Compliance Complexities Hinder FinTech Growth

Eric Greenstein, product manager of compliance and fraud at Modern Treasury, told PYMNTS that anti-money laundering (AML) and Bank Secrecy Act rules can be boiled down to one truth: If you don’t have a compliance program — aimed at fighting money laundering of money and the financing of terrorism – you don’t want to be boarded by a bank.

As he told PYMNTS, AML laws directly or indirectly apply to all kinds of financial institutions, from banks to FinTechs, spanning prepaid card companies, currency exchanges and more.

“And,” Greenstein said, “if you’re a business customer of a bank and you’re building products that move money, these regulations apply to you as well [indirectly].”

Enterprise customers, he said, end up getting stuck in bank due diligence if they don’t have compliance programs, which in turn can delay their access to critical financial services. And without these, which touch everything from checking accounts to working capital loans, companies can’t grow — and may not even get to the launch stage.

See also: Banks are taking another look at FinTech acquisitions to improve customer efficiency

Companies moving money for the first time (for example through embedded finance) may face particular challenges when seeking to confirm the identity of consumers.

“Smaller, younger companies are often focused on [building products and] are selling to their first customers … and may not be focused on compliance,” Greenstein said.

Existential threat

The bottom line: Lack of concrete compliance plans can prove an existential threat to new firms, Greenstein said. There are some critical concerns and must-haves that need to be in place – a verifiable laundry list of things that need to be done.

For example, companies should have a dedicated compliance officer, and they must also be familiar with your customer and fraud monitoring tools. Critically, they need to know that the customers they deal with are not on any sanctions watchlists.

From a process perspective, Greenstein said companies should have transparent written procedures for how to identify and report suspicious transactions and report findings back to banking partners.

“You also need to independently review the program regularly,” he said.

Read more: Finance and engineering teams use technology to close the communication gap

None of the above is a simple technical or cultural boost. Often, Greenstein said, companies use as many as four different software tools for these tasks. Taking on so many different technology options drains significant engineering resources, but by embracing partnerships and platforms, companies can get up to speed on compliance with relative ease.

Customers now have access to a new wave of all-in-one platforms that can handle compliance, fraud and payment operations, and easily integrate them all. In addition, they can ultimately leverage them as a strategic differentiator.

Having the right anti-fraud tools in place can help ensure that legitimate business is done with legitimate customers, he said. Streamlined onboarding processes for these end users can minimize the hassle of bringing new customers online and improve conversion.

Integrated compliance solutions, Greenstein said, “can really help managers move forward with their real focus, which is running their business.”