Square Fined $507K In Florida For Operating A Mobile Payment Service Without A Money Transmitter License

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A little more state-specific financial regulatory hot water for Square, the hot mobile commerce startup: it has been fined $507,000 by Florida’s Office of Financial Regulation for operating a payment service without a money transmission license. This looks like the second time that a U.S. state financial regulator has gone after the company, after Square was served with a cease and desist order in Illinois in March 2013, also for failing to obtain a license before opening up for operations.

According to the Florida payment order (embedded below), the $507,000 fine covers over two years of operation, from February 2010 to November 2012. “Specifically, the Office finds that Applicant’s existing payment processing services (including Square Register) and stored value/prepaid access card services required a license under Florida law,” the order reads.

Dated July 23 and first noticed by the South Florida Business Journal, the order also notes that Square applied for a license in November 2012. The regulators provided Square with a money transmission license after it paid its $507,000 fine via wire transfer,┬ábut the company “neither admits nor denies” any guilt in its settlement, the order says.

“We worked with Florida to resolve our application and receive our license to operate as a money transmitter in the state,” Square spokesman Aaron Zamost told the SFBJ. “We look forward to continuing to help merchants across Florida grow their business with Square.”

For a startup that has raised $341 million, including a $200 million round in September 2012 that included strategic investor Starbucks, $507,000 doesn’t sound like much, but it does show up how financial regulation is not always a straightforward game.

At the time of the Illinois C&D one observer pointed out that it wasn’t clear why Square fell under the jurisdiction of money transmitter licenses if it doesn’t hold funds itself.

The Florida case, meanwhile, highlights the perils of needing to adhere to state-specific laws that may not be harmonized with each other. “This really shows how complicated and unhelpful the regulation is in the U.S.,” Yann Ranchere, finance director at financial services specialist Anthemis. “Money transmitter licences [are issued] by state, with slight differences in each state.”

In the meantime, Square — which takes a 2.75% commission on card transactions swiped through its dongles — has been trying out new ways of building its business. These have included the launch of new hardware like Stand to complement its Square Register iPad app, as well as Square Market virtual stores for local businesses. On the other hand, it has pulled away from other forays, such as gift cards.

We have reached out to Square for further comment about Florida, to ask what the latest is with the case in Illinois, and to ask whether there are any other state-specific cases coming up. We’ll update this story as we learn more.