Is your affiliate tool a payment company? What three regulators say about holding the money

By Jimi Barkway · Published 6 September 2026 · Part of the blog

When is an affiliate tool doing a regulated job?

In shortWhen it takes your money and pays your affiliates from its own account. The three regulators below treat moving other people's money as work that needs a test. A tool that only tells your own account to pay is doing something different, and the regulators' own texts show where the line runs.

Say 30 affiliates are owed $3,000 between them this month. Somebody has to get that money from your bank to theirs. Every affiliate tool offers to help. Few of them say where the money is while they help. The custody page collects what each platform's own pages do say.

That silence matters, because the tests below turn on exactly that question. Which side of the line your tool sits on decides what it can charge you, what happens if it fails, and whose name is on the payment.

I read the three documents that draw the line on 6 September 2026. They are linked at the end. What I found surprised me. None of them mentions affiliate programs. Each contains a test you can apply to one, and I have tried to apply each one no further than its words allow.

What do the regulators actually say?

In shortTwo things, not one. Whose agent the software is, and whether it ever holds the money. An agent acting for one side is treated differently from one acting for both. And for the both-sides case, the EU's test is possession of client funds.

Start in the UK. The Financial Conduct Authority's guidance lists payments that fall outside the rules. One of them is a payment made "through a commercial agent authorised in an agreement to negotiate or conclude the sale or purchase of goods or services on behalf of either the payer or the payee but not both the payer and the payee". Read it slowly. It is written for an agent that helps make the sale, acting for one side. It says nothing about software that pays commissions afterwards. What it does show is the shape of the exclusion: one side, not both.

The FCA's text carries the same one-side shape as the EU's, which is where it comes from. The EU wrote the idea down more sharply in 2015, and said why. Its payment services directive records that some countries had let the exclusion cover platforms acting for buyers and sellers at once, and that this went "beyond the intended scope". So it split the cases. Agents acting for one side only are excluded "regardless of whether or not they are in possession of client funds". Agents acting for both sides get a stricter test, and it is the sentence this whole article turns on:

The US reached a similar place from another direction. A money transmitter is a business that moves money for other people. The office that issued the ruling is the Financial Crimes Enforcement Network, or FinCEN. In 2003 a company asked whether its service counted. The service let merchants collect customer payments through the banking system. Merchants gave it payment instructions, it passed them to a bank, and after a holding period it sent the money on to the merchant. FinCEN said the service "acts on behalf of merchants receiving payments rather than on behalf of customers making payments", and so "more closely resembles payment processing/settlement than money transmission". That ruling is about collecting payments, not paying affiliates. So I am quoting its reasoning, not its verdict. The reasoning is the one-side test again.

Put the three side by side and two questions fall out. Whose agent is the software? And does it ever hold the money?

What does that mean for the two ways affiliate tools pay?

In shortA custodial tool holds your money on the way to your affiliates. It invoices you, takes your payment, then pays them from its side. A non-custodial tool never holds it. It works out what is owed and tells your own account to send it. Ask the two questions of each.

Here is the custodial version, step by step. Imagine it is the first of the month. The tool adds up what you owe. It sends you an invoice. You pay it, by card or by bank. The money lands in the tool's account. Some days later the tool pays each affiliate from that account. For those days the platform holds their earnings.

Now the two questions, answered for that design. It collects from you and pays them, so it stands between both sides. And it holds the money, by design. That is the case the EU's stricter test describes. How a custodial tool organises itself around that is its business. What you see is the fee.

Now the other version. A non-custodial tool never has an account for your money to land in. You connect your own PayPal or Wise account. The tool works out who is owed what, waits out the holding period you set, and then tells your account to pay. The money leaves your account and lands in your affiliate's. The tool saw the instruction and never the cash.

The two questions again, for this design. It works for the merchant and nobody else. And it never holds the money. Nothing in the three texts points at that design. I am not saying a regulator has blessed it. Whether any tool is inside or outside these rules is a question for its lawyers.

Why does it change what you pay?

In shortA payout fee is a slice the tool takes out of the money you send your affiliates. Reditus's help centre says its payout fee "is added to cover banking costs". My reading is that this is the general shape: a custodial tool carries the cost of holding and moving the money and passes it on, usually as a percentage of every payout. A non-custodial tool has no such cost. It can still charge for the software. AffiliateRail charges nothing on the payout itself.

Back to the worked example. Let's say your 30 affiliates are owed $3,000. A custodial tool that takes 3% of payouts keeps $90 of that month's money, on top of its plan price. Next month the program grows, the payout grows, and so does the $90. A percentage of your payouts is a fee that scales with your success.

A non-custodial tool takes $0 of the $3,000, and not as a promotion. There is no account of its own for the money to pass through. So there is no custody to pay for. You still pay PayPal's or Wise's fees. PayPal and Wise charge for the transfer, the same as if you paid by hand. What goes away is the middleman and the middleman's percentage.

There is a second cost that never appears on a pricing page. When a tool holds your money, its problems become your affiliates' problems. If it is slow, they wait. If it freezes an account, their earnings are inside it. If it fails, you have paid and they have not been paid. You are the one they email. A tool that never held the money cannot lose it.

What should you check before you connect a tool?

In shortFour questions, and the answers are in the tool's own terms and help pages. Who is the payer of record? Where is the money between your invoice and the payout? What happens to it if the tool fails? And who files the tax paperwork?

Payer of record is whoever's name is on the payment. If the money leaves your account and lands in the affiliate's, that is you. If a platform pays them from its own account, the platform's name is on the payment. The paperwork then has a middleman in it. The terms usually say which. For example, Dub's partner terms say commission payments "will be deposited into your account via Stripe" once payment "has been received in full" from the client. Reditus's help centre says "we pay out the affiliates on your behalf". Sentences like those describe custody. The custody page quotes each platform with its source.

Where the money waits is the days between your invoice and the affiliate's payout. A custodial tool should say how many. A non-custodial tool has no such days, because there is no invoice for the payout, only the payout itself. The holding period you set for refunds is a different thing, and it is yours.

What happens if the tool fails is the question nobody asks in the demo. A custodial tool holding a month of your payouts is a counterparty. Ask what protects that money. A tool that holds nothing has nothing to protect.

Who files follows from the first answer. The payer of record collects the tax forms and files the returns. If that is you, the tool should collect the forms for you and export them, and never pretend to file. If that is the platform, ask what it files, and check the answer against what your accountant expects. The tax forms article covers which form comes from whom.

Does any of this apply to a small program?

In shortYes, because it is about the tool rather than about you. A program paying a handful of people through a custodial platform is inside the same money flow as one paying hundreds. The amounts are smaller. The structure is identical.

If anything it matters more when you are small. A large program has a finance person who reads the terms. A founder connecting a tool on a Saturday afternoon reads the pricing page and the setup guide. The custody question is on neither. It is in the terms of service and the help centre. It is usually one sentence.

So here is the short version of this whole page. Before you compare features, find that sentence. If the tool holds your money, it is carrying the cost of doing so. The percentage it charges is the price of that. Decide whether you want to pay it. If the tool never holds your money, there is no custody to pay for. Your affiliates are paid by you, from an account with your name on it.

AffiliateRail is built the second way. You connect your own PayPal or Wise account, the software works out what is due, and your account pays. There is no AffiliateRail account for the money to sit in, so there is no cut, on any plan. The custody page sets out the two models side by side, with each platform's own words. And a plain warning to end on. This page is general information about how I read the three texts. It is not legal advice. Whether a particular tool is inside or outside these rules is a question for its lawyers, not for a blog.

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