Alipay Awarded a Money Transmitter License in Washington State

In a move foreshadowed by Alibaba Group Holding's initial public offering in the U.S., the China-based e-commerce giant's Alipay division has received a U.S. money transmitter license.

Alipay was granted the money transmitter license last week, with the state of Washington the first to award the company a license, according to consultant Faisal Khan and public records on the Nationwide Mortgage Licensing System site.

With the money transmitter license, Alibaba, operating as Alipay U.S. Inc., would not have to turn to third-party providers to offer payments products or services in the U.S.

U.S. payment regulation can be a hurdle for new entrants, particularly as it applies to emerging payment technologies and unconventional business models.

Laws for money transmitters vary by state, and Alibaba would have to apply for a license in each state in which it intends to do business.

"For Alipay to compete on a global level, like PayPal, they have to get these money transmitter licenses in place and start to build a global transfer network," said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.

It took PayPal many years to develop its network after going through the complex process of obtaining licenses, Crone said.

"It's the start of bigger things to come for Alipay, but one does have to wonder why they went this route, as opposed to making an acquisition of a Western Union or a MoneyGram," Crone added.

Facebook also went through the process of obtaining money transmitter licenses in various states three years ago as it began to formulate plans for payments-based services through the popular social media platform.