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cancun business

Businesses to Start in Cancun, Mexico

Cancun, the jewel of Mexico’s Yucatan Peninsula, is not just a paradise for beach lovers, but also a thriving hub for various types of businesses. Thanks to its status as one of the world’s premier tourist destinations, a thriving expat community, and a steadily growing economy, Cancun offers a plethora of opportunities for entrepreneurs. Here are some of the best businesses to operate from Cancun, Mexico.

1. Tourism & Hospitality

Tourism is Cancun’s lifeblood. Each year, millions of tourists flock to Cancun for its pristine beaches, crystal-clear waters, and vibrant nightlife. This makes the tourism and hospitality industry a natural choice for businesses in Cancun. Opportunities abound in various sub-sectors such as hotels, vacation rentals, travel agencies, tour operators, and restaurants. From luxury to budget experiences, there’s a market segment to cater to every type of traveler.

2. Real Estate

As Cancun continues to grow in popularity, so does its real estate market. The demand for properties, both for residential and vacation purposes, has been on the rise. This opens up opportunities for real estate agencies, property management companies, and vacation rental services. Moreover, with many foreigners buying properties in Cancun, there’s a growing need for services catering to expats, such as relocation consultants and legal services related to property transactions.

3. Health & Wellness

Health and wellness are big business in Cancun. Given the city’s reputation as a place for relaxation and rejuvenation, businesses offering wellness experiences can thrive. This could include spas, yoga and meditation centers, health retreats, and alternative therapy services. There’s also a growing market for medical tourism in Cancun, with many visitors coming for procedures like dental work, cosmetic surgery, and other treatments.

4. Event Planning

Cancun is a popular destination for events, particularly weddings and corporate retreats. Therefore, event planning services that can organize and manage these events are in high demand. This could include wedding planners, corporate event coordinators, catering services, and companies offering unique experiences for events.

5. E-commerce

Given Cancun’s location and the digital nature of e-commerce, entrepreneurs can operate an online business from Cancun targeting customers anywhere in the world. This could be anything from an online retail store to digital marketing services. With a good internet connection and the right business model, you can enjoy the Cancun lifestyle while running a global business.

E-commerce in Cancun benefits from Mexico’s rapidly growing online market. Internet penetration in Mexico is on the rise, with more and more consumers turning to online shopping. This trend has been accelerated by the COVID-19 pandemic, as consumers have adapted to buying a wider range of goods and services online. E-commerce businesses based in Cancun can serve this growing market while also reaching out to international customers.

Running an e-commerce business from Cancun offers the advantage of lower operational costs compared to many other locations. Costs for things like rent and labor can be significantly less expensive, allowing businesses to operate more competitively. Additionally, living costs in Cancun can be lower than in many other cities, which can further reduce the cost of running a business.

Lastly, the lifestyle and environment in Cancun can provide a source of inspiration for e-commerce entrepreneurs. For example, businesses could sell products inspired by Cancun’s beautiful surroundings, such as beachwear, home decor, or artisanal crafts. Alternatively, digital nomads with skills in areas like web design, writing, or digital marketing can offer their services to clients around the world while enjoying life in Cancun.

In short, e-commerce can be an excellent business choice for those looking to combine the flexibility and potential of online business with the lifestyle benefits of living in Cancun.

6. Environmental Conservation

Cancun’s natural beauty is one of its biggest draws, and there’s increasing recognition of the need to protect this. Businesses focused on environmental conservation, sustainable tourism, or offering eco-friendly products and services can find a receptive audience in Cancun. This could include everything from eco-tours to consulting services for businesses looking to become more sustainable.

7. Language Schools

With a significant number of expats and tourists interested in learning Spanish, language schools or private tutoring services can be a good business option. Conversely, English language instruction is also in demand, as it’s a crucial skill for locals seeking employment in the tourism industry.

In conclusion, Cancun offers a wealth of business opportunities, many of which capitalize on the city’s status as a world-class tourist destination. But beyond tourism, the growing local economy and international connections also offer opportunities in sectors like real estate, health and wellness, e-commerce, and more. With its beautiful setting and vibrant business environment, Cancun is a place where business and pleasure truly can mix.

doing business in mexico

An Inside Look at the Business Climate in Mexico for FinTech and Crypto Businesses

The dynamic business landscape in Mexico is offering fertile ground for both FinTech and crypto businesses. Driven by a potent mix of regulatory evolution, market potential, and consumer demand, Mexico has emerged as one of Latin America’s hotspots for these disruptive technologies. Here’s a look at the vibrant business climate in Mexico for FinTech and crypto enterprises.

Mexico’s Favorable Regulatory Landscape

In 2018, Mexico established itself as a regional pioneer by enacting the first FinTech Law in Latin America. This comprehensive legislation provides a regulatory framework for companies in the FinTech space, including crypto businesses, ensuring their operations’ safety, security, and transparency.

Under the law, FinTech companies can operate as Financial Technology Institutions (ITFs), while crypto-related businesses must be authorized by the Mexican Central Bank (Banxico). The law paves the way for increased consumer protection, fosters competition, and encourages financial inclusion.

While there are still aspects of the law that require further clarification, its presence symbolizes the government’s commitment to fostering an environment conducive to FinTech and crypto innovation.

Untapped Market Potential

Despite significant strides in financial inclusion, a substantial portion of Mexico’s population remains unbanked or underbanked. These individuals and businesses, underserved by traditional financial institutions, represent a considerable untapped market for FinTech and crypto businesses.

FinTech solutions, including digital wallets, peer-to-peer lending platforms, and microfinance services, offer a potential route to financial inclusion. Simultaneously, cryptocurrencies, by their decentralized nature, can provide an accessible alternative for individuals who struggle to access traditional banking services.

Consumer Demand

Mexico’s digital economy is growing, with increasing internet and smartphone penetration. The demand for digital financial solutions, from online banking and digital payments to investment platforms, is on the rise.

Furthermore, the younger demographics of Mexico are more open to adopting these new technologies, creating a vast user base for FinTech and crypto businesses. Crypto, in particular, is gaining popularity among millennials and Generation Z due to its potential for quick returns and its decentralized, global nature.

Crypto Climate

Despite regulatory uncertainty in many countries, Mexico’s attitude towards crypto has been mostly positive. While Banxico does not consider cryptocurrencies as legal tender, it acknowledges their use as a medium of exchange, unit of account, and store of value.

Mexico’s crypto market is rapidly growing, with several crypto exchanges operating in the country. Mexicans use cryptocurrencies for various purposes, including remittances, a sector where cryptocurrencies can offer quicker and cheaper cross-border transfers.

However, it’s important to note that crypto businesses must adhere to strict regulations, particularly concerning money laundering and customer protection. Crypto businesses planning to launch in Mexico should prepare for rigorous compliance procedures, including getting authorization from Banxico and implementing robust KYC (Know Your Customer) protocols.

Market Demand for Fintech and Crypto Businesses

The market for FinTech companies in Mexico has grown significantly in recent years, fueled by a convergence of economic, technological, and demographic factors. As of 2021, Mexico is considered the leader in the FinTech ecosystem in Latin America, boasting the largest number of FinTech startups in the region. This has primarily been spurred by the demand for digital financial services, which are more inclusive, efficient, and user-friendly compared to traditional banking methods.

Market Landscape

Mexico’s FinTech market is diverse, with companies specializing in a wide array of services such as digital banking, payments and remittances, insurance (InsurTech), personal finance, crowdfunding, and blockchain technology. Each of these sectors caters to different user needs, from offering unbanked populations access to financial services to providing small businesses with efficient and cost-effective banking solutions.

Significant progress has been made in regulations too, making Mexico an attractive location for FinTech innovation. In 2018, Mexico became the first country in Latin America to enact a FinTech law, aimed at promoting financial stability and defending against money laundering, while also nurturing innovation and competition in the financial sector.

Demand Drivers

A critical demand driver for FinTech companies in Mexico is financial inclusion. A sizable proportion of Mexico’s population remains unbanked or underbanked. Traditional banks often have stringent requirements or high fees that many citizens can’t meet. FinTech companies, with their flexible and accessible solutions, present an opportunity to address this issue by offering services such as mobile banking, microloans, and digital wallets.

Digital remittances have also emerged as a significant market, with Mexico being one of the largest remittance-receiving countries in the world. FinTech solutions for quick, cost-effective cross-border transfers are in high demand, opening up opportunities for startups in this field.

In addition, Mexico’s thriving e-commerce market is driving demand for digital payments solutions. Consumers are increasingly turning to online shopping, necessitating secure, efficient payment systems that traditional banking often fails to deliver.

Finally, Mexico’s young, tech-savvy population contributes to the increasing demand. With one of the youngest demographics in Latin America and high smartphone penetration, Mexico’s population is well-positioned to adopt digital financial services.


The combination of a growing need for financial inclusion, increasing digitalization, a thriving e-commerce sector, and a young, tech-oriented population sets the stage for substantial growth in Mexico’s FinTech market. As traditional banks struggle to meet evolving consumer needs, FinTech companies can step in to fill the gaps, leveraging technology to provide more accessible, affordable, and efficient financial solutions. Given these conditions, Mexico’s FinTech market presents considerable opportunities for existing companies and new entrants alike.

Mexico’s burgeoning FinTech and crypto sectors reflect the country’s broader commitment to embracing digital transformation and promoting financial inclusion. The favorable regulatory landscape, coupled with untapped market potential and increasing consumer demand, creates a fertile environment for FinTech and crypto businesses.

While challenges remain, including refining the regulatory framework and improving digital infrastructure, the momentum is clearly with FinTech and crypto. As these sectors continue to evolve, Mexico is well-positioned to be a leader in the FinTech and crypto revolution in Latin America.

For more information on where I recommend you set up a Fintech, financial services, or crypto business in Mexico, please have a read through Where to do Business in Mexico as a Fintech, Financial Services, or Crypto Company. For more on the suggested structure, see Incorporating a Financial Services Company in Mexico – the Mexican SOFOM.I hope you’ve found this article helpful. For more information on setting up a business in Mexico, and on forming a SOFOM, please contact me at info@premieroffshore.com

where to do business in Mexico

Where to do Business in Mexico as a Fintech, Financial Services, or Crypto Company

In this post, I’ll explain why I believe Tijuana is the best business city in Mexico in which to set up a fintech, financial services, or crypto business. I’ve traveled and done business throughout Mexico for over 20 years and can say without a doubt that Tijuana is the most efficient option for setting up a fintech business. Here’s why. 

Mexico’s burgeoning FinTech landscape is diverse, innovative, and geographically rich, with Tijuana emerging as the city of choice for setting up a FinTech business. Here, a confluence of strategic location, global business acceptance, linguistic proficiency, cost efficiency, and regulatory allowances merge to create an environment that is uniquely supportive of FinTech growth. Let’s dissect why Tijuana is the best city in Mexico for FinTech enterprises.

Proximity to the U.S. Borde

Tijuana’s strategic location, sitting just across the border from the United States, renders it a natural nexus between two significant economies. This proximity is not just geographical but also deeply intertwined within the fabric of business and culture in the region, offering enormous benefits to the FinTech sector.

Being adjacent to the United States, Tijuana is ideal for businesses targeting a cross-border audience. With easy access to the U.S. market, FinTech companies in Tijuana can exploit the advantages of both countries, navigating market trends, consumer behaviors, and regulatory landscapes with ease. Furthermore, the proximity enables a seamless flow of knowledge, technology, and talent between the two nations, thereby fostering innovation and growth.

Accepting of International Businesses and Investors

Tijuana’s open-door policy towards international businesses makes it a hotbed for globalization. The city’s economic policies are geared towards attracting foreign investment, boosting its global competitiveness, and enhancing its status as a cosmopolitan city. For FinTech businesses, this translates into a supportive, innovation-driven environment that fosters both domestic and international success.

Moreover, Tijuana is home to numerous international tech conferences and events, encouraging networking and collaboration. Such gatherings generate opportunities for FinTech startups to forge partnerships, secure investments, and enhance their global visibility.

Ease of Finding English-Speaking Workers

With a large percentage of its population bilingual in English and Spanish, Tijuana offers a considerable advantage for FinTech companies. English proficiency is a critical factor in the global FinTech landscape, and having access to a skilled, English-speaking workforce is crucial for businesses that wish to operate on an international level.

Why are there so many English speakers in Tijuana compared to other large cities in Mexico? First, many of the people deported from the Western United States end up in Tijuana. They need jobs and have excellent English skills. Second, many in Tijuana middle class have US visas and families in America. They learned English from a young age and travel to San Diego frequently. 

Cost of Labor Compared to the U.S.

Labor costs in Tijuana are significantly lower than in the United States, even though the level of skills and expertise can be comparable. This cost advantage makes Tijuana an attractive location for FinTech startups looking to operate lean while maintaining high-quality services. By reducing the labor cost burden, companies can invest more in product development, marketing, and other critical areas to boost their competitiveness and growth.

Ability to set up a SOFOM (Sociedad Financiera de Objeto Múltiple)

In Mexico, FinTech companies have the option to establish themselves as a SOFOM – a non-bank financial entity that can operate in Baja and the rest of Mexico. This legal entity, dedicated to providing loans and credit, offers the opportunity to conduct financial operations without the need for a traditional banking license.

Setting up a SOFOM in Tijuana means your FinTech business can operate across Baja California and Mexico as a whole, delivering financial services and innovative solutions to a broad and diverse market. Additionally, the ability to set up a SOFOM underscores the flexibility and supportiveness of Mexico’s regulatory landscape towards the FinTech sector.

About Tijuana

Tijuana, an eclectic border city that melds Mexican culture with a dynamic international influence, is a bustling metropolis that attracts people from across the globe. Known for its vibrant cultural scene and burgeoning economic potential, Tijuana is a fascinating city that holds promise for the future. Here’s an overview of Tijuana’s size, population, and demographics.

Size and Location

Tijuana is situated in the Baja California Peninsula, the second-longest peninsula in the world, right at Mexico’s border with the United States. It is the largest city in the state of Baja California and covers an area of around 637 square kilometers.

The city’s strategic location on the U.S.-Mexico border plays a significant role in shaping its economic, cultural, and demographic makeup. Its proximity to San Diego, with which it forms an international metropolitan area, gives it a unique cross-border characteristic.


As of 2023, the estimated population of Tijuana is over 1.8 million people, making it the sixth-largest city in Mexico. The population has seen substantial growth over the past few decades, largely fueled by internal migration from other parts of Mexico and an influx of international immigrants, particularly from the U.S., China, and the rest of Latin America.

The city has a high population density due to its role as a regional hub for employment, culture, and commerce. It also serves as a magnet for individuals and families seeking opportunities in the bustling border economy.


Tijuana boasts a diverse demographic makeup, contributing to its rich cultural fabric. The majority of Tijuana’s inhabitants are of Mexican descent, but there’s a significant presence of residents with international roots, primarily from the United States, China, and other Latin American countries.

The age distribution of Tijuana tends to skew younger, aligning with the general trend in Mexico. The city’s median age is in the late twenties, a testament to the youthful energy that drives Tijuana’s economic and cultural dynamism. This young demographic is critical to the city’s labor force and its potential for innovation and growth.

Given its border location, a significant proportion of Tijuana’s population is bilingual, with proficiency in both Spanish and English. This linguistic capability is a valuable asset, particularly in the business and service sectors, fostering cross-border commerce and cultural exchange.

In terms of socioeconomic status, Tijuana exhibits a broad spectrum. The city houses affluent neighborhoods with high-income households, alongside areas characterized by lower income levels. Over the years, economic development efforts have been aimed at addressing these disparities and promoting inclusive growth.

The Bottom Line

Tijuana’s unique blend of size, population, and demographics creates a lively and dynamic city that serves as a nexus of cultures, economies, and opportunities. With its strategic border location, youthful population, and rich cultural diversity, Tijuana offers a vibrant environment ripe for economic growth and international collaboration. As Mexico continues to progress, the city of Tijuana is poised to play a significant role in the nation’s journey toward a prosperous future.


Tijuana’s strategic location, supportive environment for international business, English-speaking talent, competitive labor costs, and legal flexibility make it an ideal setting for a thriving FinTech business. By harnessing these attributes, FinTech entrepreneurs in Tijuana are well-positioned to drive innovation, foster growth, and pave the way for a robust, future-proof financial landscape in Mexico.

I hope you’ve found this article helpful. For more on setting up a fintech, financial services business, or crypto company in Tijuana, or on incorporating a SOFOM, please contact me at info@banklicense.pro

building a fintech crypto card issuing business

Building a Compliance Program for a Fintech, Crypto, or Credit Card Issuing Business

In this post, I will review how to build a compliance program for a new or startup fintech, crypto, or credit card issuing business. Most startups focus on tech, testing, and finding customers in the early days. But, a complete compliance program should be the first thing a fintech, crypto, or credit card issuing business should build because this governs onboarding and nearly all aspects of the business. 

Also, your compliance program and documents are the keys to maintaining good relations with your bank, brokerage, exchange, processor, or issuer. Many providers will open an account with minimal documents. But, once you begin transacting, they will ask all kinds of questions. If you don’t have a compliance program in place, your fintech, crypto, or credit card issuing business will be paused or closed until you can build a proper compliance program. 

Building the Program – First Steps

Building a compliance program for a credit card issuing company requires adherence to various regulatory requirements, including those from payment networks like MasterCard and Visa, as well as complying with Know Your Customer (KYC) and Anti-Money Laundering (AML) policies. Here is an overview of the process:

  1. Understand MasterCard and Visa requirements: Both MasterCard and Visa have their own set of rules and regulations for credit card issuers. These may include guidelines on transaction processing, chargeback management, fraud prevention, data security, and reporting. Review the MasterCard Rules and the Visa Core Rules and Visa Product and Service Rules to familiarize yourself with their requirements.
  2. Develop internal policies and procedures: Create comprehensive internal policies and procedures that adhere to MasterCard and Visa requirements, as well as applicable federal and state laws and regulations. This may include policies for card issuance, underwriting, account management, billing, dispute resolution, and fraud management.
  3. Implement a KYC program: A robust KYC program should include customer identification procedures, risk-based customer due diligence, and ongoing monitoring of customer transactions. Ensure that your program aligns with applicable KYC regulations and industry best practices.
  4. Implement an AML program: Develop an AML program that includes risk-based customer due diligence, transaction monitoring, suspicious activity reporting, record-keeping, and employee training. Ensure that your program complies with applicable AML regulations, such as the Bank Secrecy Act (BSA) and the USA PATRIOT Act.
  5. Establish a Compliance Management System (CMS): A CMS is a formalized system for managing compliance within the organization. It should include components like compliance policies and procedures, a compliance officer, employee training, and monitoring and corrective action processes.
  6. Develop a data security program: Implement a data security program that complies with the Payment Card Industry Data Security Standard (PCI DSS) and any applicable data privacy regulations, such as the General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA).
  7. Train employees: Train employees on your compliance program, policies, and procedures. Regularly update training materials to ensure that employees stay informed about regulatory changes and industry best practices.
  8. Monitor and audit: Regularly monitor and audit your compliance program to identify any gaps or areas for improvement. Implement corrective actions as necessary to maintain compliance with all applicable regulations and requirements.

Creating a compliance program for a credit card issuer is similar to creating a compliance program for a bank in several ways:

  • Both require adherence to federal and state regulations, as well as KYC and AML policies.
  • Both need to establish a CMS to manage compliance within the organization.
  • Both require employee training to ensure understanding of and adherence to the compliance program.
  • Both need to conduct regular monitoring and audits to maintain compliance with applicable regulations and requirements.

However, credit card issuers must also comply with the specific rules and regulations set forth by payment networks like MasterCard and Visa, as well as adhere to the PCI DSS for data security.

Building a Program – Toolbox

A robust compliance program for a credit card issuer should include various tools and resources to ensure adherence to regulatory requirements and mitigate risks. Some common and popular compliance tools include:

  1. Compliance Management System (CMS): A CMS is a centralized platform to manage, track, and report on all aspects of the organization’s compliance program. It can help automate and streamline processes, such as policy management, risk assessment, training, and reporting.
  2. Risk Assessment Tools: Risk assessment tools can help identify, assess, and prioritize risks associated with credit card issuing activities. These tools may include questionnaires, checklists, or software solutions designed to assess risks in areas like fraud, AML, and data security.
  3. Policy Management Software: Policy management software can be used to create, maintain, and distribute internal policies and procedures related to credit card issuing operations. This software typically includes version control, approval workflows, and audit trails to ensure consistency and compliance with regulations.
  4. Transaction Monitoring System: A transaction monitoring system can be used to detect suspicious activities, potential fraud, and other risks related to credit card transactions. This may involve rule-based systems or machine learning algorithms to analyze transaction data and generate alerts for further investigation.
  5. Fraud Detection Tools: Fraud detection tools, such as artificial intelligence (AI) and machine learning algorithms, can help identify patterns indicative of fraudulent activities. They may be used to analyze transaction data, monitor user behavior, and identify potential risks in real time.
  6. Know Your Customer (KYC) and Customer Due Diligence (CDD) Solutions: KYC and CDD solutions can help automate customer identification, verification, and risk assessment processes. These tools may include identity verification services, watchlist screening, and ongoing customer monitoring.
  7. Anti-Money Laundering (AML) Software: AML software can help automate the process of monitoring transactions for suspicious activity, filing suspicious activity reports (SARs), and maintaining compliance with AML regulations. This may include rule-based systems or more advanced AI-driven solutions.
  8. Data Security Solutions: Data security solutions, such as encryption tools, firewalls, and intrusion detection systems, can help protect sensitive customer and transaction data, ensuring compliance with data privacy and security regulations like the Payment Card Industry Data Security Standard (PCI DSS).
  9. Training and Learning Management Systems (LMS): An LMS can help manage and track employee training related to compliance, including course content, attendance, assessment, and reporting. This can be especially useful for organizations that must regularly train employees on AML, KYC, and other compliance topics.
  10. Regulatory Reporting Tools: Reporting tools can help streamline the process of generating, submitting, and tracking regulatory reports, such as SARs or periodic financial statements. These tools may include templates, automated data aggregation, and tracking capabilities.

While these tools can help support a comprehensive compliance program for a credit card issuer, it is important to remember that the specific tools needed will depend on the organization’s size, risk profile, and regulatory environment. Tools will also depend on the jurisdiction of your customers, of which I was uncertainly reviewing your website. 

Building a Program – Bank Secrecy Act

The Bank Secrecy Act (BSA) does apply to credit card issuers. The BSA, also known as the Currency and Foreign Transactions Reporting Act, was enacted to combat money laundering and other financial crimes. It requires financial institutions, including credit card issuers, to maintain certain records, file reports, and implement anti-money laundering (AML) programs.

Credit card issuers and fintech companies are considered financial institutions under the BSA, as they offer various types of financial products and services. Therefore, they are subject to the same AML rules and regulations as banks and other financial institutions. These rules and regulations include Know Your Customer (KYC) policies, Currency Transaction Reports (CTRs), Suspicious Activity Reports (SARs), and other due diligence requirements.

Compliance with the BSA helps credit card issuers mitigate risks associated with money laundering, terrorism financing, and other financial crimes. Non-compliance can lead to substantial fines and penalties, as well as reputational damage.

Building a Program – US Sanctions for Card Issuers

U.S. sanctions are relevant to U.S. credit card issuers and fintech companies because they impose restrictions on transactions and dealings with specific individuals, entities, or countries. They are required to comply with these sanctions to prevent financial crimes, such as money laundering and terrorism financing. Non-compliance can lead to significant penalties and reputational damage.

Here’s how U.S. sanctions are relevant to U.S. credit card issuers and fintech companies:

  1. Restricted transactions: Sanctions prohibit U.S. credit card issuers from engaging in transactions with individuals, entities, or countries designated by the Office of Foreign Assets Control (OFAC), a division of the U.S. Department of the Treasury. This includes processing payments, providing services, or extending credit to sanctioned parties.
  2. Compliance programs: Credit card issuers must implement comprehensive compliance programs to identify and block transactions involving sanctioned parties. These programs should include policies and procedures, employee training, and transaction monitoring systems to ensure compliance with OFAC regulations.
  3. Due diligence: Credit card issuers are required to conduct due diligence on their customers, merchants, and business partners to ensure they are not engaging in transactions with sanctioned parties. This involves screening customers against OFAC’s Specially Designated Nationals (SDN) list and other restricted party lists.
  4. Reporting requirements: U.S. credit card issuers must report any blocked or rejected transactions involving sanctioned parties to OFAC within a specified timeframe. Failure to report such transactions can lead to penalties and enforcement actions.
  5. Penalties for non-compliance: Non-compliance with U.S. sanctions can result in substantial fines, penalties, and reputational damage for credit card issuers. In some cases, individuals involved in non-compliance may also face criminal prosecution.

U.S. credit card issuers and fintech companies must stay informed of updates and changes to U.S. sanctions programs and ensure their compliance programs are up-to-date and effective. This helps protect the issuer from potential financial and reputational risks associated with non-compliance.

Building a Program – AML & BSA Risk Assessment 

An Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) risk assessment is a comprehensive evaluation of an organization’s exposure to money laundering, terrorism financing, and other financial crime risks. A risk assessment typically includes factors such as geographical risk, market risk, product risk, customer risk, and distribution channel risk. By assigning scores to these factors, an organization can better understand its risk exposure and implement appropriate controls to mitigate those risks.

Here is a description of an AML/BSA risk assessment that incorporates a scoring system based on various risk factors:

  1. Geographical risk: Assess the countries and regions where the organization operates or conducts business with customers. Assign a score based on the level of risk associated with each location, considering factors such as political stability, corruption levels, the presence of organized crime or terrorist groups, and AML/CTF regulatory framework effectiveness.
  2. Market risk: Evaluate the organization’s exposure to market risks, such as fluctuations in interest rates, currency exchange rates, or stock market prices. Assign scores based on the level of market volatility and the organization’s susceptibility to these risks.
  3. Product risk: Assess the organization’s products and services, focusing on their vulnerability to money laundering and terrorism financing. Assign a score to each product or service based on factors such as the level of anonymity, transaction size, ease of transferability, and complexity of the product or service.
  4. Customer risk: Evaluate the organization’s customer base, considering factors such as customer type (individual, corporate, or government), occupation, source of funds, and expected transaction patterns. Assign a score based on the level of risk associated with each customer segment.
  5. Distribution channel risk: Assess the organization’s distribution channels, such as branches, agents, digital platforms, or correspondent banking relationships. Assign a score based on factors such as the level of oversight, transparency, and the risk of money laundering or terrorism financing associated with each channel.
  6. Internal controls and compliance risk: Evaluate the effectiveness of the organization’s internal controls and compliance program, including policies, procedures, employee training, and monitoring systems. Assign a score based on the level of risk mitigation provided by these controls.

Once the scores are assigned, the organization can aggregate the scores to create an overall risk score for each category. This process helps identify areas of higher risk that require enhanced due diligence and monitoring.

The results of the risk assessment should be used to develop and enhance the organization’s AML/BSA compliance program, ensuring that resources are allocated effectively to mitigate identified risks. Regularly reviewing and updating the risk assessment is essential to maintain its effectiveness and ensure the organization’s compliance with evolving regulatory requirements.

Building a Program – Miscellaneous Policies 

Here’s an overview of a few key policies and their relevance to credit card issuers which I haven’t covered above:

  1. Suspicious Activity Reports (SARs) Policy: Under the Bank Secrecy Act (BSA), credit card issuers are required to file SARs for any transaction that may involve money laundering, terrorist financing, or other suspicious activities. This policy should establish guidelines for identifying, investigating, and reporting suspicious transactions, as well as maintaining proper documentation.
  2. USA PATRIOT Act Policy (Section 314 reporting): Section 314(a) of the USA PATRIOT Act allows financial institutions, including credit card issuers, to share information with law enforcement agencies to identify and report potential money laundering or terrorist financing activities. The policy should outline procedures for responding to 314(a) requests, safeguarding customer information, and maintaining records of information sharing.
  3. FinCEN Policy: The Financial Crimes Enforcement Network (FinCEN) is responsible for implementing and enforcing the BSA and AML regulations. A credit card issuer’s FinCEN policy should detail the company’s compliance with FinCEN’s regulations, including Customer Identification Program (CIP), Customer Due Diligence (CDD), Enhanced Due Diligence (EDD), and recordkeeping requirements.
  4. OFAC Policy: The Office of Foreign Assets Control (OFAC) enforces economic and trade sanctions against certain individuals, entities, and countries. Credit card issuers must have a policy in place to ensure compliance with OFAC regulations, including screening customers, transactions, and business partners against OFAC’s Specially Designated Nationals (SDN) list and other restricted parties lists, as well as blocking or rejecting prohibited transactions.
  5. FBAR Policy: The Report of Foreign Bank and Financial Accounts (FBAR) is a reporting requirement for U.S. persons with foreign financial accounts. While this requirement may not directly apply to credit card issuers, they should have policies in place to ensure compliance with FBAR regulations if they hold or have signature authority over foreign financial accounts.
  6. Identity Theft Policy: The Fair and Accurate Credit Transactions Act (FACTA) requires financial institutions, including credit card issuers, to establish an Identity Theft Prevention Program (ITPP) to detect, prevent, and mitigate identity theft. The policy should include procedures for identifying and addressing red flags, verifying customer identity, maintaining customer information security, and responding to identity theft incidents.

By developing and implementing these policies, credit card issuers or fintech companies in the United States can demonstrate compliance with relevant regulations, mitigate risks associated with financial crimes, and protect their customers and business from potential harm. Regularly reviewing and updating these policies is essential to ensure ongoing compliance and effectiveness.

Building Program – Why is this Relevant 

Credit cards and fintech systems can be used in various ways to facilitate money laundering. Money laundering is the process of making illegally-gained proceeds appear legitimate by disguising their origins. Here are some ways that credit cards can be used in money laundering schemes:

  1. Overpayment and refunds: A criminal may make a large overpayment on their credit card account using illicit funds and then request a refund. This creates the appearance of a legitimate transaction and allows the launderer to receive “clean” money from the credit card issuer.
  2. “Credit card factoring” or “credit card laundering”: This involves a criminal using a shell or front company to process fraudulent credit card transactions. They use stolen or fake credit card information to create transactions, which are then processed through the merchant account of the shell company. The company receives the funds from the credit card processor, less any fees, and transfers the laundered money to the criminal’s account.
  3. Collusion with merchants: Criminals may collude with complicit merchants who allow them to use their credit cards to make purchases or pay for services with illegal funds. The merchant then refunds the transaction, providing the criminal with laundered money from the merchant’s account.
  4. Buying and selling goods: Criminals may use illicit funds to purchase high-value goods or services using credit cards, and then sell those goods or services to convert them back into cash. This process can help disguise the origins of the illegal funds.
  5. Multiple small transactions: Criminals can use credit cards to make multiple small transactions (structuring) to avoid detection or reporting thresholds. These transactions may be spread across several accounts, cards, or merchants to further reduce the risk of detection.
  6. Prepaid credit cards: Prepaid credit cards can be used to launder money, as they can be bought and reloaded with cash. Criminals can use these cards for purchases, ATM withdrawals, or online transactions without revealing their true identity. In some cases, they may also use prepaid cards to transfer money between different countries.

Financial institutions, including credit card issuers and Fintech companies, are required to implement robust anti-money laundering (AML) programs to detect and prevent such activities. This includes Know Your Customer (KYC) policies, transaction monitoring systems, and Suspicious Activity Reports (SARs) to identify and report any suspicious activities.

Building a Program – Transaction Flow for a Credit Card Provider

The typical transaction flow for a credit card issuer involves multiple parties and several steps. This section is specific to card issuers as fintech companies have structures that are to diverse to cover in an article, Here is an overview of the process when a cardholder makes a purchase using a credit card:

  1. Cardholder initiates a purchase: The cardholder presents their credit card to the merchant for payment.
  2. Merchant processes the transaction: The merchant uses a point-of-sale (POS) terminal, payment gateway, or other payment processing system to capture the card details and submit the transaction for authorization.
  3. Transaction is sent to the acquiring bank: The merchant’s acquiring bank (or payment processor) receives the transaction details and forwards the information to the card network (e.g., Visa or MasterCard).
  4. Card network routes the transaction: The card network routes the transaction to the issuing bank (the bank that issued the credit card to the cardholder) for authorization.
  5. Issuing bank authorizes the transaction: The issuing bank checks the cardholder’s account for available credit, verifies that the card is valid and not flagged for fraudulent activity, and either approves or declines the transaction. The response is sent back through the card network and the acquiring bank to the merchant.
  6. Merchant receives authorization response: The merchant receives the response and completes the sale if the transaction is approved. The approved transaction is then stored in a batch for later settlement.
  7. Merchant submits the batch for settlement: At the end of the business day or another predetermined time, the merchant submits the batch of approved transactions to the acquiring bank for settlement.
  8. Acquiring bank requests funds: The acquiring bank sends the batched transaction details to the card network, which then forwards the information to the respective issuing banks.
  9. Issuing banks transfer funds: The issuing banks transfer the funds for the settled transactions, minus interchange fees, to the card network.
  10. Card network transfers funds to the acquiring bank: The card network consolidates the funds from the issuing banks and transfers the net amount, minus network fees, to the acquiring bank.
  11. Acquiring bank deposits funds to the merchant’s account: The acquiring bank deposits the funds, minus any applicable fees, into the merchant’s account.
  12. Cardholder is billed: The issuing bank adds the transaction amount to the cardholder’s account balance. The cardholder will be responsible for paying the balance according to their credit card agreement.

This transaction flow represents a simplified version of the process. In practice, there may be variations depending on the specific payment infrastructure, card network, and additional services or features offered by the involved parties.

SOP for a Credit Card Processor and Fintech Company

Creating a comprehensive compliance Standard Operating Procedure (SOP) for a credit card issuer and a fintech company requires addressing multiple areas of regulatory and operational compliance. While the exact SOP will depend on your specific circumstances, the following components should generally be included:

  1. Compliance Management System (CMS): Develop a formalized system for managing compliance within the organization, including the appointment of a dedicated compliance officer, clear reporting lines, and regular communication with senior management.
  2. Regulatory Compliance: Ensure adherence to all applicable federal, state, and local regulations, as well as payment network rules (e.g., MasterCard and Visa). This may include consumer protection laws, fair lending practices, data privacy, and security requirements.
  3. Know Your Customer (KYC): Establish a robust KYC program that includes customer identification, risk-based due diligence, and ongoing monitoring of customer transactions. Ensure that the program complies with all applicable KYC regulations.
  4. Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF): Implement a comprehensive AML/CTF program, including risk-based customer due diligence, transaction monitoring, suspicious activity reporting, record-keeping, and employee training.
  5. Third-Party Risk Management: Develop a process for assessing, monitoring, and managing risks associated with third-party service providers, such as payment processors, technology vendors, and collection agencies.
  6. Fraud Prevention and Detection: Implement a fraud management program that includes transaction monitoring, fraud detection tools, chargeback management, and customer education on fraud prevention.
  7. Data Security and Privacy: Establish a data security program that complies with the Payment Card Industry Data Security Standard (PCI DSS) and any applicable data privacy regulations, such as the General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA).
  8. Internal Policies and Procedures: Develop and maintain comprehensive internal policies and procedures that cover all aspects of the credit card issuer’s operations, including card issuance, underwriting, account management, billing, dispute resolution, and fraud management.
  9. Employee Training and Awareness: Provide regular training to employees on compliance requirements, internal policies, and procedures. Ensure that training materials are updated to reflect regulatory changes and industry best practices.
  10. Monitoring, Auditing, and Reporting: Establish a process for regularly monitoring and auditing the credit card issuer’s compliance program to identify gaps, areas for improvement, and potential violations. Implement corrective actions as needed and report any significant compliance issues to senior management and, if required, to regulatory authorities.
  11. Record-Keeping: Maintain accurate and complete records of all compliance-related activities, including risk assessments, audits, training, and reporting, as required by applicable regulations.

The million-dollar issue: Do all credit card issuers and Fintech companies take possession of client funds? As a result, do all credit card issuers require a money services license?

Credit card issuers and Fintechs generally do not take possession of client funds in the same way as banks, which hold deposits in customer accounts. Credit card issuers extend a line of credit to cardholders, allowing them to make purchases or obtain cash advances up to a specified limit. Cardholders are then required to repay the borrowed amount, typically with interest, according to their credit card agreement.

As a result, credit card issuers usually do not fall under the category of money services businesses (MSBs) and may not require a money services license. MSBs typically include entities involved in money transmission, currency exchange, check cashing, and other financial services that involve the handling of client funds.

For more on this topic, you might also read through Structuring a Fintech or Card Issuer without an MSB License

Process to Apply for a Money Service Business License

In the United States, money transmission licensing is regulated at the state level. Each state has its own requirements and procedures for obtaining a money transmission license, which means that if you plan to operate in multiple states, you may need to obtain a license in each state where you conduct business. Here is a general outline of the process:

  1. Research state-specific requirements: Begin by researching the specific licensing requirements for each state in which you plan to operate. You can usually find this information on the state’s financial regulatory agency website or by consulting with a legal professional.
  2. Prepare your application: Each state has its own application form and supporting documentation requirements. Commonly required documents may include a business plan, financial statements, policies and procedures, AML program documentation, background checks, and fingerprints for key personnel, as well as information about the company’s organizational structure and management.
  3. Obtain a surety bond: Most states require money transmitters to obtain a surety bond as part of the licensing process. The bond amount varies by state and is designed to protect consumers in case the licensee fails to meet its obligations.
  4. Pay application fees: Each state typically requires payment of a non-refundable application fee and, if applicable, a licensing fee upon approval.
  5. Submit your application: Once you have prepared all the required documents, submit your application to the appropriate state agency for review. The review process can take several weeks to several months, depending on the state and the complexity of your application.
  6. Respond to any inquiries or requests for additional information: During the review process, the state agency may request additional information or clarification. Respond promptly to these requests to avoid delays in the licensing process.
  7. Obtain your license: If your application is approved, the state agency will issue your money transmission license. You may need to pay an initial licensing fee or meet additional requirements, such as providing proof of a surety bond, before your license becomes active.
  8. Maintain compliance: Once licensed, you must maintain compliance with state-specific regulations, including periodic reporting, financial statement submissions, and maintaining a surety bond. You may also be subject to periodic examinations by the state agency to ensure ongoing compliance.
  9. Renew your license: Money transmission licenses typically have expiration dates and must be renewed periodically. Each state has its own renewal process and fees, so be sure to stay aware of the requirements and timelines to avoid any lapses in your license.

Bond Requirements (CA and TX as examples)

Money Services Businesses (MSBs) are required to obtain surety bonds as part of the licensing process. These bonds help protect consumers from potential financial loss resulting from the MSB’s failure to comply with state regulations or unethical business practices.

Here are the bond requirements for MSBs in California and Texas:

  1. California: Money transmitters in California are required to obtain a surety bond under the California Money Transmission Act. The bond amount varies based on the volume of the money transmitter’s business. The minimum bond amount is $250,000, and the maximum bond amount is $7,000,000. However, if the money transmitter also conducts business in receiving money for obligations, the maximum bond amount may be increased to $10,000,000.
  2. Texas: In Texas, MSBs that are engaged in money transmission or currency exchange must obtain a surety bond under the Texas Finance Code. The bond amount is determined by the Texas Department of Banking based on the MSB’s business activity and volume. The minimum bond amount is $300,000, and the maximum bond amount is $2,000,000. In addition to the state-level bond requirement, certain cities in Texas, such as Austin and Houston, may also require MSBs to obtain a separate bond at the local level.

Note that bond requirements may vary based on the specific type of MSB (e.g., money transmitter, check casher, currency exchanger) and other factors, such as the volume of transactions processed. The above is just an example.

Given the complexity and state-specific nature of money transmission licensing, this is a very complex matter. We are capable of applying for licenses in multiple states if that is what’s required. My quotation below does NOT include the cost of applying for an MSB license(s).

Consulting Services

We can create a compliance program that covers all essential aspects, including regulatory compliance, risk assessment, transaction monitoring, fraud detection, data security, and employee training as described above. Our team of experienced compliance professionals will work closely with you to ensure the program is tailored to your organization’s unique needs and requirements.

We can assist in all aspects of a fintech, crypto, or credit card issuing business compliance program. For more information and pricing, please contact us at info@premieroffshore.com. For information on this topic for banks, see my other website www.banklicense.pro 

FBO Account MSB License

Structuring a Fintech or Card Issuer without an MSB License

One of the biggest issues facing fintech and card issuers in the United States is how to structure the business to avoid the need for an MSB license. An MSB license can tie up many millions of dollars in capital and cost a fortune to acquire on a national level. Thus, there is how to structure a fintech or card issuer without an MBS license. 

First, allow me to describe an MSB license. An MSB or Money Services Business license is a regulatory approval that is mandatory for any company operating in the money transfer industry or providing financial services. MSB is a broad term that encompasses various types of financial service providers such as currency exchanges, money transmitters, and stored value card issuers. The goal of this license is to prevent money laundering, terrorist financing, and illegal activities from being conducted through these companies.

For fintech or card issuer companies, obtaining an MSB license is critical because it enables them to legally operate in the financial industry. Fintech companies who engage in activities such as international transactions or online payments must have this license to conduct business. Card issuers, on the other hand, may need an MSB license when offering prepaid cards or other stored-value products. In addition to compliance with regulations, holding an MSB license can also help improve customer confidence and trust as it provides a level of legitimacy and credibility to a business.

Basically, any time you take control of customer funds, you need an MSB license. Thus, the way to eliminate the need for an  MBS license as a fintech or card issuer is to not take control of customer funds. One way to accomplish this is to use an FBO account at your local bank. 

An FBO (For Benefit Of) account is a type of bank account used to hold funds on behalf of a third party. It is different from a typical corporate bank account in that the funds in an FBO account do not belong to the account holder but rather to the named beneficiary or beneficiaries.

FBO accounts are commonly used in various scenarios, such as when a company collects funds on behalf of its clients, in trust accounts managed by lawyers, or by non-profit organizations to hold donations.

The primary difference between an FBO account and a regular corporate bank account lies in the ownership and control of the funds. In an FBO account, the account holder (usually a business) acts as a custodian, merely holding the funds in a fiduciary capacity for the benefit of the named beneficiary or beneficiaries. The account holder does not have the authority to use the funds for its own purposes.

In contrast, a typical corporate bank account is owned and controlled by the company, which can use the funds as needed for its business operations.

Regarding the need for an MSB (Money Services Business) license, FBO accounts can help reduce or eliminate the requirement for such a license because the account holder does not take possession of client funds. MSB licenses are typically required for businesses that transmit or convert money, such as money transmitters, currency exchangers, or check cashers.

By using an FBO account, a business can avoid being classified as an MSB because it does not take possession of client funds, nor does it engage in money transmission or currency exchange activities. Instead, it merely holds the funds in a fiduciary capacity on behalf of the client. However, it’s essential to consult with a legal or compliance expert to ensure the specific arrangement does not trigger any regulatory requirements, as regulations may vary depending on jurisdiction and the nature of the business.

I hope you find this information helpful. For more information on banking licenses, see our website on this topic, www.banklicense.pro. We are here to assist you structure a fintech or MSB or credit card issuing business in the United States or in Mexico. For more information, please send me a message to info@premieroffshore.com