Webinar: Dedicated FBO vs. Intermingled FBO Accounts
Choosing an account setup is a foundational step when integrating with your partner bank and banking as a service (BaaS) provider. Your choice affects how much visibility you get into bank account activity, your level of control over account features, and ultimately your level of risk.
For many fintechs and embedded finance companies, FBO or “for benefit of” accounts offer crucial flexibility. An FBO account is an umbrella account on the bank’s core, which contains multiple end-user virtual accounts. Transactions and other activities are then tracked using a ledger. The alternative to FBO accounts is on-core accounts, in which each end-user opens an individual account directly on the bank’s core, with limited options for customization.
An FBO account setup gives fintechs more control over things like:
- Hold times
- Release schedules
- ACH and wire limits
- Bank statement branding and personalization
Under an FBO setup, your customers still own their accounts and have full control of them. But because, from a technical perspective, their accounts exist within a larger account, you have greater latitude to tailor onboarding processes and features to your customer’s needs.
Not all FBO accounts are the same. There are two basic approaches: Dedicated FBO accounts and intermingled FBO accounts. In a recent webinar, Treasury Prime Vice President of Banking Jeff Nowicki walks through the strengths and weaknesses of each option, as well as the onboarding and compliance considerations for both. Here are some highlights. You can watch the entire webinar on demand.
Dedicated vs. intermingled FBO accounts: what’s the difference?
When your company has a dedicated FBO account, that means your company has a discrete bank account in your company name on your partner bank’s core. That might sound like a given, but in reality, it’s not.
The alternative to a dedicated FBO account is an intermingled FBO account. That’s when a BaaS company opens a single giant FBO account on a bank’s core in the BaaS company’s name, then carves out sub-accounts for its fintech clients. Your company would not have an individual account on the bank’s core. Instead, your customer accounts would reside in the BaaS provider’s FBO account, intermingled with other fintechs.
Dedicated FBO accounts = greater transparency.
When your company has its own dedicated FBO account, you can track activity with a ledger and get visibility into what’s happening inside of accounts. This helps with reconciling balances for accounting purposes, as both the bank and the fintech can easily match up the total balances and catch issues quickly if there’s a discrepancy. That’s in contrast to an intermingled FBO, where “transparency is a little harder,” says Nowicki.
While you’ll still have access to the ledger, with intermingled accounts, “it's really hard to show the other side of the equation to say, ‘This matches this,’” he says. That’s because there are multiple companies in the intermingled FBO account.
In addition to less transparency, intermingled FBO accounts run the risk of exposing you to another company’s risk profile. If one company in the intermingled FBO account runs afoul of regulators, all companies that are pooled with them can face challenges.
Treasury Prime’s approach to FBO accounts
Treasury Prime offers our clients dedicated FBO accounts, meaning we help your company open a discrete on-core account, in your name, with the partner bank.
As part of our setup, we offer dedicated settlement accounts for every payment rail and real-time reconciliation. Because we have the deepest integrations with bank cores in the industry, our clients can access real-time connections to banks and reconcile transactions as they happen.
“So if an ACH gets returned, or a wire gets returned, we're able to identify (it) faster within those different settlement accounts. Or if there's a problem, if there's something that's off, and we're not reconciling, because we have those different payment rail settlement accounts, we are able to identify and research the problems faster and get to a quicker resolution,” says Nowicki.