A money transfer business mostly refers to transmitting money between parties without having to get involved in their purchase transactions. In person-to-person money transfers, the business usually would have partnership financial institutions in various locations that could handle the money receipts and payouts on the business's behalf. Western Union is the best-known company of this kind. Online money transfers rely primarily on electronic funds transfers facilitated by the automatic clearing house. Banks must be part of the online money transfer, as both the company and its customers need to have their respective bank accounts, but money transfer businesses such as PayPal offer specialised services that banks do not consider as their core business.
Obtain a money transmitter license. Money transfer is regulated by individual states. According to the National Money Transmitters Association, the District of Columbia and all 50 states except Alaska and South Carolina have some kind of money transmitters act and require a license for the transmission of money within state borders. An online application is available at the appropriate department of all individual states.
File FinCEN Form 107 with the Financial Crimes Enforcement Network (FinCEN) at the Treasury Department. The agency classifies money transmitters providing money transmitting service as money services business, a non-bank financial institution under the Bank Secrecy Act. All money services businesses must register with FinCEN no later than 180 days after the money service business is established. The federal oversight is designed to fight against any potential, illegal money-laundering acts.
Set up transaction accounts with banks. In order to carry out the basic functions of a money transfer business, transaction accounts need to have two combined features that banks offer only to merchant accounts. The accounts must enable the money transfer business as the account holder not only to send money to customers' accounts but also to retrieve funds from customers' accounts with their permission.
Build an online presence for your money transfer business. Find a website host with webpage designs that suit your business needs. Keep in mind that the functions of the website should include the company's ability to obtain all necessary information to debit a customer's bank account or a credit-card account in order to transfer money for the customer. The website may also encourage recipients of the money transfer to also have an account with the company so that funds can stay inside the company's system longer.
- When a money transfer business has its operations online, the rule of state boundaries still apply. Make sure to apply for a license in all states where your business intends to solicit customers. For example, PayPal is licensed in the jurisdictions of about 40 states.
- To better manage the money transfer process, it is not enough nor convenient if your company receives funds only by means of customer depositing. Your company should be able to initiate any fund transfers from the customer account to the company's account.