Embedded Finance News – Fed Guidance Bank Fintech Partnerships, Fraud Prevention: The Takeaway
Every month we compile some of the most important and interesting embedded finance and fintech news stories and tell you why they matter. Find last month’s issue of The Takeaway here.
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Federal regulators finalize bank guidance on fintech partnerships
The Federal Reserve, FDIC, and OCC have finalized guidance on how banks should ensure their fintech partners are complying with financial regulations in areas such as fair lending, privacy, and anti-money laundering.
The guidance clearly places the responsibility on the banks to ensure their fintech partners are compliant. Banks must conduct due diligence on third-party vendors, specify rules, define each party’s responsibilities, and create a plan for terminating the relationship, if needed. The guidance also details what kinds of data banks must obtain from fintechs and what to do if a fintech is unable to provide that information.
Even though smaller banks are not exempt or relieved from its oversight responsibilities, the interagency guidance explains that a bank's risk management framework is commensurate to its risk profile and therefore, may be different for smaller banks. According to a Fed memo, the regulators will develop further policies to ease the burden for smaller institutions.
The Takeaway: Embedded finance companies should make compliance a top priority.
Banks have always had to follow strict regulations, but this new guidance puts bank-fintech relationships under a magnifying glass. If businesses want to prepare themselves for long-term growth, they need to develop a compliance program with a bank partner that can withstand regulatory scrutiny.
The costs of not doing so can lead to serious consequences for banks as well as fintechs: Money Avenue was recently hit with a cease and desist from FDIC for misrepresenting uninsured products as insured and failing to disclose details of the fintech’s relationship with its purported FDIC-insured bank partner. Other fintechs are being called out for making false claims on their website.
Compliance can no longer be put on the back burner in favor of innovation.
Sardine and Plaid launch new anti-fraud tools
Fraud prevention startup Sardine and fintech Plaid — both Treasury Prime partners — have launched new anti-fraud platforms. Both platforms allow members to share data and communicate with each other when they encounter fraud, so that other members are able to easily recognize potential risks.
Sardine has launched SardineX, a “consortium” of both emerging and legacy financial institutions aimed at cutting down payments-related fraud. SardineX will offer a shared database of fraud or compliance-related data, with the goal of establishing real-time technology to determine the legitimacy of the payer or sender.
Plaid created a network called Beacon that they’re calling a “collaborative anti-fraud network.” Beacon allows participating financial institutions and fintechs to share “critical fraud intelligence via API across Plaid.” They can report instances of fraud, such as stolen accounts or account takeovers; members can then screen new signups and users against Beacon.
The Takeaway: Fintechs should leverage fraud prevention tools as part of their compliance strategy.
Companies like Sardine and Plaid already understand the need for fintechs and embedded finance companies to mitigate risk. According to fraud prevention startup Unit21, fintechs experience fraud at a rate that is double the rate of credit card fraud and three times the rate of debit card fraud.
Plaid CEO Alain Meier said that the purpose of Beacon is to help fintechs stop fraud and prevent fraud from creating a “chain reaction,” as well as helping customers protect their identities. Given the new regulatory guidance on bank-fintech relationships, embedded finance companies should consider tools and partnerships that can help them manage risk and stay compliant.
Treasury Prime and Sardine partner on turnkey compliance and risk management
Treasury Prime has announced a strategic partnership with risk management startup Sardine, bringing Sardine's comprehensive Sponsor Bank Operating System to Treasury Prime's extensive multi-bank network. Sardine's all-in-one platform offers a suite of tools including fraud detection, KYC (Know Your Customer), BSA/AML (Bank Secrecy Act/Anti-Money Laundering) compliance, and transaction monitoring. Through a unified dashboard known as the "Sponsor Bank OS," Treasury Prime's customers and bank partners can seamlessly integrate these turnkey services into their programs.
The Takeaway: Compliance and risk management are key to success in embedded finance.
The key takeaway from this collaboration is the crucial role of compliance and risk management in the embedded finance landscape. As banks and fintechs face heightened regulatory scrutiny, prioritizing robust compliance and risk management programs becomes paramount. By leveraging partnerships with innovative companies like Sardine and Treasury Prime, financial institutions can navigate evolving regulatory requirements more effectively, ensuring the safety and sustainable growth of their embedded finance ventures.
Want to learn more about strategies for building trust in embedded finance? Join Fintech Brainfood’s Simon Taylor in a discussion with Sardine and Treasury Prime on July 19. Register now.
Visa acquires Brazilian fintech for $1 billion
In what is likely to be one of the largest acquisitions of the year, Visa acquired Sao Paulo-based payments startup, Pismo, for $1 billion in cash. In a statement, Visa said it acquired Pismo so they could “provide core banking and issuer processing capabilities across debit, prepaid, credit and commercial cards via cloud-native APIs.” Along with cards, Pismo helps its customers create digital wallets, digital banking, and marketplaces.
The Takeaway: The future is rail-agnostic instant payments.
The press release specifically said that Pismo’s technology would allow Visa to provide support and connectivity to emerging payment rails, such as Pix, an instant payment platform in Brazil.
While domestic payment rails are relatively fast and cheap, international payments have remained slow and expensive, sometimes taking days to process and costing hundreds of dollars.
Instant international payments are the next frontier. Visa has over 50 instant payment systems currently live. With the Pismo acquisition, Visa is moving to create more “rails-agnostic” payments systems through embedded finance that would allow for rapid and seamless money movement, even overseas.
Wondering how embedded banking could help your business? Contact Treasury Prime — we have a true multi-bank network, the deepest bank core integrations, and extensive compliance experience. Read more about our $40 million Series C Funding and why Tearsheet named us the Best Banking as a Service company for the second year in a row. Talk to the best embedded finance team in the industry.