When you hire one of TaskRabbit‘s 15,000 workers to pick up your clothes from the drycleaner, you pay the company, and the company pays the person you hired. Does that make TaskRabbit a money transmitter that needs state licenses to move payments around?
The company says no and that no regulators have come calling. TaskRabbit wants to settle the question, before the issue turns into a headache, by removing itself from moving money entirely. Today it’s becoming the first client of a new service from payments company Braintree that handles all sides of a deal: collecting money from buyers, routing it to sellers (or TaskRabbits, in the company argot), and forwarding TaskRabbit its fee.
“If a third party stands in between party A and party B who are transacting with one another, then that third party can be exposed to money transfer licensing” laws, says Bill Ready, chief executive of 200-employee Braintree. TaskRabbit already uses Braintree to collect money from buyers’ credit cards, and Ready says the new product won’t cost more than its normal fee, which starts at 2.9 percent plus 30¢ per transaction. TaskRabbit will now be able to send payments in 1 to 2 days instead of 3 to 5 days.
The Chicago-based Braintree is one of several startups, including Stripe and Dwolla, processing payments for online and mobile transactions. More than $10 billion from 40 million consumers flows through Braintree annually, Ready says. Its clients include some of the well-known peer-to-peer marketplaces sometimes called sharing economy businesses, such as vacation rental site Airbnb and car service app Uber.
Money transmitters are regulated to protect consumers from fraud and losses. Many of the venture-backed “sharing” marketplace startups have already tangled with regulators over whether it’s legal to rent apartments as if they were hotel rooms or turn private cars into taxis. The industry’s playbook has been to plow ahead even when business models seem to break the rules. That’s what PayPal (EBAY) did over a decade ago, before it got the necessary licenses to move money around.
States are watching peer-to-peer companies, but most aren’t trying to shut them down for lack of a money transfer license, says Deborah Bortner, director of consumer services at Washington state’s financial regulator. “We also have broad authority to say, ‘Gosh, that may technically meet our money transmission laws, but is this where we want to use our energy?’” she says. “We’ve tried to deal with them in a sensitive way, so we don’t just go out and pull out our guns and start shooting.”
Companies like TaskRabbit use vendors to accept and make payments, so all the better if they can pick one that preempts a potential hassle with regulators. Braintree’s new offering, called Marketplace, will also take care of the 1099 tax forms the IRS wants TaskRabbit to send to people who earn more than $600 from the site in a year. “We’re not in the 1099 processing business, nor do we want to be,” says TaskRabbit’s marketing chief, Jamie Viggiano.
If regulators ask TaskRabbit to show how it’s handling payments, it’s covered: Says Braintree’s Ready, “We’re in a great position to make sure those issues are taken care of before they become issues.”