Big Tech defined an era of innovation by moving fast and breaking things.
However, while speed is great for money movement, breaking things can be disastrous for the payments and financial services sector. For financial institutions (FIs) and their FinTech partners aiming to innovate cross-border money movement, having robust Bank Secrecy Act (BSA) and anti-money laundering (AML) programs, as well as effective regulatory and tax compliance controls, is becoming important.
The Office of the Comptroller of the Currency (OCC) released Friday (Oct. 18) enforcement actions against national banks accused of “unsafe or unsound” practices, which underscores this fact. A lawsuit against one of the banks reprimanded by the OCC, Axiom Bank of Maitland, Florida, alleged that the bank, which has entered into a formal agreement with the OCC, used outdated and questionable practices that jeopardized its compliance with AML laws, creating safety and soundness risks, as well as consumer risks.
At the center of the court filings are Axiom’s partner relationships with several FinTech companies focused on streamlining cross-border payments.
While Axiom did not immediately reply to PYMNTS’ request for comment, the intricate nature of cross-border payments introduces various risks, especially when third parties are involved.
That’s why controlling for these risks is crucial when driving innovation forward with successful bank-FinTech partnerships.
See also: The Convenience-Compliance Conundrum in Cross-Border B2B Payments
Partner banks play a critical role in the cross-border payments ecosystem. They act as intermediaries, facilitating transactions between businesses operating in different countries and ensuring compliance with regulations. Partner banks also provide essential services, such as currency conversion, fraud detection and AML monitoring. These services are necessary for businesses looking to expand their global footprint while maintaining trust and compliance.
“If you look at the cross-border payment space over the last five years, the payment volumes have grown,” Chandana Thanthrige of Bank of America, told PYMNTS this month.
The key to managing regulatory complexity is understanding the unique workflows of each market and building processes that facilitate compliance without sacrificing efficiency, he said.
PYMNTS Intelligence found that 65% of banks and credit unions have entered into at least one FinTech partnership in the past three years, with 76% of banks viewing FinTech partnerships as necessary to meeting customer expectations. Ninety-five percent of banks are focused on using partnerships to enhance their own digital product offerings.
“The more parties there are in a transaction, the more risk there is … information is not passed along in the same exact fields as it moves between providers,” Nium Chief Payments Officer Alex Johnson told PYMNTS this week for the Outlook 2030 series.
Read also: How Compliance Is Shaping the Future of Cross-Border Payments
As PYMNTS’ Karen Webster wrote at the start of September, regulators aren’t shy now about aggressively examining and sanctioning FinTechs and FinTech models. Banks and payments ecosystems reassess FinTech partnerships. Sponsor banks turn down more deals and take longer to look at the ones that they’ll green light in the end.
“There’s been a flight to quality, especially among [bank] sponsors, and not all FinTechs are ready for the scrutiny,” Jim McCarthy, CEO of global payments processor Thredd, told PYMNTS this week.
“You can’t underestimate the importance of strong fraud and compliance systems,” he added.
At its best, a bank-FinTech partnership is an agile, customer-focused and compliant collaboration that uses the strengths of both entities to create cutting-edge financial solutions. It’s marked by a shared vision, effective integration, risk management and a scalable commercial model that supports sustainable growth. Each party understands its role in the partnership, including who is responsible for regulatory compliance, technology development, customer service and other key functions. This clarity minimizes conflict and ensures accountability.
“We don’t necessarily want our banks to move at breakneck speeds,” Priority Chief Strategy Officer Sean Kiewiet told PYMNTS in September, noting that the slow pace of change is often what customers trust about their banks. The goal, therefore, is to create partnerships where FinTechs can enhance the customer-facing elements of the banking experience — such as user interfaces and real-time services — without compromising the core stability that banks provide.
Banks aren’t just partnering with fast-moving FinTechs to scale their global reach. They’re also partnering with other banks — as the Sunday (Oct. 20) news that Bank of New York Mellon Corp. (BNY) and Mizuho Bank are collaborating to provide trade services to corporate clients in Asia revealed.
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