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Comment by elif | Hacker News Reader

The way I would have done it:

1) Parents are charged via typical merchant mechanism to fill their account with "credits" worth $0.99 each, costing $1.00, and can optionally allow the app to automatically top-up their account when low.

2) The service sends cash in a registered mail envelope at a frequency configurable by users, with mailing fees paid for by credits.

Then the business can function and grow a user-base, and by holding the balance, the company can build up a lot of cash-on-hand which will enable them move onto the bank integration they originally wanted. Bonus: receiving legitimate mail and getting cash in hand are very exciting experiences for a kid.

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If you were to do this, you'd be violating multiple federal laws and regulations.

You have basically created a stored value and money transmitter business without the proper license. In addition, you've created a conduit for criminals to launder money.

See:

* Liberty Reserve - https://www.justice.gov/opa/pr/founder-liberty-reserve-plead...

* Ripple - http://www.americanbanker.com/news/bank-technology/fincen-fi...

* FinCen MSB fines list - https://www.fincen.gov/news_room/ea/

Disrupting finance is hard for a reason.

But it'd be part of the sharing economy. Must disrupt!

also, it's illegal to send cash in the mail, period (though they seem to give a pass to kindly old grandmas sending five dollarses to their grandkids)

That's a myth: http://www.snopes.com/legal/postal/sendcash.asp

Oh! I stand corrected.

Wait a sec, so Uber, AirBNB, 99designs... etc etc, who all collect money & then disperse it to service providers... You are saying all of these companies require a special license?

Yes. Amazon for example was a normal merchant for years and did not need a money-transfer license. However, as soon as they decided to open a marketplace for 3rd party stores, they required licenses. And they got them.

The rule is simple - if you take and hold on to customer funds, you need to be licensed for money transfer in all the states you operate in.

Today, a few services like Braintree and Stripe offer a middle ground solution. Essentially, they will open an escrow account for your merchant customers, and you move any money your holding into the escrow. They will then hold the funds until you release them. This approach is clever, but still a legal grey area.

AirBnB, Uber, etc all use third party payment processors like Stripe Connect. They don't ever touch the money in the marketplace. They just instruct their payment processors to move the money. This allows the startup to stay outside of financial regulation while letting the processor handle all that.

If you're a marketplace startup, focus on your customers and your startup and outsource the highly regulated parts to third parties.

https://stripe.com/connect

And now you are a money laundering service. Go to jail. Do not pass go, do not collect $200. This app would not get approved, and you'd have to literally lie to get this business model approved by any reputable credit card processor.

This is a great idea. It wouldn't have supported every use-case, but it would have executed the minimum viable requirements to get traction (I'm guessing, anyway).

I am completely clueless when it comes to finance regulations, but how does "sends cash in a registered mail envelope" not raise any red flags for people?

Why should it? Mailing cash is totally fine.

There are a couple of other red flags though.

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