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Banking Interpretations

NYBL 641

February 27, 2009

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I am writing in response to the licensing inquiry regarding your client Obopay, Inc.  Specifically, you ask if Obopay requires a New York money transmission license to conduct its No-Card person-to-person funds transfer service and its proposed Prepaid Card service.  Additionally, the licensing inquiry extends to Obopay's collaboration with Citibank in its person-to­person funds transfer business.  Obopay was incorporated in Delaware in 2005 and is headquartered in Redwood City, California.  Obopay neither maintains a physical presence in New York State nor does it conduct business through agents located in the State.

Obopay's No-Card Service

As is more fully described below, Obopay provides person-to-person funds transfer processing services whereby its customers may initiate funds transfers using the internet or mobile telephone text messages.  Obopay customers send funds transfers by entering the mobile telephone number of the intended recipient of such by text message facilitated by a mobile telephone software application downloaded from Obopay to the mobile telephones of customers. In addition, funds transfers may be made through Obopay's secure website which is accessed by computer or with an internet handheld device such as a Blackberry.

Obopay's No-Card service is available only to customers who register for the service. As a registered customer in the Obopay system, funds transfers can be initiated first by electronically loading an Obopay subaccount, also referred to as an Obopay Stored Value account ("Obopay SVA") maintained at The Bancorp Bank ("Bancorp")1. Loads to an Obopay SVA can be made through the use of a debit or credit card or by an ACH transfer. Funds are transferred from the Obopay SVA. To that end, customers submit funds transfer instructions to Obopay by text message from their mobile telephones or by entering the instructions on Obopay's secure website. Obopay serves as an intermediary and routes the payment instructions to the applicable bank or its service provider. Customers are charged transaction based fees for use of Obopay's No-Card service but are not charged registration or account maintenance fees. Recipients of funds are not charged a fee for receiving funds. Obopay's target customers are families, groups of friends, and young professionals. Obopay has set a $1000 load balance limit for the No-Card Service.

Registering for Obopay Services and Establishing an Obopay SVA Account

Customers register for the No-Card Service through a secure Obopay registration webpage by providing certain personal information including their name, address, mobile telephone number, e-mail address and date of birth. They must also agree with Obopay's terms and conditions of the service.  Obopay's "Know Your Customer" program allows Obopay, through a service provider, to verify customer identity. Once verified, the registration process is completed by selecting a login name and a password. At that point, funds may be loaded to an ObopaySVA for transfer purposes.

Loading an Obopay SVA with an ACH Transfer

Customers may load funds into their Obopay SVA maintained at Bancorp by way of ACH transfers from their bank checking and savings accounts. Customers enter certain information into the appropriate Obopay website page, including the name of their bank and account number, the bank's ABA routing number, and the amount of the funds to be loaded to their Obopay SVA. Obopay submits a file for processing to Bancorp reflecting the daily ACH requests. Bancorp sends instructions to the banks to debit their customers accounts for the requested load amounts. Funds received from the customer bank accounts are then credited to Obopay's dedicated ACH settlement account maintained at Bancorp for the benefit of Obopay customers. The Obopay SVAs are then credited for the appropriate funds loaded. Funds collected for the No-Card Service loads are then moved into Obopay's customer clearing account maintained at Bancorp for cash in transit to/from Obopay customers. This account is held for the benefit of Obopay Customers. From there, the funds are moved into Obopay's pooled account of customer funds held at Bancorp for Obopay SVAs. The pooled account is also maintained for the benefit of Obopay Customers. Obopay transaction fees are taken at month end from the pooled account and placed into Obopay's fee revenue account maintained at Bancorp.

Loading an Obopay SVA with a Debit or Credit Card

Customers may load funds into their Obopay SVA with a debit or credit card. To initiate the load customers enter the appropriate Obopay website page and enter the type of card used for the load (e.g., VISA or MasterCard), its card number and expiration date. Customers also provide their billing address as well as their secure code number and the amount of funds to be loaded. Obopay transmits the information to Bancorp for processing. Bancorp then transmits the load information through the applicable payment card networks (e.g., VISA or MasterCard) to the card issuing banks. The banks or their processors verify that cards have not been reported lost or stolen and that sufficient funds or available credit exist for the amount of the load. The card issuing banks send a message to Bancorp either authorizing or denying the requested loads.

Assuming that authorization is given to make the loads, Bancorp transmits this information to Obopay.  Obopay then notifies customers of the completed loads. The funds flow for loads via a debit or credit card are similar to that of ACH loads previously discussed. The only exception being that the settlement account into which funds flow from debit and credit card loads is one that is dedicated to such transactions. At month end, Obopay's transaction fees are taken into its fee revenue account held at Bancorp.

Transfer of Funds from a Customer's Obopay SVA to Another Customer's Obopay SVA

Funds transfers from one customer's Obopay SVA to another customer's Obopay SVA are processed by accounting entries. Specifically, the receiving customer's Obopay SVA is credited with an offsetting debit to the sender's Obopay SVA. The entries are reflected in Obopay's account of pooled customer funds for Obopay SVAs maintained at Bancorp for the benefit of Obopay customers. Transaction fees are taken at month end into Obopay's fee revenue account held at Bancorp.

Transfer of Funds from a Customer's Obopay SVA to a Bank Account of a Non-Obopay Customer

Obopay customers may send funds from their Obopay SVA to a non­Obopay customer's ("Intended Recipient") bank account. The Obopay Customer initiates a transfer to the Intended Recipient by providing Obopay with the Intended Recipient's mobile telephone number and indicating the amount of funds to be transferred. The Intended Recipient gets a text message from Obopay regarding the offer of fund. The Intended Recipient is also directed to the appropriate link on Obopay's website so they can supply the necessary information to receive the funds. The Intended Recipient has thirty days from the date that the text message is received on their mobile telephone to act on the offer to send funds.

If the Intended Recipient chooses to receive the funds, they must register with Obopay, in a limited capacity, as a recipient ("Registered Recipient"). The Intended Recipient initiates registration on the appropriate Obopay webpage by entering their mobile telephone number to verify the transaction. Assuming verification is successful, the Intended Recipient is registered. As a Registered Recipient, they enter their bank name and ABA routing number, as well as their account number for the receipt of the funds. Obopay directs Bancorp to initiate an ACH credit to the Registered. Recipient's bank account in the amount for the transfer. At the same time, Obopay records a debit to the Obopay customer's SVA in a corresponding amount. A transaction fee is pulled at month end from the customer's Obopay SVA and placed into Obopay's fee revenue account held at Bancorp.

If the Intended Recipient of a funds transfer either fails to contact Obopay within thirty days of receiving the text message regarding the intended funds transfer, or refuses the offer of funds, the transaction expires or is cancelled.

Citibank Obopay Person-to-Person Transfers

Citibank customers can take advantage of the Citi Obopay person-to­person funds transfer service by choosing one of two Citi Obopay funds transfer account structures2.  One structure allows Citibank customers to register with Citi Obopay to transfer funds held in their Citibank checking account by associating the debit card to that account with their Citi Obopay account. A second structure allows Citibank customers to establish a Citi Obopay stored value account ("Citi SVA") that will permit the transfer of funds from and into it.

Citibank customers that have effectively registered via the dedicated Citibank Obopay registration webpage for one of the two Citi Obopay funds transfer account structures can initiate person-to-person funds transfer by way of text messages on their mobile telephones. This is facilitated by a telephone software application downloaded from Obopay to their mobile telephone. Funds also may be transferred via Obopay's secure website by accessing the appropriate Citi Obopay link by computer or with a handheld internet device such as a Blackberry. The appropriate "Know Your Customer" and OFAC checks are performed by Citibank.

Citi Obopay Checking Account Funds Transfers

Transfer of Funds from Citi Obopay Customer Citibank Checking Account to Another Citibank Customer Checking Account

Citi Obopay customers that registered to transfer funds from their Citibank checking account may send funds from therein to the checking account of another Citibank customer. The Citi Obopay customer provide their name, mobile telephone number, Citibank debit card number associated with their checking account, the amount of the funds transfer, and the mobile telephone number of the Citibank customer to receive the funds. Obopay receives the information electronically and sends the Intended Recipient notice of the offer to transfer funds. If the Intended Recipient refuses the offer it is cancelled. If there is no response it expires within thirty days of the date it was received by text message.

If the offer of funds is accepted, the Intended Recipient provides their name, address, telephone number, and the debit card number associated with their checking account via the appropriate Citi Obopay webpage. Citibank processes the funds transfer internally.

Transfer of Funds from Citi Obopay Customer Citibank Checking Account to a Non-Citibank Checking Account

Funds may be sent from a Citi Obopay customer's Citibank checking account to into a non-Citibank checking account of another by providing the name of the non-Citibank bank and its ABA routing number, the account number to receive the funds, and other personal identifying information. The funds to be transferred are sent from the Citi Obopay customer's Citibank checking account to a dedicated account maintained at Citibank for the settlement of payments to/from Citibank customer checking accounts. The settlement account is held by Obopay for the benefit of Citibank Obopay customers. The funds move daily from the settlement account to a transaction clearing account for cash in transit to/from Obopay customer accounts. This account is maintained at Bancorp in the name of Obopay for the benefit of Obopay customers. Next, the funds are transferred to the ACH settlement account held by Obopay at Bancorp for the benefit of Obopay customers. An ACH transaction is then originated by Obopay to forward the funds to the non-Citibank bank checking account.

Transfer of Funds from a Citi Obopay Customer Citibank Checking Account to a Citi SVA Customer

Funds may be sent from a Citi Obopay customer's checking account to a Citi SVA customer. In order to do so, a Citi Obopay customer provides the mobile telephone number of the Citi SVA customer to receive the funds. Obopay receives the information electronically, recognizes that the recipient of the funds is a Citi SVA customer, and sends the recipient notice of the transferred funds.

The funds that flow for this type of transfer exit the Citi Obopay sender's Citibank checking account and flow into a dedicated account maintained at Citibank for the settlement of payments to/from Citibank customer checking accounts. This account is held by Obopay for the benefit of Citibank Obopay customers. The funds move daily from this dedicated account to a transaction clearing account for cash in transit to/from Obopay customer accounts. Obopay holds this account at Bancorp for the benefit of Obopay customers. From the transaction clearing account, the funds flow on a daily basis to the dedicated Citi-Obopay pooled account for Citi SVA customers. This account is held by Citibank for the benefit of Citi SVA customers. Posting of the funds transferred to the Citi Obopay receiver of funds is made to their Citi SVA.

Transfer of Funds from a Citi Obopay Customer Citibank Checking Account to an Obopay Customer's Obopay SVA

Funds may be transferred from a Citi Obopay customer's Citibank checking account to an Obopay customer's Obopay SVA. The Citi Obopay customer provides the mobile telephone number of the Obopay SVA customer to receive the funds. Obopay receives the information, recognizes that the recipient is an Obopay SVA customer, and sends the customer notice of the funds transferred to their SVA.

For this type of transfer, funds flow from the Citibank checking account of the Citi Obopay customer into a dedicated account maintained at Citibank for the settlement of payments to/from Citibank customer checking accounts. This account is held by Obopay for the benefit of Citibank customers. The funds move daily from this dedicated account to a transaction clearing account for cash in transit to/from Obopay customer accounts. This account is held by Obopay for the benefit of Citibank Obopay customers. Next, the funds flow on a daily basis to the Obopay SVA bank account where customer funds are pooled for Obopay SVAs. This account is held for the benefit of Obopay customers. Posting of the funds transferred to the Obopay customer's Obopay SVA is then made.

Transfer of Funds from Citi Obopay Customer Citibank Checking Account to an Obopay Customers Obopay Prepaid Card

As is more fully explained below, Obopay anticipates entering into a co-branded prepaid card business ("Prepaid Card") with Bancorp. In connection therewith, Citi Obopay customers will be able to send funds from their Citibank checking account for load on an Obopay customer's Prepaid Card. To effectuate such a transfer, the Citi Obopay customer will provide the mobile telephone number of the Obopay Prepaid Card customer designated to receive the funds. Obopay will receive the information electronically, recognize the recipient as a Prepaid Card customer, and send them a notice of the funds transfer.

The funds flow for this transfer will begin with the exit of funds from the Citi Obopay customer's Citibank checking account flowing into Obopay's dedicated clearing account held at Citibank for the settlement of payments to/from Citibank customer checking accounts. This account is held for the benefit of Citibank Obopay customers. The funds will move daily from this dedicated account to a transaction clearing account for cash in transit to/from Obopay customer accounts. This account is maintained by Obopay at Bancorp for the benefit of Obopay customers. The funds will then flow on a daily basis to the Obopay Card Program funding account maintained at Bancorp. This account is a pooled account of Prepaid Card customer funds and is held by Bancorp for the benefit of Obopay customers. The Obopay system sends a message to Fidelity (eFunds), Bancorp's processor, to post the credit to the Obopay customer's Prepaid Card record within the eFunds system of record.

Obopay and Citi SVAs - Unloading and Closing

Obopay and Citi SVAs may be unloaded in part or closed completely by an ACH transfer of funds from the accounts. To process this type of ACH transfer, SVA customers enter the appropriate Obopay website page and provide the name of their bank and its ABA routing number, the account number into which the unloaded funds should be sent, and the amount of the unload. Obopay debits the SVA account and submits an ACH file to Bancorp to transfer the funds according to the account information specified by the customer. While it is more common to unload an SVA by an ACH transfer, at times a check may be issued to do the same. Checks issued for this purpose are delivered to the SVA customer's address.

Obopay's Proposed Prepaid Card Service

Obopay contemplates the addition of a Prepaid Card business. Such cards may be used for the purchase of goods and services and to conduct ATM withdrawals. Under the proposal, Bancorp will issue the Prepaid Cards and mail them to customers. The terms and conditions governing the use of Prepaid Cards will be established by Bancorp as the card issuer. Obopay will provide the terms and conditions governing the customer's use of related Obopay services. It is expected that Obopay will charge a small fee to Prepaid Card customers. Unless a customer has a mobile telephone number other than the number that is connected to their No-Card Service, an upgrade to a Prepaid Card will result in the customer no longer having the No-Card Service.

Customers will register for the Prepaid Card by successfully completing the registration process via Obopay's website. They will provide personal information such as their name, address, e-mail address, mobile telephone number, and date of birth. Obopay will forward this information to Bancorp to validate the customer information in accordance with its "Know Your Customer" program and applicable law. If validated, Bancorp will open an account under each customer's name into which they will receive Prepaid Card funds will be received. An account balance limit of $2500 will be set for Prepaid Cards.

Loading a Prepaid Card by ACH and/or Credit Card

A Prepaid Card customer will be able to load their card by requesting an ACH transfer from their bank account or by requesting a load from their credit card. In the case of an initial ACH load, the Prepaid Card customer will provide their bank account information such as the bank name and ABA routing number, account number, and the amount of the load. Similarly, if a credit card load is requested, the name of the issuing bank will be given, the credit card number, and amount of the load. Prepaid Card loads made from a bank account or credit card will only be processed if the bank account and/or credit card from which the load is to be made are that of the customer.

It is expected that funds loaded on a Prepaid Card by either ACH transfer or credit card transfer will initially be received into the appropriate ACH or credit card Obopay funding account maintained at Bancorp for the benefit of Obopay customers. On a daily basis, these funds will then be moved into the Obopay customer transaction clearing account held at Bancorp for the benefit of Obopay customers for cash in transit to/or from Obopay customer accounts. These funds will be moved each day from the transaction clearing account into a funding account held and maintained by Bancorp for the benefit of Obopay Customers. From that point, the settlement of Prepaid Card funding transactions to the appropriate customer accounts will be performed by Fidelity, Obopay's card processor, via an application programming interface. This will allow for the settlement of the funding, less any transaction fees, to be made in the Fidelity Settlement Account held at Bancorp3.  Fee charges to Prepaid Card accounts will be pulled from the Fidelity account and held in a Bancorp Fee Revenue Account until they are applied at month end to the Obopay Fee Revenue Account maintained at Bancorp.

Loading a Prepaid Card via Green Dot Services

A Prepaid Card customer will also be able to load their card by purchasing a Green Dot MoneyPak Card. Such loads will be processed through the Green Dot network. MoneyPak Cards are issued by Columbus Bank and Trust Company ("CB&T"), an FDIC insured Georgia state chartered bank. Green Dot, as agent for CB&T, assists with the distribution and management of the MoneyPak Card program. However, CB&T retains full control and oversight of the program. A MoneyPak Card is a temporary place for a cardholder to hold a specific amount of funds for the purpose of making a transfer of such funds, for example, to a Prepaid Card. MoneyPak Cards can be loaded once at the time of purchase in an amount up to $1100. Once a MoneyPak Card is purchased, a cardholder must contact Green Dot's interactive phone system or visit Green Dot's website to provide instructions for applying MoneyPak funds to a Prepaid Card. Unlike ACH and credit card loads of Prepaid Cards, a MoneyPak load onto a Prepaid Card initially will be received into the Bancorp Funding Account held by Bancorp for the benefit of Obopay customers. From that point, the flow of funds to the settlement of the Prepaid Card funding will be the same as noted above with respect to Prepaid Card ACH and credit card loads.

Loading a Prepaid Card with Payroll Deposits

It is planned that Prepaid Card customers will load such cards with a portion or all of their paycheck. While the limit of a non-payroll load of a Prepaid Card will be set at $2500, a $5000 limit is planned for payroll loads.

Prepaid Card customers will complete an Obopay Enrollment Form for payroll load services. This form will be available from their employers and/or on the Obopay webpage. In order to effectuate a Prepaid Card load from payroll funds, Prepaid Card customers will give their employers the name and account number of the Bancorp Card Funding Account, its ABA routing number, the customer's unique direct deposit account number provided when signing up for the Prepaid Card, and the dollar amount of the payroll funds to be deposited. The funds flow for payroll loads onto a Prepaid Card will be the same as that for loads made via a MoneyPak Card.

Loading a Prepaid Card via Money Gram

Obopay also is considering the option of a Prepaid Card load from a money transmission transaction with Money Gram, a New York State licensed money transmitter. Prepaid Card customers will supply their Prepaid Card information to a Money Gram agent, together with instructions to send a specified amount of funds for load purposes. The money transmission transaction then will be processed through Money Gram. The flow of funds for a Prepaid Card load of this sort will be the same as that for MoneyPak Card and payroll loads.

As you are aware, Money Gram is licensed to conduct the business of money transmission in New York State. Therefore, to the extent that customers load their Prepaid Cards by entering into money transmission transactions at a Money Gram agent located in the State, those transactions will represent licensed activity. As such, Money Gram must conduct that activity in accordance with the provisions of Article XIII-B of New York's Banking Law and applicable regulations.

Opinion

It is the opinion of the Banking Department that the funds transfer business currently conducted by Obopay under the scenarios described above do not constitute the business of money transmission as contemplated under Article XIII-B of the New York Banking Law ("Article XIII-B"). This opinion is based on the fact that Obopay neither has a physical presence in New York State in performing that business activity nor does it do so through any agents of its own located in the State. Likewise, the proposed Prepaid Card business as detailed above would not constitute the business of money transmission under Article XIII-B since Obopay plans to have no physical presence in the State when engaging in that business and it plans not to do so through any of its own agents located in the State. This interpretation applies only to the facts presented and current law and is not effective to any change in either.

Please note that if any change(s) are made in the way that Obopay conducts its current funds transfer business or in its plans for implementing the proposed Prepaid Card business, Obopay is encouraged to contact the Banking Department to determine if such changes would require it to be licensed as a money transmitter under Article XIII-B.

I trust that this is responsive to your inquiry. If you have any questions I can be contacted at (212) 709-1650.

Sincerely,

Christine R. Cardi
Assistant Counsel

CC:       Deputy Superintendent Regina Stone
              [---]
              S.V.P. Operations and Services
              Obopay
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  1. The Bancorp Bank's website explains that it is an FDIC-insured online commercial bank that delivers financial services and products through a network of private-label affinity partnerships nationwide.
  2. A Citibank customer's mobile telephone number can only be designated to conduct person- to-person funds transfer either from the customer's Citibank checking account or from a Citi Obopay stored value account. As a result, it is typical that a Citibank customer registers for only one type of Citi Obopay funds transfer account structure unless they have two mobile telephone numbers. In that case, it is possible to register for both funds transfer account structures by assigning a separate telephone for each.
  3. Bancorp manages standard settlement processes directly with the processor. Therefore, all Prepaid Card program transactions will settle first in the Fidelity account. Subsequently, upon use of the Prepaid Card, the appropriate funds will be transferred from the Fidelity account to MasterCard's settlement account for transactions processed on the MasterCard platform.

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