internet banking
is it illegal for users to store money on a website?
<p>I am aware that there are legal things that need to be considered if someone wants to start their own bank. However people earn money by selling on a website and people spend their money and transform it into digital currencies on the internet.</p>

<p>Lets say i start a simple website that allows people to pay money on that website and i give it back to them when they are ready to take it back (essentially storing money online). would that be illegal? might it be considered banking without a license or something? Or would that be perfectly fine?</p>

<p>Yes, you are then an online bank.  This is an issue that computer games have had to figure out, when it was possible to move money both ways, cash to game gold and game gold to cash.  (think Diablo's Real Money Auction House).</p>
<p>If you allow people to store cash value in the game, and then take the cash value back out, then you are banking.  Even though it's a game, you'll have people using it as a bank, and not playing the game at all but merely using it for funds storage and movement.  Even if you surcharge significantly to deter this (i.e. $1 buys 90 game gold, and 110 game gold pays $1), there will always be people willing to pay the surcharge -- <strong>criminals</strong>.</p>
<p>This is the whole point of the Homeland Security-driven &quot;Know Your Customer&quot; laws. The government doesn't want criminals using your real-money-trading platform to launder money.</p>
<p>I know that you imagine a business model where this would be awesome. Actually you'll spend most of your time dealing with this kind of thing:</p>
<blockquote>
<p>Ann Onymous signs up and does nothing on your platform except load the account with money and send it to someone.  Harold Hack is longtime customer who is active on the platform in all the normal ways.  One day Harold adds a card, and loads an unusual amount of money onto the account.  Both of them transfer money to Boris Badguy, who withdraws it.  All fine, working as intended.  <em>But then, Ann and Harold's credit card payments reverse.  They were stolen credit cards</em>.</p>
<p>But you're angry at Ann and Harold, and you dun them ferociously to make good their payment per your Terms of Service.  Ann is unreachable.  You don't believe Harold because deadbeats lie.  It takes you awhile to realize this <em>isn't</em> first-party credit card fraud, and Harold's account was actually hacked. Harold doesn't normally post from Moldova at 3:30am.  By this time, Boris is in the wind.</p>
<p>Unfortunately, your business model doesn't let you make enough money to offset these kinds of losses. And it's hell on customer relations.</p>
</blockquote>
<p>You finally get arrested for using customer deposits to pay payroll, because you should've been keeping it in escrow.</p>
<h2>Being a bank is not for amateurs.</h2>

<p>What you are essentially suggesting is very very similar to how an existing service operates - PayPal.</p>

<p>In the US, PayPal is not regulated as a bank at the Federal level, but it is regulated by several financial service related laws and statutes, including consumer protections and the US PATRIOT Act.  Different states also hold different regulatory opinions of PayPal.</p>

<p>In the EU, <a href="https://www.finextra.com/newsarticle/16927/paypal-gets-banking-licence-in-europe" rel="nofollow noreferrer">PayPal is regulated as a bank</a> under the Luxembourg banking regulations, and previously was regulated by the Financial Services Authority in the UK as a financial institution.</p>

<p>In China, <a href="https://www.finextra.com/newsarticle/34508/paypal-gets-chinese-payments-license" rel="nofollow noreferrer">PayPal holds a payments license</a>.</p>

<p>In other countries, <a href="https://www.paypal.com/nz/webapps/mpp/ua/legalhub-full" rel="nofollow noreferrer">such as Singapore or NZ for example</a>, PayPal is regulated as a "stored value facility", and is not regulated as a bank.</p>

<p>In short, what you want to do heavily depends on the individual regulations in each country, and whether you need to seek any level of license as a financial institution is dependant on jurisdiction.</p>

<h2>Yes, it's illegal</h2>

<p>Taking deposits (other than deposits as advance payments for goods or services) is one of the fundamentals of being a bank (or other financial institution) and these are universally regulated. For example, <a href="https://www.apra.gov.au/licensing-guidelines-for-authorised-deposit-taking-institutions" rel="nofollow noreferrer">these</a> are the guidelines for <a href="/questions/tagged/australia" class="post-tag" title="show questions tagged &#39;australia&#39;" rel="tag">australia</a>.</p>
