A recent decision by a Pennsylvania appeals court may help provide some clarity around the question of when a payment facilitator is a money transmitter. 

A recent decision by a Pennsylvania appeals court may help provide some clarity around the question of when a payment facilitator is a money transmitter.

The decision centers around Givelify, an Indianapolis-based PF that offers donation management software for organizations and enables users to donate money to nonprofit or religious organizations through a smartphone app. It uses Worldpay (formerly Vantiv) to process payments initiated through the app.

According to the opinion issued by the appeals court, the Pennsylvania Department of Banking and Securities claimed in 2016 that Givelify was operating as a money transmitter without the proper license, issued a cease-and-desist order and fined the company. Givelify appealed the order and after a hearing, the department upheld its original conclusion. But then in a May ruling, a Pennsylvania appeals court reversed that decision.

According to Andrew Bigart, an attorney with the payments practice at law firm Venable LLP, this reversal is encouraging news for payment facilitators.

“There has been some confusion in the payments industry on the scope of state money transmitter licensing requirements, particularly for software providers and payment facilitators, and the court’s decision provides helpful guidance on the contours of money transmission, at least in Pennsylvania,” Bigart told PaymentFacilitator. 

In the Pennsylvania case, the state agency had determined that Givelify was operating as a money transmitter in violation of the Pennsylvania Money Transmitter Act (MTA) because “it created a business platform, via its software application, which served as an indispensable part of a chain of events through which money was transferred from the donors to the recipients of the donations,” the opinion read.

The department determined that Givelify was in the money transmission business because its software resulted in that transmission, regardless of whether the company controlled the funds directly.

For its part, Givelify argued that the Pennsylvania law “applies only to those entities that actually transmit money, and not to entities that cause or request another party to transmit money,” and that Vantiv was the entity that actually transmitted the funds.

Upon its review of the case, the appeals court determined that the agency had misinterpreted the Pennsylvania law.

“On a basic and critical level, the Commission erroneously interpreted the terminology ‘engage in the business’ in an overly expansive manner and essentially read it as prohibiting any conduct that contributes toward—or has a tangential involvement with—the concrete and real act of ‘transmitting money,’” the decision read.

“Based upon its most natural reading, former Section 2 of the MTA requires a license when an individual or organization has been ‘transmitting money.’ In this regard, the key term in ascertaining the defining characteristic of the conduct that is proscribed by the statute is ‘transmitting,’” it continued.

The court then turned to the dictionary for the meaning of “transmitting.”

“Reduced from its gerund form, the verb ‘transmit’ is defined by Black’s Law Dictionary, in relevant part, as, ‘To send or transfer (a thing) from one person or place to another,’” it said.

Based on the dictionary definition, the court concluded that Givelify was transmitting information that was important for the transaction but was not transmitting the money. This provides useful clarification, Bigart said.

“While not binding on other jurisdictions, the court’s reasoning should help the payments industry by underscoring that entities that merely provide payment instructions, and do not receive funds for transmission, are not engaged in money transmission,” he said.