Top six secrets to sidestepping licensing laws and offering payment services

In the rapidly evolving fintech sector, navigating the complex web of licensing laws while offering payment services poses significant challenges and opportunities.

For startups and established companies alike, understanding the legal landscape is not just about compliance; it’s about discovering creative strategies to deliver innovative services without getting mired in regulatory quagmires.

This article seeks to unveil six strategic secrets that can help businesses offer payment services more efficiently, sidestepping the often burdensome requirements of traditional licensing laws, all while maintaining strict adherence to legal and ethical standards.

1) Partner with licensed entities

By establishing strategic partnerships with already licensed financial institutions or entities, companies can significantly benefit from the regulatory credentials of their partners. This clever approach allows them to seamlessly offer payment services under the comprehensive umbrella of the partner’s license.

It’s an effective strategy that not only minimizes the regulatory burdens on the company but also ensures full compliance with the stringent existing financial laws and standards. This method is especially advantageous for businesses looking to expand their service offerings without undergoing the extensive process of obtaining their own licenses.

2) Use electronic money institutions

Leveraging the status of Electronic Money Institutions (EMIs) offers a strategic pathway for companies aiming to sidestep traditional banking licenses while still providing payment and e-wallet services. By aligning with or becoming an electronic money distributor, companies can offer a broad spectrum of payment services, ensuring compliance and fostering innovation in the digital payments space.

EMIs are authorized to issue electronic money, manage wallets, and facilitate payments across borders, thus presenting an ideal framework for fintech companies to operate within a regulated environment. This not only accelerates time-to-market for new financial products but also significantly reduces the regulatory hurdles typically associated with traditional banking operations. 

3) Use regulatory sandboxes

Regulatory sandboxes offer a unique and controlled environment for fintech startups to diligently test and refine their innovative products and services without the immediate need for full regulatory compliance.

This option stands out as particularly beneficial for new entrants in the payment service industry. It enables them to effectively demonstrate the value, safety, and reliability of their services to regulators and potential customers alike in a practical, real-world setting. Sandboxes serve as a bridge between innovation and regulatory standards, offering a safe haven for creativity and development.

4) Offer ancillary services

Diversifying into services that complement but are ancillary to direct payment processing can also help companies circumvent the full intensity of licensing requirements. By focusing on offering value-added services such as comprehensive data analytics, customer loyalty programs, or advanced fraud prevention tools, companies can actively participate in the payment service ecosystem without the direct need for a payment processing license.

This approach not only broadens the company’s market offering but also enhances the customer experience, thereby creating additional revenue streams.

5) Leverage blockchain and cryptocurrency

The strategic use of blockchain technology and cryptocurrencies offers an innovative alternative path to traditional payment systems. By facilitating transactions on decentralized platforms, companies can sidestep some of the regulatory complexities and constraints associated with traditional banking systems.

This forward-thinking approach, however, demands a thorough understanding and careful consideration of the existing and looming regulations in the rapidly evolving crypto space. Companies venturing into this area must stay well-informed and adapt to the regulatory landscape to mitigate risks and capitalize on opportunities.

6) Engage in policy advocacy

Actively participating in the dialogue around payment services regulation and advocating for pragmatic, innovation-friendly policies can significantly influence the development of a more favorable regulatory environment. Companies that take the initiative to engage with policymakers, contribute to industry discussions and push for regulation that accommodates new business models and technologies play a crucial role in shaping the legal landscape.

Such engagement not only benefits the company by potentially easing regulatory constraints but also contributes to the overall advancement and acceptance of innovative payment solutions in the marketplace.

Give yourself the competitive edge with these six tips

Navigating the complex landscape of payment service regulations requires a blend of strategic innovation, regulatory awareness, and collaborative efforts. By exploring and implementing these six strategies, from partnering with licensed entities to engaging in policy advocacy, companies can secure a competitive edge in the fintech sector.

These approaches not only facilitate compliance and operational efficiency but also open the door to creative payment solutions that meet the evolving needs of consumers and businesses alike. Staying ahead in this dynamic field demands a proactive stance towards regulatory engagement and a commitment to leveraging technological advancements, ensuring that companies can thrive within the bounds of legal frameworks while pushing the boundaries of financial innovation.