There is a reasonable-seeming concern in this post: the California DFI has effectively unpublished tangible net worth requirements, and ostensibly the only way to find out what they are is to apply for a license and be rejected --- which is something you have to disclose on all future applications even in other states.
The notion of "tangible net worth" requirements is the flip side to the 2008 complaint about banks being able to overleverage and thus create "too big to fail" scenarios. The subtext, I think, of the DFI's fuzzy requirements is: if you meet the tangible equity requirements, you know you do. For the types of businesses we're talking about, $500k is a joke (can you imagine Paypal being backed by sums denominated in the single-or-double-digit hundreds of thousands?) It's simply very expensive to be a money transmitter in a state as big and dynamic as California.
 It is my impression that the process has been improved to the satisfaction of most people who can be satisfied with such a process.
I'm not saying some sort of licence shouldn't be required - just that you should be able to figure out whether it will be approved or denied before you apply for it.
Clarification: Walmart's difficulties are unrelated to a banking startup's difficulties.
First, in one of his articles he says 43 states already have such laws, and you need to be licensed with them to do business nationwide.
So, why is one more state (California) adding licensing a big deal?
Second, when I Google for more information I come across almost no one complaining about this bill other than this one guy. If the bill is anywhere near as bad as he claims it is, I'd expect to see a lot of discussion.
The last attempt to discuss it here on HN was quickly flagged and killed.
Problem 2: It's not really $500,000. The DFI uses its own non-published standards which are much higher. This makes it impossible to know how much you really need to raise.
Problem 3: Silicon Valley is in California.
Most of the people who should be complaining about this bill either don't know enough about the law to know what to do, or they're just too small to know that the law even exists. That's precisely the problem, though: sometimes great innovations happen where you least expect them, and by regulating small companies out of existence, they're not very likely to ever come up with anything.
Also, VC-backed payments companies that have recently disappeared (Bling Nation, for example) have no incentive to explain the true reasons behind their disappearing.
Whining-like typing detected.
Why can't CA DFI actually state and publish the rules which would guarantee licensing?
Simple is not a requirement. Objective is.
> For example, they can reject or revoke your driver's license for many obscure and subjective reasons.
And that's also a problem.
Presumably this regulation will affect all of the other payments companies in this space. (e.g., WePay, Venmo, Dwolla etc). It would be interesting to hear their thoughts on this.
Aaron himself says Square isn't a money transmitter:
Payment processors are regulated differently than money transmitters:
The money transmitter definition also provides that “the acceptance and transmission of funds as an integral part of the execution and settlement of a transaction other than the funds transmission itself ... will not cause a person to be a money transmitter.”
FinCEN has already concluded that a merchant payment processor acting exclusively on behalf of merchants receiving payments for goods and services, rather than on behalf of consumers making payments to merchants, is not a money transmitter.
Venmo doesn't have any licenses to the best of my knowledge. Maybe they're an agent of someone, too.
Dwolla thinks that they're exempt but I'm not entirely sure that's true. They have a credit union service provider as one of their investors, but that's not necessarily the same as being an agent of a federally chartered bank or credit union.
Noca, Xipwire, Cimbal, LendingKarma, KoolWallet and others are affected as well.
I'm sorry to say it, but it seems like regulation is not why you are shutting down, but inability to execute on your business is. WePay managed to not have this be an issue. No VC I know has raised this as an issue of concern.
I'm not trying to troll, but startups are realy hard dude. Shit happens. Move on. Find an alternate path. If you believe in the vision, you'll find a way.
I posted this to raise awareness about regulatory issues, not to solicit pity or life advice.
I know that startups are hard; that's why I do them. It's just bullies like you who make them especially so.
I'm happy to help. I'm a mentor at I/O Ventures where I hold office hours periodically -- please feel free to drop in, or shoot me an email and I'll let you know next time I'll be there. Even if you don't think I'm qualified to mentor, I'm certainly a good person to bounce ideas off of, and you can probably guess, I bring a healthy dose of reality to discussions. ;-)
I don't even know what to say. Your point seems to be "Shit happens...but it's all your fault."
Also, I didn't say that FaceCash hasn't succeeded, and I didn't say that regulation is "the" reason why. It's far too early to tell.
When your honest opinion is consistently derogatory toward a single person no matter the circumstances, and you never have the faintest praise to offer, then yes, I think that does make you a bully, albeit an honest one.
If you truly want to help, and you truly believe that I just don't know how to "execute," whatever that means, then fine. E-mail me with what I should have done differently, and I'll be happy to share some reality with you.
Perhaps you can offer some lessons on "execution" to Jeff Bezos as well. Based on what the California legislature did to him today, he's clearly in need of some mentoring.
aarong at thinkcomputer dot com
Even if you're right.
I did so once, I believe I was and still am right, but looking back I still believe I came across as an asshole by saying it and didn't achieve/gain anything.
Don't waste time dissing people. Evolve, pivot, code around them. It's much more productive, for you and for them.
We can all benefit from a discussion about good ways to regulate.
I agree financial regulation is mostly a good thing, but I am also happy with the concept of a financial wild west in the form of a crypto currency. As long as people know what they are getting in to.
If the California DFI were to deny our application for a license, we would be at risk of being denied licenses in every other state in which we apply. (Each state's license application asks whether the applicant has been denied any other kind of license for any reason.)
If this is a problem why not just get all your applications in now before you've been denied?
Right, just submit an application now for everything you think you might ever need to apply for in the future, everywhere. Imagine how many denials you will have on your record then.
Not a good strategy.
B. Considering the alternative seems to be shutting out the 8th largest economy in the world, as smart ass as my comment was it seems to be worth considering.