States’ efforts to rein in fly-by-night companies are starting to have an effect on some payments startups’ operations.
This week, Think Computer Corp., a mobile-payments company that created an application that relies on facial recognition to confirm a user’s identity at the point of sale, shut down its California FaceCash merchant network because of the state’s new money-transmission law.
The law, called the Money Transmission Act, states companies wishing to do business as a funds transmitter must have a $500,000 tangible net worth requirement and a $750,000 aggregate surety bond requirement to obtain a license. The aggregate surety bond is related to insurance on the funds kept in consumers’ FaceCash accounts.
Consumers must link their FaceCash account to a valid bank account.
Think says it is capable of meeting both requirements but says the California Department of Financial Institutions requires more than that amount to obtain a license. The department has failed to provide the actual figure needed to obtain a license, the company says.
“Because [the department] doesn’t publish its actual requirements anywhere, we have no way of knowing our application would be approved,” Aaron Greenspan, FaceCash founder and CEO, tells PaymentsSource.
The application’s rejection would have consequences in other states that Think is seeking to enter, Greenspan adds. “If it’s rejected in California, it certainly will be rejected in other states,” he says.
The actual amount needed for a new licensee is higher than the listed numbers, a department spokesperson tells PaymentsSource. “It’s more than $1 million,” she says.
A new licensee is required to have more tangible net worth to offset the expected losses of a new transmitter and support its operational needs at all times, according to the law. But nowhere does the department give the actual amount.
The amount varies on a company-by-company basis, the spokesperson says. “It depends on the proposed plan, including size of the business,” she adds
“I don’t think it’s in the public’s best interest [for] regulatory agencies to have information hidden from the public, but they may see it a different way,” Greenspan says.
Think approached the department when the law first was being formed. The company never received an answer concerning whether it needed to worry about the law, Greenspan says.
“I think I did what due diligence was necessary,” he says. “You want to be savvy about legal issues and any changing situations, but I think it’s unreasonable to expect someone to call the same agency everyday to see what has changed.”
The new law not only affected Think, Greenspan says. Some 10 companies ceased operations as a result. “We’ve just been the most vocal about it,” he adds.
The law now puts FaceCash in a difficult position, Beth Robertson, Javelin Strategy & Research director of payments research, tells PaymentsSource.
“California is one of the key markets for technology innovation and trialing new technology,” she says. “It’s a big blow for them.”
Think has approached merchants in other states, but Greenspan declined to name the retailers. The company notes on its website Massachusetts, South Carolina, Montana, Wisconsin and New Mexico regulate domestic money- transmitter companies. New York changes its laws in September, while Indiana only regulates companies with offices in the state, the website notes.
Robertson believes Think is in a position to be an acquisition candidate for a company that might be in a better position to provide the necessary funding to obtain a license. “It’s an interesting product that could attract some companies,” she says.
Think recently added a contactless capability to FaceCash (
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