Guide to Choosing Encryption Payment Business Licenses: US MSB and State MTL Licensing Guide

Written by: Lawyer Shao Jianding

Introduction

Most projects involved in crypto payments register as an MSB (Money Services Business) in the U.S. during early stages. But once the project is up and running, a question inevitably arises: Is having only an MSB legally sufficient? This issue cannot be answered based on “industry intuition” alone; it requires understanding the regulatory framework itself.

First, clarify a common misconception: MSB and state MTL (Money Transmitter License) are not “upgrade paths” to each other.

Many projects mistakenly see MSB and state MTL as “lower-tier” and “higher-tier” licenses, which is a typical misunderstanding. An MSB (Money Services Business) is a federal registration system supervised by FinCEN, focusing on:

• Compliance with KYC/AML/sanctions screening obligations

• Risks related to money laundering, terrorist financing, and other compliance issues

State MTL (Money Transmitter License), on the other hand, is a state-level financial license that primarily concerns:

• Whether you are qualified to conduct “money transmission” within that state

• Whether you can legally access, control, or transfer other people’s funds

In summary: MSB regulates “whether the money is clean,” while MTL regulates “whether you are qualified to handle that money.” They operate in different regulatory dimensions, and there is no legal logic that “covering MTL with MSB” makes sense.

Why do many projects in early stages “operate with only MSB”?

It’s not because regulators are lenient, but because the business model deliberately avoids triggering state law requirements. In projects we’ve assisted, common early compliance designs include:

• Not directly dealing with U.S. natural persons

• Not providing fiat on/off ramps, only handling crypto assets

• Not maintaining customer fiat balances on the platform

• Not directly holding or controlling customer funds

• Funds always passing through licensed third-party channels or custodians

Under these conditions, the project typically does not constitute “money transmission” under state law, so MSB plus internal controls are feasible at this stage. But it’s important to emphasize: this is not an “exemption,” but rather a “not yet triggered” status.

The core issue: what exactly are the trigger standards for state MTL?

From a legal practice perspective, whether you need a state MTL is never determined by whether you call yourself a “payment platform,” but by your legal position in the fund transfer chain. A highly practical criterion is: whether your business involves “transmitting, controlling, or possessing others’ fiat or its equivalents.”

Based on various state regulatory interpretations, the following behaviors are highly likely to be considered money transmission:

• Providing fiat payment services directly to U.S. users

• Maintaining a disposable fiat balance within the platform account

• Handling stablecoins as “currency or currency substitutes”

• Funds entering your account first, then being transferred out upon your instruction

• Having decision-making authority over the flow, timing, or recipients of funds

Once these elements combine, relying solely on MSB becomes legally weak.

Crypto payment scenarios that practically almost require state MTL

Based on our project experience, I usually advise project teams to seriously evaluate the need for state MTL in the following business models, rather than “just proceeding first.”

• Crypto payments or exchanges targeting U.S. retail users

• Integrated platforms for fiat ↔ stablecoin transactions

• U.S.-issued or used U-card/crypto card

• Customer funds “posted” or held within the platform system

• An integrated structure of payments + wallets + accounts

The logic is simple: the more you resemble a “bank-like” or “payment institution-like” entity, the less likely state regulators will see you as a mere technical intermediary.

Why do many projects, despite knowing the risks, delay obtaining MTL?

The reasons are not complicated—they involve costs and practical constraints. The actual thresholds for state MTL include: applying in multiple states separately (no “nationwide license”), high surety bond amounts, ongoing capital and liquidity requirements, local compliance officers, audits, annual inspections, and the risk of regulatory checks at any time. Therefore, many projects adopt phased strategies: designing their business structure to delay triggering the requirement, outsourcing the “money handling” component to licensed institutions, and viewing MTL as a later-stage capability goal. But it’s crucial to understand that regulatory attention often precedes your “preparedness.”

A very practical self-assessment question

When evaluating risk for a project, I often ask: if a state regulator sent a letter today, could you clearly answer, “We do not touch, control, or transmit customer funds”? If you cannot confidently answer this, then the issue is no longer “whether to get MTL,” but “when you will be deemed unlicensed.”

A more realistic compliance path: phased design rather than binary choice

A mature U.S. compliance approach is usually not to immediately apply for MTL after obtaining MSB. Instead, start with MSB, avoid falling under state law regulations as much as possible, gradually build internal controls, risk management, and compliance capabilities, and clearly identify which business lines constitute money transmission. Then, apply for MTL gradually, by state, by business line, and by timeline. From a legal perspective, MTL is not a “business startup hurdle,” but a reflection of “business maturity.”

Conclusion

I do not recommend that all crypto payment projects rush to obtain state MTL from the start. That’s neither realistic nor necessarily necessary. But I also advise against assuming: “We will only need MSB forever.”

MSB is the compliance foundation; MTL is the load-bearing structure. When you need it is not a subjective choice but depends on whether your business has entered the scope of state law regulation. If you are already seriously contemplating this issue, it usually means your project has moved beyond the “early experimental stage.”