Legal advice for handling money when serving two sided market


My services handle two types of users: (A) and (B), where (B) are in fact the users of (A).

I act as the mediator between (A) and (B). My website provides marketing services which facilitates (B)'s usage of the products and services of (A).

Under usual circumstances, (B) would have paid (A) directly; but now, because of the value addition I provide (B) pays (A) via me as explained below:

I collect money from (B) for facilitating their interaction with (A) and I pay (A) the money that I've collected from (B) after I retain some x% as my service charges. I also return back to (B) whatever money that I may have collected from them, for which they did not use the services of (A)

Hope I am clear on the workings. The above mechanism removes the need of a payment processor for (A) as they receive the money from me. Will I be, in turn, be regarded as a payment processor? That is something I want to avoid because I fear some legal issues.

Any other legal problems this can involve?

My initial reading about this has thus far suggested that my business is similar to say real-estate agents, or used-car websites or auction sites like E-bay. There too there are two types of users, and there too money passes from one user to the other via the website. Any help will be appreciated

My company would be an LLC registered in Delaware with a single member from INDIA (i.e. I am from India). It will have a US bank to conduct its business. The business would be completely online all over the world

Payments Legal Payment Gateway

asked May 14 '12 at 23:06
S. Francis
21 points
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  • Please include the country where the business is incorporated and all other jurisdictions participating in transactions. – Dnbrv 12 years ago

1 Answer


On it's face, merely acting as an intermediary for payment is not a problem. For example, if you were accepting checks from party A, taking your cut and sending another check to party B - this is OK. But, there are typically some additional facts which call for increased compliance and care.

  1. Storing Credit Card Numbers - There is heavy regulation around storing credit cards in the U.S. I would recommend using a 3rd party for the time being until you have the labor and capital to comply with these regulations.
  2. Holding Money in Escrow - Again, heavy regulation here that you should avoid early on through a third party. There is a lot of banking regulation that falls on you if you hold money in escrow for customers.

If the above does not apply to you, then you should be OK. There are certain industries in the U.S (and in certain states) which have specific regulations (examples including law, real estate, banking, and many more). You should make sure the good or services you are offering do not trigger any of these additional regulations.

answered May 15 '12 at 02:56
21 points
  • Thank you for your advice. I will not be storing Credit Card Numbers. I am using an outside payment processor for that. However, I am not sure about being an Escrow. I take some money from (B) and facilitate their usage of (A). In some situations (B) may consume the entire money given to me. But sometimes (B) may not consume the entire money, so by default I end up having the balance money; which (B) can withdraw from me via Paypal anytime. Will that be considered as Escrow? Merchant (A) are one kind of Internet based companies all over the world – S. Francis 12 years ago
  • That is a tough call. You are sounding more like a banking/escrow institution here which is not good. It would need a more thorough analysis by a lawyer that goes beyond the scope of what I can provide in 500 characters :) - apologies for the limited help here. – User17866 12 years ago

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