Do U.S. citizens really need to be protected from Square?
The mobile-payment processor has lost another regulatory fight, this time in Florida, where it agreed to pay a $507,000 fine to settle charges it operated in that state without a money-transmission license.
Square has been the subject of such spats before, in its home state of California and Illinois, where it actually faced a high-profile cease-and-desist order before getting a license.
There remains a valid legal question to these licensure fights: Since Square simply processes payment information, and doesn’t actually transmit money itself, why should it have to fall under the transmission regulations of all 50 states?
Presumably, Square has made a decision that, rather than fight each jurisdiction, it will just bend a knee before the regulators, pay whatever fees it needs to in order to fall under their framework, and happily go about its business. Indeed, it has big plans, and there is a good business reason for the company to not stand its ground and fight back.
Still, the controversy over Square regulation remains troubling for those outside the company, particularly those entrepreneurs with financial businesses who want to operate across the nation.
For one thing, Square’s acquiescence leaves the legal issues unresolved. Square was not a money transmitter by any definition. True, its business changed somewhat when it unveiled plans to get into the gift-card business, but the Florida action doesn’t address that move. The fine Square is paying covers a period of time from February 2010 to November 2012 when it was simply processing transactions.
Square could have avoided the fine by fighting its case. That could have led to a precedent that it could use in navigating the Byzantine regulatory frameworks financial-services companies face wherever they do business. Instead, it coughed up $507,000 – small beer to a company that has raised well north of $300 million – and left the fight to others. (To be fair, Square isn’t alone. In its infancy, PayPal decided such a battle wasn’t worth its trouble either.)
In addition to not settling the law, Square’s surrender doesn’t allow us to address a key point of the regulations themselves: What ill befell the citizens of Florida from 2010 to 2012 because Square operated without a license? Proponents of regulations like to point out that government’s role is to protect citizens from harm, particularly from greedy businessmen who pick pockets and poison kittens on their way to the top. Government’s noble role is necessary to keep free enterprise from giving in to its baser nature when the sun goes down.
But no one can say that Square did anything wrong – or was even in a position to – in Florida or any other state. It processed transactions for merchants and took a cut off the top. It didn’t hold a single dollar, ruble, Deutsche mark or Bitcoin along the way. Merchants could have screwed their customers, and banks could have screwed their merchants, but Square was chaste.
Still, asking if someone is actually harmed is no longer a litmus test for the promulgation of regulations. In this case, existing laws never anticipated a company like Square in the first place – a testament to Jack Dorsey’s innovation. Faced with something they had never seen before, regulators decided to pound this Square peg into Florida’s round holes and declare victory.
It could have been worse – and may still be. One could argue this is the best-case scenario, since lawmakers always have the option of creating new laws which lead to the promulgation of new regulations that are often worse than the ones before. Rarely is there true reform when it comes to laws and regulations. Rather, there is addition. Only in the legislative world does one ease a burden by adding more weight.
Square, for its part, no doubt made the right move for business reasons. But one can’t help but despair of the missed opportunity to make regulators stop bullying entrepreneurs whose innovations are light-years ahead of our regulatory framework. Until some company or business owner draws a line in that sand, businesses will be at more risk of harm than the consumers our lawmakers and bureaucrats seem so eager to protect.