United States: Are You A "Payment Processor"? Washington State Appears To Significantly Expand Scope Of Its Money Transmission Act

Last Updated: February 23 2016
Article by Sean M. Ruff and Adam J. Fleisher

One of the defining aspects of the payments revolution of the past few years—at least from a regulatory perspective—has been the question of whether any particular payments service is subject to regulation as money transmission. Almost all U.S. states regulate money transmitters under state-specific licensing regimes; the statutory definitions of money transmission are quite broad and typically cover any entity that "receives" and "transfers" money.

These laws were crafted to address what we would today call "traditional" money transmitters—i.e., major, well-known brands that sell money orders, stored value cards, and offer domestic and international wire transfers. Today, however, there are a number of new and innovative companies that are playing a somewhat different role: They play a part in facilitating the receipt of payments by merchants and other sellers of goods and services (such as utilities) as opposed to facilitating the transmission of funds on behalf of a sender. An entity providing this type of service may have a contractual relationship with the recipient pursuant to which the entity is appointed as an agent to receive funds on behalf of that recipient (i.e., the merchant). In recent years, state licensing authorities—and various participants in this market—have grappled with whether, and to what extent, this type of activity could be subject to state money transmitter licensing laws. Indeed, a number of states have recently concluded that, subject to certain conditions, state money transmission licensing laws do not apply to services provided as an agent of a merchant or other recipient of funds pursuant to a direct contractual agreement.1

Late last year, Washington State's Department of Financial Institutions ("DFI") entered the fray with an interpretive statement ("Statement") that took effect in January. This Statement is unique, however, in that it requires a "payment processor" to obtain a licensing waiver from DFI prior to operating in the state. The Statement is not explicit about what constitutes covered payment processing, but it does describe "payment processors" as entities that "receive payments from consumers, settle payment transactions with or without financial institutions, and transmit payments to merchants' or creditors' accounts." Furthermore, payment processors "may also provide marketing, billing, or other merchant service functions."


According to the Statement, "[p]ayment processing is money transmission" as defined in the Washington Uniform Money Services Act ("Act"). The Statement explains that payment processors "provide money transmission services between various types of consumer/debtor/payors and merchant/creditor/payees." For example, "[b]ill payment processors contract with creditors to facilitate the creditors' receipt of payments from consumer/debtors." The Statement suggests that "payment processing" comes within the broad definition of money transmission under the Act, which includes "receiving money or its equivalent value to transmit, deliver, or instruct to be delivered the money or its equivalent value to another location . . .by any means . . ."2 Furthermore, the type of activity described as "payment processing" in the Statement is discrete from the type of activity that fits within the narrow statutory payment processor exclusion under the Act.3 That exclusion from the Act applies to entities that sit between otherwise excluded entities, such as banks, but not to entities that intermediate between customers and merchants.

As a preliminary matter, in light of DFI's determination that a "payment processor" is a money transmitter, companies should examine closely whether their activities could trigger coverage as a "payment processor" in the eyes of DFI. Even if a company is a payment processor, however, if it meets specific conditions, it "may be eligible for a waiver from the license provisions of the Act." DFI's basis for permitting the waiver appears to be grounded in the fact that a payment processor may do so as an agent of the merchant (or other payee). In these scenarios, the DFI reasons that the risk to the consumer is diminished because "when the payment processor receives the consumer's payment, the consumer's payment obligation to the merchant is extinguished, as if the consumer paid the merchant directly" (emphasis added).


The Statement reiterates that the waiver is "limited to the licensing requirements" of the state's money transmission act, which raises preliminary questions about its scope. DFI apparently "retains its jurisdiction over the money transmission activities of the company even with the license waiver in place." (Note that, according to the statement, a "payment processor" is conducting money transmission.) The Statement specifies that companies under the waiver are "subject to entry and examination" to verify waiver eligibility and that DFI may "conduct examinations or investigations as permitted by the Act." The Statement does not, however, elaborate about what obligations DFI believes that a payment processor under a waiver would have under the Act.

We also note that the waiver applies to existing licensed money transmitters that provide services eligible for the waiver (i.e., "payment processing"). If a licensee obtains a waiver, the eligible activity no longer needs to be reported (this distinction matters for licensees because Washington imposes a yearly assessment based on transaction volume).


To be eligible for the waiver, the entity must:

  1. Facilitate payments for goods or services (other than money transmission) or bill payments by receiving money from a consumer/debtor/payor and delivering it to a merchant/creditor/payee;
  2. Operate through a settlement system that admits only BSA-regulated financial institutions;
  3. Operate pursuant to a formal agreement with the merchant/creditor/payee; and
  4. That agreement must create an agency relationship in which payment from the consumer/debtor/payor to the company satisfies the consumer/debtor/payor's obligation to the merchant/creditor/payee.

These four criteria track closely the "payment processor" exemption from the Bank Secrecy Act definition of a money transmitter articulated by the Financial Crimes Enforcement Network ("FinCEN").4

The DFI Statement, however, adds an additional and unique element to its waiver criteria: A "payment processor holding value beyond the time period necessary to complete the purchase of a good or service is not eligible for the license waiver." Finally, "a payment processor of virtual currency transactions," as well as a payment processor for the marijuana industry (pursuant, presumably, to the state's legalized regime) is not eligible for the waiver, regardless of whether the other conditions are met.


This Statement establishes DFI's position that a "payment processor" is a money transmitter that must seek a waiver to operate in the state of Washington without a money transmission license. Companies that provide services to facilitate transactions in Washington should therefore evaluate whether their business models might make them a "payment processor" and whether the licensing waiver would apply to their business models. Any such analyses should be approached deliberately, especially in light of DFI's warning that a payment processor "must" seek a waiver "before conducting activity in [Washington] state," and that a failure to do so "risk[s] an action by [DFI] for unlicensed activity."


1 See, e.g., California Assembly Bill 2209 (codified at Ca. Fin. Code § 2010(l)); Virginia administrative rules (10 VAC5-120-10); Illinois interpretive guidance ("Statement Regarding Third-Party Payment Processors and the Transmitters of Money Act), available at: http://www.idfpr.com/DFI/CCD/pdfs/07292015StatementThirdPartyProcTOMA.pdf.

2 See Rev. Code Wash. 19.230.010(18).

3 See Id. at 19.230.020(9).

4 See, e.g., 31 CFR § 1010.100(ff)(5)(ii)(B); FIN-2013-R002, Whether a Company that Offers a Payment Mechanism Based on Payable-Through Drafts to its Commercial Customers is a Money Transmitter (Nov. 13, 2013).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Sean M. Ruff
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.