Innovating in payments in the US? Prepare to make some tradeoffs.
Want to build an end-to-end payments solution on stablecoin rails? You will need to pursue state-by-state money transmitter licenses (MTLs) costing millions of dollars and add months or years to your rollout timeline.
Want to avoid MTLs by engineering a purely self-custody wallet-to-wallet solution? Good luck getting customer and merchant adoption, fiat/stablecoin on-ramping and off-ramping, meaning that you still need to manage your AML/Sanctions compliance risk exposure.
Want to avoid MTLs by partnering with a Banking-as-a-Service sponsor bank? You’ll have to become the bank’s agent, share a big part of the revenue, and operate under the bank’s strict supervision and oversight and faces different terms in different states.
Don’t want to be a bank’s agent but still avoid MTLs? You could be an “agent of the payee” but your product will be limited only to goods and services merchants and have to tailor your operations to a very narrow exemption path (and even this path only exists in some of the 50 States).
Planning to use existing Mastercard / Visa rails? You’ll need a sponsor banks relationship and merchants will need to pay 2.6-3.5% in processing fees to the networks and banks, separate from any rewards you offer to users.
Want to lower the costs of paying through banks? You will need a sponsor bank and orchestrate payment to run on ACH, same-day ACH, Real-Time Payments network, FedNow – each with different cost/speed tradeoffs – to achieve the kind of fast settlement that merchants require. Your users will need to give up the fraud protection and chargebacks that credit cards offer.
And cross-border payments? That’s a whole other story.
Don’t despair. What makes innovating in payments hard is also what makes it worth doing.