Do you or your client want to start a fintech or payment company or expand into the fintech or payment space?
To get started, you’ll need to do a few things – like figure out your target market, get the right tech in place, and get access to banking. But before you can start your operations, you’ll almost certainly have to get licensed.
Licensing can be an enormous pain, and companies can spend years trying to get registered.
Thankfully, it doesn’t have to be that challenging. There are a few reputable jurisdictions in the world where you can get licensed much more easily.
For a lot of companies, we recommend Canada.
Deciding Where to Get Licensed
Deciding where to get licensed is not an easy decision – you’ll want to consider a number of important factors, including:
- Where you’re Located: if all or most of your staff are located in country X, then country X’s regulators may expect you to obtain a payment license in country X.
- Where your Clients are Located: sometimes, if you advertise or provide substantial services to clients in country Y, country Y’s regulators may expect you to register in country Y.
- Where you can get Banked: you’ll need to get good banking rails in order to provide your payment services. For instance, many banks and neo-banks will not bank you if you’re registered in an unreputable country.
- Cost & Timeline: getting a payment license costs money and takes time. In some places, it may take years and cost you hundreds of thousands of dollars (and there’s no guarantee you’ll succeed). High costs and timelines won’t make sense for many early-stage companies. They also won’t make sense for many folks that need to test out a (new) payment product before committing substantial resources to the project.
- What you can do with the license: Licenses/registrations come in different shapes and sizes – they vary in the scope of activities they allow you to perform. For instance, both a European EMI and Canadian money service business (“MSB”) will allow you to provide a variety of fiat payment services. The MSB, however, will also allow you to provide certain crypto services. The EMI does not give you such an ability – you’ll usually need to obtain an additional Virtual Asset Service Provider (“VASP”) license to do that.
Canada: an Ideal Destination to get Licensed!
Canada has become a premier destination for fintech businesses the past couple of years, especially for businesses from Europe and Africa. Here are some reasons why Canada may be a great choice for you or your clients:
- MSBs are Inexpensive and Fast: The MSB registration (Canada’s current payment “license”) process is quick – it takes about 2-3 months from start to end. We charge between $9,500 - $11,500 USD to get you MSB registered from A-Z, including preparing your Canadianized AML policies. Getting an EMI - on the other hand - can take years and costs $100,000 +.
- MSBs can get Good Banking: there are a number of well-reputable EMIs, neo-banks and banks in Europe, Canada and the US that will provide banking services to Canadian MSBs. These bank accounts can give you an IBAN account and allow you to facilitate payments using SWIFT, SEPA, Interac e-transfer, Faster Payment, and other local payment methods.
- MSBs Passport into Foreign Countries: we are seeing more and more clients obtaining Canadian MSBs to passport into foreign markets (especially into Europe). There are certain safeguards you need to take to ensure your passporting strategy does not trigger local payment licensing or legal requirements – we can help with that!
- MSBs are Versatile: with an MSB, you can provide a host of payment, currency exchange, remittance, and e-wallet services. In addition to this, you can also provide certain crypto exchange, crypto gateway, and crypto remittance services. In a sense, the MSB gives you the functionality of an EMI combined with a VASP.
Here’s a strategy we’re seeing deployed effectively:
- European founders want to test out their product in the European market, but it’s too expensive and time consuming to get sufficient licenses in Europe to test out their product. So… they set up a company in Canada, get MSB registered, obtain bank accounts with European EMIs and other payment service providers, and use this infrastructure to service markets in Europe and abroad.
- African founders want to facilitate cross-border remittances from Canada, Europe and abroad into African countries. They need European and other foreign banking rails in order to do this – which is hard to come by with an African-registered company. So… they set up a company in Canada, get MSB registered, and get access to good banking rails to facilitate their cross-border remittance business.
Incoming Law – an Improved Registration Regime
Payment and fintech companies in Canada will soon have to register as “Payment Service Providers” (“PSPs”) under the incoming Retail Payment Activities Act (“RPAA”). Registration opens in November 2024.
Whereas MSB regulations are aimed at ensuring that payment companies aren’t used to launder money, PSP regulations are aimed at ensuring that payment companies are run properly.
Luckily, MSB and PSP requirements that may apply to Canadian payment companies are still less onerous than those in comparable jurisdictions like the EU, Singapore, UK, and the US.
- In Canada, you can provide a host of virtual asset services with your PSP + MSB without the need for an onerous VASP license.
- We anticipate PSP registration to be straightforward compared to similar licenses such as the EMI or VASP in Europe.
- There are no minimum capital requirements for PSPs.
We believe that the RPAA will make Canada an even more ideal destination for your payment operation.
When you operate in Canada, you are:
- Operating in a reputable jurisdiction with meaningful payment regulations
- Subject to a regulatory regime that is lighter touch than Europe and other jurisdictions
- Able to access lots of high-quality banking options
How we can Help
We are the premier fintech and crypto-focused law and compliance firm in Canada – and the only one that integrates law and compliance.
We can help you get MSB registered and help you remain compliant once you’re registered. We can help with your PSP registration as well in November 2024. We are also well-connected with bank account providers in Canada and abroad with a history of servicing Canadian-registered payment companies.
Interested in learning more? Connect with Pouya Makki (Head of Fintech Practice & Legal Counsel at Renno & Co):
- Via email at: pouya@rennoco.com
- Via LinkedIn
