Webinar: Compliance & Fraud Prevention - Strategies for Building Trust

Treasury Prime and Sardine discuss how to build trust between sponsor banks and embedded finance companies.
Headshot of Daisy Lin
Daisy Lin
Head of Content
July 31, 2023
Building Trust in Embedded Finance

Embedded finance offers massive opportunities to banks and companies/brands. According to Bain and Company, the revenue prospects for software platforms and enabling infrastructure providers driving embedded offerings are projected to increase significantly. The current revenue of $21 billion in 2021 is expected to more than double, reaching $51 billion by 2026. Additionally, the transaction value of embedded finance is set to experience remarkable growth, surging to $7 trillion by 2026. Notably, embedded finance transactions will comprise 10 percent of all US financial transactions during this period.

However, the digitalization of banking also raises new challenges for compliance. Compliance and fraud prevention have never been easy tasks in their own right; embedded finance platforms may add a level of complexity to these foundational functions. 

Fortunately, there are tangible strategies banks and companies can invoke to bridge compliance gaps and establish mutual trust and confidence. Sardine’s Head of Content & Strategy Simon Taylor talked with  Sheetal Parikh, Treasury Prime’s Associate General Counsel & VP of Compliance, and Shawn Ghuman, Sardine’s BaaS and Enterprise Partnerships Executive about trust-building strategies and why the effort is worth it. 

You can watch the full on-demand webinar for more details:

Digitalization of banking meets regulatory oversight

The digitalization of banking has transformed the way consumers engage with financial services, prompting increased attention from regulatory authorities. The Acting Comptroller of the Office of the Comptroller of the Currency (OCC), Michael Hsu, has expressed concern over the expansion of banking beyond the traditional regulatory perimeter. In his view, embedded finance companies, operating outside this perimeter, lack direct oversight, raising issues related to consumer safety and regulatory compliance. This has sparked a need for building trust and ensuring accountability between banks, embedded finance companies, and regulators.

Parikh says the message coming from federal authorities and the OCC is two-fold:  “If you are a bank that is getting into this alternative channel, your use of third parties doesn't relieve your own obligation to your consumers' safety,” Parikh says. And, if you’re a brand, the feds have signaled the need to level the regulatory playing field and perhaps even  imposing “more direct regulation on players that are outside of the traditional banking perimeter.” 

Non-compliance can have severe repercussions. Recent consent orders and regulatory actions unequivocally demonstrate the authorities' strong commitment to enforcement. In light of these considerations, it becomes imperative for companies and banks to establish trust among themselves and with regulatory bodies.

Shared solutions to build trust

To address these concerns and foster trust in embedded finance partnerships, Parikh and Ghuman propose several key strategies:

  1. Direct engagement with banks: It’s important that the BaaS provider opens up direct communication channels between banks and companies involved in embedded finance partnerships, rather than intercept the correspondence. This approach encourages collaboration and fosters healthy relationships. In this type of paradigm, which Treasury Prime has championed, Parikh says all three parties are very much “in alignment and in sync” at all times and can work together to troubleshoot issues that come up. 
  2. Automated controls established up front: Establishing robust protocols and controls from the outset is crucial for building trust. Banks and embedded finance brands can automate rules, policies, and controls — whether that’s through transaction limits, transaction types, or type of customers, etc — in their collaboration at the beginning of the relationship, and “that then becomes the benchmark for moving forward,” Ghuman says. “I think there are ways to use technology to your advantage and still be compliant in a way that fits your team scale and size of budget.” 
  3. Alignment on risk appetite: Banks and fintech partners also need to align on risk appetite, ensuring that all activities — including marketing methods — remain within the established risk parameters. Parikh says doing this early on ensures that a bank has assurances that nothing is beyond its risk appetite. “It comes back to this idea of trust, right?” Parikh says. “It's the bank's deposit channel, and so they have to make sure they trust how their brand is being represented.” 
  4. Third-party tools for enhanced visibility: Leveraging third-party tools, such as those that provide real-time fraud detection, KYC/KYB, AML, and transaction monitoring solutions, offer banks full visibility into the transactions of their fintech partners. These tools can also automate compliance tasks, provide valuable insights, and streamline audit preparations. “It's this idea of visibility, and well beyond just at the transaction monitoring level, but visibility into how a customer is being treated, how customer complaints are being handled, visibility into transactions, and real-time data. And I think that's really a bank's biggest fear is losing that visibility,” said Parikh. Having the tools that provide that visibility can go a long way. 

To learn more about the role of automation and scaling compliance efforts to build trust in embedded finance partnerships, download the full webinar for comprehensive details and insights. 

BaaS provider Treasury Prime and all-in-one risk management platform Sardine prioritize visibility and customizability. As partners in our new partnership marketplace, our platforms offer compounded benefits. To learn how Treasury Prime can help your fintech identify fraud with better precision, contact our team

Related embedded finance compliance content:

3 Ways Risk Management Platform Sardine Can Supercharge Bank Fraud & Compliance Stacks

How Treasury Prime's New Partner Marketplace Helps Fintechs and Banks Grow Quickly and Safely

Automating Financial Crime Effectiveness Testing with Cable

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