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Do payment facilitators (PayFacs) need to register as MSBs?

Checked against the cited sources: October 2026

It depends on how the money moves. The rules of FinCEN (the Financial Crimes Enforcement Network, the Treasury bureau that administers the Bank Secrecy Act, or BSA) do not mention payment facilitators. A PayFac that receives settlement funds and pays them out to its sub-merchants can fit the words of FinCEN's definition of money transmission. Whether it is a money transmitter, and so generally must register as a money services business (MSB), is "a matter of facts and circumstances" (31 CFR 1010.100(ff)(5)(ii)), including whether a limitation such as the payment processor exemption fits. Federal registration applies "whether or not licensed as a money services business by any State" (31 CFR 1022.380(a)(1)); state licensing is a separate question, covered below.

"PayFac" is a card network term

A search of title 31 of the Code of Federal Regulations, which holds FinCEN's rules, found no use of "payment facilitator" as of October 21, 2026. The term is used in card network rules, such as Visa's. Visa's rules describe a payment facilitator as an entity that contracts with an acquirer to deposit transactions, receive settlement from, or contract with an acquirer on behalf of a sponsored merchant. FinCEN's definitions apply "When used in this chapter" (31 CFR 1010.100). So your card network status does not answer the federal question.

The federal starting point

Under FinCEN's rules, a money transmitter is one kind of MSB (31 CFR 1010.100(ff)(5)), and money transmission services means accepting funds "from one person" and transmitting them "to another location or person by any means" (31 CFR 1010.100(ff)(5)(i)(A)). If you receive settlement funds for your sub-merchants and then pay them out, that can fit the words of the definition. The question is whether a limitation in 31 CFR 1010.100(ff)(5)(ii) applies.

Not holding funds is a narrower case. In FIN-2014-R009, a company acted as an independent sales organization (ISO). It solicited merchants for two other companies' card processing services and did "not take possession or control of merchant funds at any point." Because in that role it neither accepted nor transmitted funds, FinCEN found this marketing work did not make it a money transmitter. On the same company's payment processing, FinCEN said it "cannot reach a definite conclusion" on the facts given.

The payment processor exemption, applied to a PayFac

The FIN-2014-R009 company also processed payments: it presented card and ACH transactions for its merchants, collected payments for them, and settled with them under its merchant agreement.

FinCEN tested it against the four conditions its rulings apply to the payment processor exemption in 31 CFR 1010.100(ff)(5)(ii)(B) (FIN-2013-R002):

  • (a) The service must facilitate the purchase of goods or services, or the payment of bills, not money transmission itself.
  • (b) The money must move through clearance and settlement systems that admit only BSA-regulated financial institutions.
  • (c) The service must be provided under a formal agreement.
  • (d) The agreement must be, at a minimum, with the seller or creditor that provided the goods or services and receives the funds.

The rulings use the term "BSA-regulated financial institutions" (FIN-2014-R009) without defining it further. FinCEN's examples of qualifying systems include "the Fedwire system" and "electronic funds transfer networks," and the rulings behind the exemption all involved the ACH system (FIN-2013-R002, quoting 31 CFR 1010.100(ff)(5)(ii)(C)).

FinCEN said the activity appeared to meet conditions (a), (c) and (d). The company's letter said it collected through systems such as ACH, or through card operators that "are themselves regulated institutions." FinCEN relied on that description. Condition (b) turned on how it paid merchants out. Paying them outside a qualifying system, for example "in the form of monetary instruments," would defeat the exemption. FinCEN's rules define monetary instruments to include currency, traveler's checks, and checks and money orders in certain forms (31 CFR 1010.100(dd)); the ruling does not cite that definition. If it paid them exclusively through such a system, its payment processing would not make it a money transmitter.

In FIN-2014-R012, a different company described the credit card leg as "a clearing and settlement system that only admits BSA-regulated financial institutions as members." FinCEN repeated that description ("According to your letter") and found that paying the merchant in bitcoin took place outside such a system. FinCEN's 2019 guidance later described that card leg the same way (FIN-2019-G001, n.68).

FinCEN's 2011 rule notice, on the separate limitation for operators of clearance and settlement systems (31 CFR 1010.100(ff)(5)(ii)(C)), called persons that solely provide such a system, and no other money transmission services, "mere instrumentalities that the financial institutions use to process their transfers." It named "the credit card networks" as an example (76 FR 43593). That is about the network operator, not a finding that any particular processor meets condition (b).

Where PayFac models can fall outside

Check each against your real funds flow, not contract labels:

  • Paying someone other than the sub-merchant. FinCEN says the agreement should provide for transmission "only to the creditor or seller with whom the payment processor is contracting and not to another location or person" (FIN-2013-R002).
  • Payouts outside regulated-institution systems. Examples are payouts in the form of monetary instruments (FIN-2014-R009) and payouts in virtual currency (FIN-2014-R012). FinCEN's 2019 guidance says that, in general, persons providing payment processing services in convertible virtual currency "will be money transmitters under the BSA" (FIN-2019-G001).
  • Acting for buyers. The limitation "only applies to transmission services by payment processors on behalf of the creditor or seller and not the debtor or buyer" (76 FR 43593).
  • An agreement only with the payer. An agreement with the buyer or debtor "by itself is not sufficient" (FIN-2013-R002).
  • Moving money for other purposes. The exemption applies only to a person that "only" acts as a payment processor. In FIN-2008-R006, FinCEN's conclusion depended on the business declining "to accept and transmit funds for any other purpose."

FIN-2014-R009 also says FinCEN may reach a different conclusion "should circumstances change."

If the exemption does not fit

Then whether a PayFac that accepts and transmits funds is a money transmitter turns on the facts, including whether another limitation in 31 CFR 1010.100(ff)(5)(ii), or an exclusion in 31 CFR 1010.100(ff)(8) such as the one for banks, applies. Each MSB must register with FinCEN, "whether or not licensed as a money services business by any State" (31 CFR 1022.380(a)(1)). There are exceptions. One is a business that is an MSB only because it acts as an agent of another MSB; one that also offers MSB services on its own behalf must register (31 CFR 1022.380(a)(3)). The rule makes it "unlawful to do business without complying with 31 U.S.C. 5330 and this section" (31 CFR 1022.380(e)).

Each MSB also "shall develop, implement, and maintain an effective anti-money laundering program" (31 CFR 1022.210(a)).

State licensing is a separate question

State laws define money transmission for themselves. The Conference of State Bank Supervisors (CSBS) publishes a model law, the Money Transmission Modernization Act (MTMA). CSBS says it was "approved for state adoption," so it applies in a state only to the extent that state enacts it. In the model, money transmission includes "Receiving money for transmission from a person located in this state" (MTMA § 2.01(q)(3)). The model's exemptions include an operator of a payment system, to the extent it provides processing, clearing or settlement services between or among exempt persons or licensees (§ 3.01(a)). They also include an agent of a payee, under conditions (§ 3.01(b)).

CSBS says states have enacted the model "in full or in part." It also says "uneven adoption and interpretation" have led to differences in how it is applied. So check the law of each state that matters. See also our guides on agent of the payee and the payment processor exemption.

What to have ready

  • A funds-flow diagram from cardholder to sub-merchant, showing each account and whose name it is in.
  • Your acquirer agreement and your sub-merchant agreement.
  • How you pay out, and on which systems, including any payouts to anyone other than sub-merchants.
  • The states where your payers and sub-merchants are located.

Next step

Run the free MSB check. It asks about each of the four conditions FinCEN's rulings apply to the payment processor exemption (FIN-2014-R009). If your answers are mixed, or your payouts use more than one system, Discuss with Forteris at [email protected].

Sources

This guide is general information, not legal advice. Forteris is not a law firm.

Last checked: October 2026

Short answers

Do payment facilitators (PayFacs) have to register with FinCEN as MSBs?

The money services business (MSB) definitions of FinCEN (the Financial Crimes Enforcement Network, the Treasury bureau that administers the Bank Secrecy Act), in 31 CFR 1010.100(ff), do not use the term payment facilitator, so the answer turns on how the money moves. A PayFac that receives settlement funds and pays them to its sub-merchants can fit FinCEN's definition of money transmission services, which covers accepting funds from one person and transmitting them to another location or person by any means. Whether it is a money transmitter is a matter of facts and circumstances, and it is not one if a limitation applies. One is the payment processor exemption, which covers a person that only acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system, by agreement with the creditor or seller. Under FinCEN's rules a money transmitter is one kind of MSB, and an MSB must register with FinCEN whether or not it is licensed by any state, unless an exception applies; one exception covers a business that is an MSB only because it acts as an agent of another MSB, but an MSB that also acts on its own behalf must register.

What did FinCEN decide about an ISO and payment processor in FIN-2014-R009?

FinCEN found that the company's ISO work, soliciting merchants for other companies' card processing without taking possession or control of merchant funds, did not make it a money transmitter. On its payment processing, FinCEN said it could not reach a definite conclusion because key information was missing from the letter. That activity appeared to meet three of the four conditions of the payment processor exemption; the condition about clearance and settlement systems that admit only financial institutions regulated under the Bank Secrecy Act (BSA) turned on how it paid merchants. Paying them outside such a system, for example in the form of monetary instruments (a defined term that includes currency, traveler's checks and certain checks and money orders), would defeat the exemption; paying them exclusively through such a system would not make it a money transmitter.

If a PayFac meets the federal payment processor exemption, is it also exempt from state money transmitter licensing?

Not automatically. The payment processor exemption is part of FinCEN's definitions, which apply when used in FinCEN's own chapter of federal rules, and state laws define money transmission and set exemptions for themselves. The Money Transmission Modernization Act (MTMA), a model law from the Conference of State Bank Supervisors (CSBS), for example, covers receiving money for transmission from a person located in the state and has its own exemptions. CSBS says the MTMA was approved for state adoption, so it applies in a state only to the extent that state enacts it; its page dated September 3, 2026 says thirty-one states have enacted it in full or in part. Check each state's current law.

General information, not legal advice. Checked against the cited primary sources in October 2026.