[tptacek]

As I understand it, the big deal with money transmission licenses is that they tend to require sizable bonds (they exist in part to mitigate the risk that you'll build up a client base and one day take all the float and move to Antigua --- or, for that matter, that you'll go out of business while holding the bag on millions of dollars of client payables.

The requirements to get a license in Illinois are straightforward: you need to meet a (low-seeming) net worth requirement, you can't have outstanding regulatory problems with the state, your management can't be felons. You also have to post a surety bond equivalent to max(100k, daily average volume).

If Square isn't already required to be a money transmitter in (say) CA or NY, it'd be surprising if they had to be one in IL, but either way this seems like a speed bump for Square.

[dsl]

Just because another state has not yet taken enforcement action doesn't mean Square isn't in violation. The TechCrunch article mentions they have been in talks with the state for a while, which means they could be talking to 40 other states that have the same concerns... we don't know.

If you are big enough to be noticed by the states as a major money mover, you're probably big enough to get the proper licenses to conduct business. The last thing we need is deregulation in the financial space.

[tptacek]

Of the various regulatory hurdles you have to jump over to be a business that handles money for other people, money transmitter licenses seem like one of the most reasonable requirements, so I guess I agree. It must suck a lot to have to deal with every state on these, but I'm not sure we'd like federal requirements any more.

[aristus]

If the bond requirement becomes daily volume times 50 states, they are boned.

[dsl]

The bond requirements are per state for daily volume, so if they needed one in every state it would be equal to one days volume.

[AnIrishDuck]

I wonder if they can post one bond that meets the requirements of all 50 states somehow... that seems reasonable, the issue is which party they would post the bond with.

[thinkcomp]

No. The bonds must be separate as it currently stands, and they are very expensive, not to mention a horrible way to handle insurance.

[tptacek]

Two questions. First, insurance underwriters sell surety bonds, so what makes them a "horrible" way to handle insurance? If the states mandated actual insurance, you'd be held hostage to the arbitrary requirements of insurance companies; the bond requirement allows you to substitute your own capital for the judgement of insurance underwriters if that's what you want to do, but also allows you to avail yourself of the insurance industry.

Second, even though separate bonds are required by each state, what prevents insurance companies from simply selling you a surety bond product that meets the requirements of multiple states simultaneously?