Money Transmitter License Requirements: Everything You Need to Know

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Surety Bond Professionals is a family-owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your money transmitter bond needs. Below, we’ll discuss everything you need to know about money transmitter license requirements.

Who Needs a Money Transmitter License?

In general, money transmitting involves sending money within the United States or to another country on behalf of someone else for a fee. It is classified as a type of money service business (MSB). The specific definition of a money transmitter varies by state, as do the licensing requirements. Every state requires licensing of money transmitters except for Montana, which requires that they go through the state’s business registration process. Money transmitters that operate in multiple states will need to be licensed in each of them.

How Do I Get a Money Transmitter License?

Although the specific licensing requirements and steps differ from one state to another, they typically involve the following:

  • Registering the business with state tax authorities
  • Completing a license application
  • Documenting a certain net worth
  • Passing a criminal background check
  • Paying application and licensing fees
  • Purchasing a money transmitter license bond

Some states also require the submission of a business plan, completion of pre-licensing education, and a passing score on a state-level exam.

Why is a Money Transmitter License Bond Required?

A money transmitter license bond provides security for the state’s licensing authority and guarantees that the money transmitter will comply with all applicable laws governing the money transmitting industry. Violations that result in a financial loss give the injured party the right to seek compensation by submitting a claim against the bond.

A money transmitter license bond is not only a requirement for licensing but also for avoiding license suspension or revocation, which can happen if there is not an active bond in force for the duration of the license’s term.

How Are Money Transmitter License Bond Claims Paid?

Every money transmitter license bond is a legally binding contract involving three parties known as:

  • The “obligee” – the licensing authority or state requiring the bond
  • The “principal” – the money transmitter required to purchase the bond
  • The “surety” – the surety company underwriting and authorizing the bond

The principal is legally obligated to pay any valid claim against the bond. But typically, the surety will pay a claim initially and then be reimbursed by the principal. It’s a practice that ensures prompt payment to the injured party and gives the principal a little time to come up with the money to repay the surety.

How Much Does a Money Transmitter License Bond Cost?

The terms of the surety bond agreement specifically indemnify the surety against any responsibility for paying money transmitter bond claims. However, there is always some degree of risk in paying claims on behalf of the principal. Consequently, the surety’s main concern in approving a money transmitter bond application and setting the premium rate is the principal’s creditworthiness. The underwriters focus on the principal’s personal credit score for smaller bonds. For larger bonds and/or bonds across many states, the surety will assess the principal’s financial strength as well.

A high credit score and financial capacity usually results in a premium rate that’s in the range of 1-2% percent of the required bond amount. National companies requiring bonds in many states will be on the lower end of this spectrum, potentially as low as 0.5%.

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