations.
In practice, many founders discover that their immediate problem is narrower. They need a lawful way to move customer funds, hold balances, or operate wallets in the next six to twelve months, not a comprehensive solution to every future banking product they might someday want to offer. If the business is fundamentally about payments, stored value, or custodial wallets, rather than about using a proprietary balance sheet to intermediate credit, the fastest and most realistic answer is usually to operate as a non-bank MSB and pursue the money transmitter licenses needed in key states. That choice does not foreclose future moves into charters or bank partnerships, but it provides a workable on-ramp that can be executed within a startup timeline.
Translating the product into regulated activities
The first analytic task is to strip away marketing language and restate the product in terms of regulated activities. Regulators care about function, not branding. A platform that “helps users move money instantly around the world” might, in legal terms, be receiving money or monetary value from one person and transmitting it to another. A “digital wallet” that lets customers hold balances for later use may be storing monetary value redeemable at par. If a user’s funds are pooled and held in an omnibus account at a partner bank, the FinTech may be operating as a money transmitter or similar non-bank intermediary, even if customers never see that language.
- Does the company receive money or value from a customer (regardless of whether the company has physical or constructive control of the funds or value) and promise to deliver it to a beneficiary or hold it for that customer’s future use?
- Does it issue payment instruments or stored value that can be redeemed with merchants or other users?
- Are balances intended to be repayable on demand at par, so that customers experience them as cash equivalents?
If the answer to any of these questions is yes, the business is likely sitting inside the MSB and state money transmitter framework rather than at the threshold of a full banking charter. That determination points the firm toward MSB registration and state licenses as its initial roadmap while preserving the option to pursue more bank-like paths later.
Federal layer: Money Services Business registration
At the federal level, many FinTechs begin by registering as a Money Services Business with the Financial Crimes Enforcement Network under the Bank Secrecy Act. MSB status encompasses, among others, money transmitters, currency dealers or exchangers, and issuers or sellers of certain prepaid access, as well as a growing set of digital asset and stable-value structures that involve moving monetary value on behalf of customers. Registration itself is straightforward: a form must be filed within a set period after beginning MSB activities and renewed on a regular cycle. The real work lies not in the form but in building and maintaining a risk-based anti-money laundering programme that meets supervisory expectations.
That programme must match the firm’s actual risks:
- Written policies and procedures tailored to the company’s specific products and customer base.
- A designated compliance officer with real authority, not a title assigned as an afterthought.
- Periodic training for all relevant staff, documented and updated on a regular schedule.
- Independent testing by a third party or internal audit function.
- Mechanisms for customer diligence, sanctions screening, transaction monitoring, and suspicious activity reporting.
From a startup’s perspective, the attraction of MSB registration is that the timing is largely within the firm’s control. Once the AML framework is designed and implemented, the mechanics of registration can often be completed in weeks rather than months, giving the company a clear federal status and a defined set of obligations without yet resolving the more complex question of state licensing.
State layer: money transmitter licenses as gatekeeper
The heavier lift for most FinTechs is the patchwork of state money transmitter licenses. With limited exceptions, non-bank firms that receive money or monetary value for transmission, or sell or issue payment instruments, must obtain a money transmitter license in each state where they do business. Statutes are usually technology-neutral, crafted to capture both traditional remittance models and newer platforms such as custodial stablecoin wallets, merchant settlement platforms, and marketplaces that intermediate flows of customer funds. As a result, many business models that feel far removed from “Western Union-style” remittances nevertheless land squarely in money transmission territory when analysed through state law.
Most states process money transmitter applications through the Nationwide Multistate Licensing System (NMLS), a centralised web-based platform administered jointly by state financial regulators via the Conference of State Bank Supervisors. For companies filing in multiple states, NMLS removes a significant amount of duplicative work. A single portal handles application submissions and document uploads, standardised forms share data across participating states, and bond management and license renewals run through the same system. What NMLS does not do effectively is standardise the substance of what states require. Net worth thresholds, surety bond amounts, various documentation, and review standards are still set state by state, and they vary considerably.
Two domestic jurisdictions are notable exceptions to the NMLS framework. Florida processes applications through its own Office of Financial Regulation portal, known as the REAL System, and New Jersey requires a direct filing with the Department of Banking and Insurance. Both states need to be treated as separate workstreams from the start, not as add-ons to an NMLS batch filing.
Typical applications, whether filed through NMLS or directly, require evidence that the firm meets net worth or capital thresholds, often supported by audited financial statements. Applicants are frequently required to post a surety bond sized to anticipated transaction volume, provide detailed business plans and compliance manuals, and submit to background checks and fingerprinting for control persons and key managers. Once a license is granted, the company becomes subject to ongoing examinations, periodic reporting, and continuing obligations to maintain capital and bond coverage. Processing timelines vary across jurisdictions and business models, and are driven by both the quality of the application and the internal workload of the regulator, so they are best understood as a range rather than a fixed number.
Why MSB and MTL form the ‘;fastest route to market’
Given these hurdles, it may seem counterintuitive to describe MSB registration and multi-state money transmitter licensing as the fastest route to market. The key is comparison. Organising a de novo bank or obtaining a specialised bank charter typically entails extensive pre-filing engagement with regulators, preparation of detailed business and capital plans, and the demonstration of experienced management and independent directors. Approval is not guaranteed, and even a smooth process is likely to consume a year or much longer from initial contact to opening day, during which the business cannot yet operate as a bank.
By contrast, an MSB and MTL-based strategy can be phased. A company can complete federal MSB registration relatively quickly once it has its AML house in order. It can then prioritise a small set of states that are most important to its early customer base (noting that some states, including California and New York, have traditionally taken up to a year or longer for application review), file there first, and launch operations as licenses are granted rather than waiting for a single all-or- nothing approval. In some cases, it can supplement its own licenses with relationships with an already licensed provider or bank in which the licensed provider or bank will provide the regulated activity in additional jurisdictions while the company’s own licensing applications are in flight. The result is a staged rollout that begins generating real transaction volume and compliance history within a reasonable amount of time, not years.
Strategic tradeoffs of the non-bank path
Opting for MSB registration and state money transmitter licenses also defines limits. A firm structured purely as a non-bank transmitter does not take deposits in the banking law sense and does not benefit from federal deposit insurance. Customer funds are typically held in pooled or custodial accounts at partner banks, and the FinTech’s ability to pass through interest, intermediate maturity, or extend credit directly from those balances is constrained by statute, regulation, and contract and often requires separate licensing and regulatory compliance regimes. Revenue models tend to centre on transaction fees, interchange sharing, foreign exchange spreads, and value-added services rather than on traditional net interest margins.
The regulatory profile is different as well. Instead of prudential supervision by a federal banking agency focused on capital adequacy, liquidity, and resolution planning, the firm faces a mix of state financial regulators and federal financial crime authorities focused on customer protections, anti-money laundering, sanctions compliance, cybersecurity, and operational resilience. That oversight is real and resource-intensive, but it is generally more compatible with the narrower product set of an early-stage FinTech. For many payments companies, remittance providers, and wallet operators, this is not a second-best option; it is the right lane for a business that does not need to be a bank to deliver its core value proposition.
Taft’s FinTech Practice is composed of attorneys specialising in bankruptcy, banking, blockchain, cryptocurrencies, and digital assets, corporate, financial services, government investigations, intellectual property, litigation, public policy, securities, tax, technology, transactional, and regulatory issues that serve clients across the FinTech space. This article is intended for general informational purposes only and does not constitute legal advice. Licensing requirements vary by jurisdiction and business model. Consult qualified legal counsel before making regulatory filing decisions.
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