Where is the real pit of MSB?

Written by: Shao Jiadian

In the past two years, almost all projects looking to engage in crypto payments, stablecoin receivables and payables, U cards, PayFi, and cross-border settlements cannot avoid one term:

U.S. MSB.

Many people’s understanding of MSB is still stuck on “cheap, fast, and easy to obtain.”

However, from a practical perspective, the real value of MSB has never been about being “easy to obtain,” but about being “easy to use.”

For projects just starting to build crypto payment or stablecoin receivable and payable businesses, a U.S. MSB is often the first piece of the puzzle in a compliant structure.

It may not be the endpoint, but it is usually a very realistic starting point.

The “Global Crypto Payment Compliance Map” is a series of articles on crypto payment compliance organized by Mankun Law Firm.

We will systematically outline compliance options for crypto payment projects at different stages around key paths like U.S. MSB, state MTL, Canadian MSB, Australian DCE, Salvador DASP, Cayman VASP, Dubai VARA, EU CASP, Hong Kong stablecoins and VA regulation.

This article is the first entry-level piece: U.S. MSB.

Why do many people choose MSB as the first card for crypto payments?

In a nutshell: MSB is not for the “regulatory halo,” but to provide a compliant identity that can be understood by banks, channels, and partners for the business.

What crypto payment projects really need to solve is not just “whether there is a license,” but several more practical questions: Can banks understand my business? Are the channels willing to cooperate with me? Is there a basic compliance explanation for the flow of customer funds? Can we later upgrade to a more complete licensing system?

The value of U.S. MSB is reflected here.

It is not a universal card, nor is it a financial passport that covers the globe, but it can provide an important compliance anchor in the early stages of a project.

For businesses like stablecoin receivables and payables, enterprise payments, PayFi, U cards, and cross-border settlements, this anchor often determines whether the project is qualified to enter the next stage of discussions.

What exactly is MSB?

U.S. MSB, which stands for Money Services Business, is a financial service business entity registered with the U.S. FinCEN.

It should be specifically noted that MSB is essentially closer to a registered identity under the anti-money laundering regulatory framework, rather than a financial license issued after approval by regulatory agencies in the traditional sense.

Because of this, it is very practical in the early stages of crypto payment projects. Under compliance conditions, MSB usually supports the following business scenarios:

• Receiving and making payments in stablecoins or cryptocurrencies;
• Crypto payments for corporate clients, bulk disbursements;
• Integration of payment channels between fiat currency and stablecoins;
• Providing services as a payment platform or API layer;
• Providing underlying compliance identity for U cards, PayFi, cross-border settlements.

In reality, many crypto payment platforms that do not appear to be U.S. companies will also configure U.S. MSB in their underlying compliance structure. The reason is simple: in the global financial cooperation system, U.S. MSB is a widely recognized basic compliance identity.

Why is there a big difference between “having MSB” and “not having MSB”?

From a lawyer’s practical perspective, a very direct judgment is:

Without MSB, many projects may not even have the ticket to enter compliance discussions.

This difference mainly manifests in three aspects.

First, the minimum compliance threshold for banks and channels.

Whether it’s banks, stablecoin issuers, custodians, or fiat currency channels, PSPs, they all care about the same question:

Do you have a basic regulatory identity and AML/KYC system?

They usually do not first ask how innovative your business model is, but rather whether you have a regulatory basis that can explain the flow of funds. In this regard, MSB often plays the role of the “minimum compliance threshold.”

Second, the legal characterization of the nature of the business is entirely different.

If a project helps customers receive and make payments in USDT, and there is no compliance identity, no KYC, no AML, no transaction monitoring mechanism, it can easily be understood as a high-risk funding channel, and may even be questioned as an illegal funding intermediary.

However, if the project has completed MSB registration and established customer identification, anti-money laundering, sanctions screening, and suspicious transaction reporting mechanisms, the nature of the business will be completely different.

The former is “handling money” in a gray area.

The latter provides payment services within a compliance framework.

This is the practical value of MSB.

Third, whether there is a subsequent upgrade path.

MSB is not the endpoint, but it can serve as a foundation for subsequent compliance upgrades.

A mature crypto payment project may later consider:

· U.S. state MTL;

· Hong Kong MSO;

· Singapore MPI;

· EU CASP;

· Cayman VASP;

· Dubai VARA;

· A multi-license combination structure for U cards, stablecoins, and PayFi.

In other words, MSB is more like the first piece of the foundation. The foundation itself cannot support all businesses, but without a foundation, it is often very difficult to build the subsequent structure.

MSB is not a universal card, and these misunderstandings must be clarified first

When choosing MSB, many project parties are likely to fall into one misunderstanding:

Thinking that obtaining MSB means that the crypto payment business is completely compliant.

This is inaccurate.

First, MSB does not mean you can freely serve U.S. retail customers.

If the business directly serves U.S. users, especially involving funds transfer, fiat balances, stablecoin exchanges, and account systems, further evaluation of the Money Transmitter License for each state in the U.S., i.e., state MTL, may be required.

Second, MSB does not mean you can ignore U.S. state laws.

U.S. financial regulation has both federal and state levels.

FinCEN's MSB registration primarily addresses federal level anti-money laundering regulatory issues, but it does not inherently cover the licensing requirements for money transmission at the state level.

Third, MSB does not equal a stablecoin issuance license.

If a project issues stablecoins itself, especially publicly, promising redemption and managing reserve assets, it will enter a completely different regulatory logic that cannot simply be explained by MSB.

Fourth, MSB does not guarantee that a bank account can be opened.

When opening a bank account, banks consider not only whether there is an MSB, but also the business model, funding paths, customer sources, transaction scale, AML documents, risk control systems, and the background of the management team.

Therefore, MSB is not about “buying a certificate to run a business,” but rather the starting point of a continuous compliance project.

Which crypto payment projects are suitable to start with MSB?

Based on our long-term experience serving crypto payment, stablecoin, and Web3 projects going overseas, the following types of businesses are usually more suitable for prioritizing the assessment of U.S. MSB:

· Stablecoin payment;

· Merchant crypto receipts;

· Enterprise crypto payments;

· Bulk disbursement of salaries, commissions, and profit sharing;

· U cards, crypto cards, PayFi underlying structure;

· Cross-border settlement;

· OTC and fiat entry;

· B2B crypto payment API or SDK.

These businesses have one common point:

They all involve the flow of funds.

Once a project starts “handling money,” it cannot merely look at problems from a product logic perspective, but must redesign the business structure from the perspectives of regulation, banking, channels, customer fund safety, and anti-money laundering obligations.

Where is the real pit of MSB?

MSB is not unusable, but it can be misused. Common risks in actual projects include:

· Only registering MSB without a real AML/KYC system;

· Assuming MSB can cover all U.S. state law issues;

· Not distinguishing between crypto asset transfers and fiat currency transmissions;

· Being unclear about customer fund paths;

· Bank account opening materials inconsistent with actual business;

· The business has already involved U.S. users but has not assessed state MTL risks;

· When later doing U cards, PayFi, or stablecoin settlements, there was no prior design of a multi-license structure.

Once these issues are exposed after the business scales up, the cost of addressing them can be extremely high.

Many projects do not fail due to “lack of a license,” but rather due to “licenses and business not matching.”

Mankun's suggestion: Solidify MSB first, then discuss subsequent upgrades

If you ask now:

How should the first license be chosen for crypto payments?

Our advice is usually: you can first assess U.S. MSB, but do not only see it as “easy to obtain”; you must also consider whether it is suitable for your business model.

What really needs to be judged in advance includes:

· Where are your customers?

· Are you targeting U.S. users?

· Are you coming into contact with or controlling customer funds?

· Does it involve fiat currency inflow and outflow?

· Is there an internal platform balance created?

· Is there stablecoin exchange involved?

· Are there U card or PayFi plans?

· Will you need to connect with banks, securities firms, custodians, VATPs, or payment channels in the future?

These questions determine whether MSB is sufficient and also dictate whether there is a need to overlay MTL, MSO, MPI, CASP, VASP, or VARA and other licenses in the future.

The value of MSB does not lie in it being a “cheap card,” but in that it helps projects place their business from the very beginning within a framework that is understandable by regulators, banks, and partners.

For projects building crypto payments, stablecoin receivables and payables, U cards, or PayFi, the MSB registration itself is not the most challenging issue.

The more critical aspect is:

• How to use it?
• How to avoid pitfalls?
• How to link with funding paths, customer sources, and subsequent license upgrades?

This is the real core of crypto payment compliance.

Conclusion

Crypto payment is not a business that can be run just by obtaining a license.

It is a system engineering composed of finance, technology, funds, risk control, and regulation.

MSB is the starting point, but it is definitely not the endpoint.