We receive regular inquiries from start-ups as well as established businesses that believe they have a killer app that can be the next Venmo or Zelle.

Both of these apps allow person to person or P2P payments. In some cases there is a niche the startup feels is underserved or is ripe for disruption. Many times we listen to the idea and say “That is a great idea”.

The problem is what comes next and that 95% of these ideas are looking to move money between personal bank accounts.

There is an assumption that there is an existing payment technology that can directly move money from person A to person B. So debit Suzy Jones $25 and credit Bobby Smith that $25. For many reasons including payment risk and money laundering concerns this direct P2P payment functionality does not exist.

There is a 3rd party entity [Third Party Processor nor TPP] that must debit Suzy and then fund Bob. The debit to Suzy is credited to the TPP’s bank account and then they issue a credit to Bob’s bank account.

So VERY importantly the TPP takes possession of funds that are in turn meant for disbursement to another entity. The possession of those funds, no matter for how long, is the BIG problem.

Why?

It has to with being classified as a Money Transmitter or Money Service Business. These types of business classification mean tremendous vetting by governmental organizations and of course tremendous expense as well as time. Think potential years of time and millions of dollars. Most of these requirements center around money laundering (Info at FINCEN and FINRA )

The vast majority of the businesses we speak with have not considered the implications of possessing the dollars or they are hoping a financial partner will step in and do the dirty work.

There are however platforms that have the payment solution idea and have some idea about the surrounding complexities.

So is there a way to actually solve this problem? The answer is a complicated maybe.

Solutions range from partnering with a cooperative bank and layering ACH API technology over the bank’s processing engine to leveraging an existing organization MTL or MSB licence to working with new technology platforms that cater to this need.

ALL of these involve time and of course money. If your startup can’t afford multiple thousands of dollars per month or added processing costs [markup] it is highly unlikely your P2P app can get off the ground.