One of the most common doubts that financial users have, is about the differences that banks can have compared to money transmitters and how each of them handles our money, in this article we will make a brief explanation of the three main differences that we must take into account.

What is a money transmitter?

Money transmitters are those financial institutions that are dedicated to providing services such as transfers or currency exchanges, it also includes other auxiliary services or additional payment instruments. These types of institutions are actually known as non-bank financial institutions.

What is a bank?

A bank, also known as a credit or deposit institution, is a financial institution whose main function is to accept money deposits from its clients and put them on demand, what is commonly called, loans. They also provide other types of financial services. They are grouped into what is called banking or the banking system, which is the set of banking institutions that in an economic system provide their services as banks. It is important to note that there are different types of banks (for example, commercial banks and central banking).

How does a company become a money transmitter?

This type of institution must first obtain the license as Licensed Money Services Business before the Fincen, which is the federal office or agency that has as its primary function to regulate all financial institutions, once this process is done, the company or institution that is going to dedicate to the transmission of money, you must categorize your services, and in this way, obtain the respective licenses in each state in which you plan to operate or function.

There is a possibility that a money transmitter requires a license in one state and in another state such a license is not required. We see that in Europe for example, this type of money transmitting institutions are defined within more specific ranges, which will depend on the type of money transfer.

For example, there is the category Electronic Money Institution or Electronic Money Institution (EMI), these institutions have the authorization to offer the services of transmission or exchange of electronic money, as well as, and to the extent possible, offer payment tools in the entire European territory. Now that we know better what money transmitting institutions and banks are, we can establish some differences between them, which are detailed below:

Money management and use

A bank is authorized to use the money of its clients or account holders, either by offering credits or types of loans with different terms. Money transmitting institutions work differently, they do not function as cash providers or make use of their clients’ money for loans or any other similar activity

Interest management

Banks are required to offer a percentage interest amount for the money that their customers deposit in their accounts. On the other hand, money transmitting institutions only serve as a channel or means to carry money, in any currency, from one place to another, whether national or international and from one client to another client.

Way in which transfers are made

Bank transfers are made from one account to another bank account or through an office cash transfer. While a money transfer institution, facilitates the transmission of funds or remittances, through physical points or points of sale of its agents, either via telephone or via the internet (they also operate through self-service stores).

What do you think about this topic? Did you know the difference between a money transmitter and a bank?

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