Author: Adam Mendas

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7 Reasons to Switch to Compliance Apps instead of Cross-Border Manuals

compliance apps

Compliance is a word that’s thrown around leisurely in the financial services industry. Banks, financial institutions, FinTechs, and other businesses operating in the financial industry need to comply with KYC and AML regulations. For years, businesses have been relying on country manuals or handbooks that are jurisdiction-specific. These guidelines contain all rules and guidelines for businesses and financial services businesses. 

Handbooks are essential for legal and compliance teams, but you can also be a compliant business activity of wealth as asset managers, HR, Marketing, and even IT teams.

What Are Compliance Apps?

Compliance apps are tools for financial institutions that need to comply with KYC or AML regulations. AML and KYC directives keep changing frequently, so it’s hard for most financial institutions to keep up with them. They allow for faster compliance and decision-making and efficient knowledge sharing between internal parties, businesses, and other departments throughout the organization. 

Here’s why you should use compliance apps. 7 Advantages of Compliance Apps

1. Clear Guidance on Compliance

Compliance apps provide users with simple answers to confusing questions related to business activities abroad. The answers are visually pleasing and straightforward and provide answers for endless business scenarios. Compared to hand-held cross-country manuals and static text, compliance apps provide information in a much more consumer-friendly method. Compliance apps provide clear guidance on the information you require, which requires compliance time. 

2. Flexible & Scalable Coverage

Compliance apps can support the growing needs of businesses. With compliance apps, businesses can choose a variety of business scenarios and new countries and add as many users as needed to access the app. Compliance apps compared to country manuals can provide scalable information. Country KYC and AML compliance manuals can’t grow according to businesses. 

3. Immediate Answers Regarding Regulations

Compliance apps offer a user-friendly comparison between different cross-border scenarios on a single screen. It’s easy to find out answers to complex situations, which isn’t possible with country compliance manuals, and exploring cross-border situations often takes days. 

4. Compare Cross-Border Compliance Factors in Real-Time

Compliance apps users can compare compliance rules and regulations all over the globe in real-time without having to do tons of research. Easily find out where the circumstance best fits products and services. Cross-border country manuals can’t support exploring the comparison of scenarios.

5. Up-to-date Knowledge

By using compliance apps, banks and financial institutions can reduce the risk of missing out on important updates, and they’re automatically applied to the knowledge consumed by users on the app. If you compare this advantage of compliance apps with country compliance manuals, then these manuals need to be updated and distributed manually whenever any update comes in KYC and AML directives.

6. Facilitate Knowledge Sharing Internally

Compliance apps provide users with an increased chance of knowledge sharing among business teams with just a couple of clicks. Communicating with teams and sharing even the smallest of information becomes easy and quick. This can’t be done with country KYC and AML compliance manuals.

7. Answers Offered on Instrumental Level

Compliance apps offer business activities not for just one country, most of them provide insights on a product level, adding context and providing highly tailored guidance that all businesses and teams can benefit from. There is a certain level of complexity that country compliance manuals can simplify.

Conclusion: Advantages of Compliance Apps

Banks and financial institutions that don’t focus on compliance as much as they should tend to get fined. By using tools like compliance apps and online KYC verification software, banks and financial services businesses can improve their overall compliance process.

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Challenges to FinTech Growth: Regulatory Compliance and Geographical Restrictions

fintech growth challenges

When it comes to complying with regulations, FinTechs tend to face tons of trouble, be it KYC or AML. According to a survey, FinTechs all over the globe considers KYC and AML compliance one of the biggest challenges to FinTech growth. FinTech companies, regardless of their scale often face trouble with compliance. Let’s discuss all FinTech growth challenges and how they can prepare better.

FinTechs Regulatory Challenges Looking to Enter International Markets

There are a couple of challenges that FinTechs face while trying to enter other markets. Here are the biggest FinTech regulatory global challenges:

1. Expanding Digital Products and Services to Other Countries

FinTech companies such as Robo advisors and automated wealth managers run into lots of trouble while trying to enter new geographical markets. Apart from licensing issues, they also need to analyze and adapt to the needs of customers. This will depend on the customer’s nationality, domicile, and expertise, and will require acquiring knowledge of all customers involved. To do this, FinTech regulatory compliance needs to be followed thoroughly.

2. Offering Credit Cards in Other Countries

What are the requirements for offering free credit cards to a potential customer? There isn’t one perfect rule for all types of customers and every country. The requirements vary from country to country and these FinTech growth challenges. Understanding these rules can be challenging for small to big FinTech businesses.

AML Requirements for Onboarding Global Clients

Just like banks, FinTech needs to monitor and investigate suspicious activities. To make this happen, FinTechs require a robust risk management policy when it comes to onboarding customers from other countries.

Different countries have different AML requirements. One of the best examples can be the UK and Europe before Brexit, UK companies had to follow EU regulations for AML and KYC. With Brexit in place, financial services are now required to follow local rules and regulations for AML and KYC compliance. This is one of the biggest FinTech regulatory challenges.

This has led to the discontinuation of passporting across the EU, new implications for transferring and protecting data, and mandatory compliance with new regulations. If a company based in the UK wants to onboard a new customer in the EU, the company now has to acquire a license in an EU country and comply with the local rules and regulations of every country.

Benefits of Having Regulatory Answers

Regarding regulations, FinTechs have a tougher challenge to overcome compared to other types of startups. FinTechs have to penetrate a highly complicated and regulated market that acts as a hamper for growth. The best part is that there are endless benefits to being prepared to overcome FinTech regulatory compliance.

1. Scale Globally

For FinTech companies that want to enter cross-country markets, understanding the rules and regulations in every country is crucial for facilitating growth. It decreases the number of mistakes, enables the right partnerships, and supports a powerful growth that’s more calculated for growth.

2. Plan Strategically

Consumers will expect FinTech companies to consider and plan out financial regulations for growth. Consumers expect this because regulatory compliance can affect the business model, so it’s important to be strategic and plan. Based on the products and services, it makes sense to expand to one country rather than another.

3. Pick up Speed

One of the biggest FinTech regulatory global challenges is that the responses require a considerable amount of time even when they’re negative. The lengthy procedures reduce time in product development, expansion, and investment plans. 

Having the regulation answers ready via enterprise-ready solutions can bring down the time to reduce the market and cost of market entry.

Enhance Brand Value

In the end, it’s all about having solutions for regulatory compliance that decreases the risks of regulatory and reputational damage. Some FinTechs around the world are getting fined for not complying with regulations and it can hurt the brand’s reputation of the company.

The financial technology landscape world is still a new one, which means that the challenge to earning trust is higher. Being regulation-ready allows FinTech companies to stay compliant with KYC and AML regulations around the globe. 

Acquiring customers from other countries has plenty of challenges, and dealing with them remains a huge challenge for FinTechs. FinTech companies that aren’t prepared will spend significant time and resources on remaining compliant. 

With the right tools and solutions, FinTech companies can use regulation as a stepping stone for global reach. 

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Affect of Financial Data Aggregation and Digitization on Mortgages

Data Aggregation Impacts Mortgages

As the Covid-19 pandemic slowed down almost every sector of the financial industry, some markets are finally starting to make a comeback. The Australian property market is experiencing a major comeback, and house prices are rising at a record level.

This is the result of all-time low-interest rates and household savings that have accumulated to drive demand for property among first-time and veteran buyers. This is in line with this bullish housing market, home loan lenders have also started adopting digital services to make online customer onboarding faster and more secure. Companies like RBA Group have reported a rise in investment in technologies that are being made for streamlining the home loan approval process.

Barriers to Home Loans

The value of real estate in Australia has increased to $9.1 trillion, and it gained 1 trillion dollars in just five months, which was a whole new record for the industry. The unexceptionally high prices for the property are the primary barrier for customers to enter the Australian property market. More than 65% of all young people in Australia believe that it’s impossible to buy property in the Australian market. To fix this problem, innovative FinTech has started building products that can provide Australians with an opportunity to convert a portion of rent payments into equity payments. 

Not just FinTechs, other entities are also trying to help potential property owners. To protect borrowers and prevent risks in the home lending industry, the regulatory body “Australian Prudential Regulation Authority” (APRA) has issued a statement saying they will assess new borrower’s ability to keep up with their loan repayments at an interest rate that is at least 3.0 percentage points above the loan product rate. 

Industry experts believe this movement to be a first to restrain credit and housing markets, with the biggest shock for homebuyers to come in 2023 when the hike is supposed to decline by 5 percent.

Reducing Inefficiencies in the Lending Process

There are countless high barriers to entry in the property market, such as:

  • Going through the tedious and lengthy mortgage procurement process. 
  • Paper-based customer ID verification and bank verification can be solved with online bank account verification software.
  • Human error in the loan approval process. 

All these barriers make entry into the market for buyers extremely tough. Sometimes, the mortgage approval process can even take up to 50 days. 

With digitization, it is easy to streamline the application process, which makes it easier for approving mortgage applications. Data aggregation and innovation throughout the mortgage providers are trying to provide a seamless customer experience and speed up the process. 

By using technologies such as online customer document verification software, online bank verification software, or online KYC verification software, the customer verification process can be enhanced. 

Open Banking can connect a person’s banking data and lenders can get a clear picture of an individual’s financial history, which means the one who approves the application can make educated decisions. The process of deciding if an applicant qualifies for a mortgage should be driven by data.

With data aggregation and analysis functions, there is a huge opportunity to digitally transform the mortgage approval process. This can significantly reduce mortgage turnaround time and allow more people to get a mortgage.

Role of Digitization in Mortgage Approval

The recovery of the Australian property market after the Covid-19 pandemic has also boosted the prices of houses. The role of digitization is simple, it helps in streamlining the mortgage application process and makes it accessible for customers who’re looking for a mortgage.

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Open Banking: Global Developments, Current Landscape, and Future

open banking global developments

If there’s one core element that can be credited for the surge of digital transformation in the financial industry, it’s the global COVID-19 pandemic. It’s more than clear that banks, credit unions, payment providers, and other financial service providers are looking to take advantage of technologies to gain an upper hand against their counterparts. The adaptation of Open Banking has also seen an upward curve in the last couple of years. According to industry experts, the total number of Open Banking users globally will reach 64 million by 2024. 

While there’s obviously a global development of Open Banking in the industry, it’s still the beginning. If careful measures are taken, Open Banking can take the financial situation to a whole new level for businesses and customers.

Revolution of Open Banking

The gist of Open finance is that it provides customers with complete control over financial data which in turn can change the financial habits of millions of users regarding money and savings. 

In the future, third-party service providers, by gaining customers’ consent, will be able to access mortgage data, investment data, insurance, savings, and pension data. Data is the core element in Open Banking and Open Finance. By leveraging this crucial customer data, existing companies of the future will be able to tailor financial services based on customer needs and interests. 

With access to seemingly endless data about customers’ financial lives and habits, there will be no end to personalized services and products. With every FinTech, Bank, and other financial institution trying to build custom products and services, there will be a surge in innovation throughout the financial industry. Ultimately encouraging businesses to leverage the latest tools and technologies as much as possible to stay relevant in the industry while ensuring the best products and services for existing and potential customers. 

Collaborations for a Better Open Finance

Countless businesses across the globe have their own unique take on Open Finance and their own ideas on how to utilize the data to build better products and services for the customer. To help the Open Banking revolution take a better turn, companies across the world need to move ahead with a centralized approach. Without proper frameworks or the incentives to work on Open Finance, it’s less than likely that the industry will be able to utilize the full benefits of open finance.

There needs to be an untied sense of urgency for open banking to take center stage in the financial industry. FinTechs all over the globe are focused on developing Open Banking APIs that banks can collaborate with to enhance day-to-day workflow. Open Banking APIs like online document verification APIs, online proof of address verification APIs, and online bank account verification APIs can streamline the KYC, KYB, and AML workflows. 

Regulatory bodies will need to be more vigilant as open banking becomes more prevalent in the financial industry. With so much customer data open to access, there will be a need to build strong rules and regulations. If we talk about the situation of open banking in the USA, then President Joe Biden has issued a series of customer-friendly executive orders that are primarily focused on ensuring that the US banking system can transition to open banking as seamlessly as possible. 

Australia’s consumer data right offers Australians the right to access all their financial, utility, and telecom data. While it’s true that the open-by-default approach has taken more time to implement than expected, the country is now well on its way to building a strong and secure open banking infrastructure. Another example of the Open Banking revolution is in Canada, similar to Australia, they’ve built a similar plan of action, and they’re expected to roll out their open banking infrastructure by 2023. 

To successfully deliver open banking to consumers on a large scale, there will be a need for collaboration between banks and the government. As the main regulator for most of the firms that would work on the open banking landscape, the regulatory bodies will have to set forth some key rules and regulations. To successfully deliver innovative open banking products and services to the customers, the Bank-FinTech collaboration will be essential. The primary example of this is Open Banking APIs offered by FinTechs globally that can enhance the day-to-day of banks.

What’s Next for Open Banking?

The next step for global open banking is straightforward, it has to be based on a centralized, to down approach. There have been some great initial steps from regulatory bodies and government entities, but there needs to be a centralized approach to building a proper Open Banking infrastructure. Only then will companies be able to leave traditional banking behind and transition to open banking? Needless to say, open banking and digital transformation are well on their way, the result is just about time.

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How Community Banks can help with FinTech Due Diligence

fintech due diligence

Since the last couple of weeks, bank regulatory bodies have released tons of publications applicable to Community Bank FinTech partnerships. This can be called a newly proposed guidance, a FinTech due diligence guide, and a Federal Reserve white paper on types of FinTech partnerships:

The growth of FinTechs is a major concern for Federal bodies and regulatory bodies. With the release of recent publications, the efforts made by regulatory cross agencies continue to ensure growth throughout the evolving space. To boost that growth, the FinTech due diligence guide was made.

FinTechs need to be careful moving forward and build sustainable mutually beneficial partnerships between banks and FinTechs. So what does the FinTech due diligence checklist have in place?

A Pathway Towards Innovation

The last 10 years have been an incredible time to build a FinTech company as global equity investments in FinTechs have reached more than a trillion dollars with a 45% annual growth rate. The FinTech industry is becoming a threat for banks as they offer better services when it comes to online banking services. When it comes to community banks, FinTechs are an even bigger challenge as they don’t have the scale to access the expertise of a large institution.

Additionally, this is the best time for community banks to choose innovation over anything else. Community banks can provide their relationship experience and knowledge of compliance in partnership with FinTechs that are building innovative financial solutions that are focused on fulfilling customer needs. This is the core aim of the FinTech due diligence guide. 

The US Paycheck Protection Program (PPP) increased the possibilities of community bank-FinTech relationships as FinTechs helped enhance the PPP loan application portals and also became a source of distribution. After all their help in enhancing the banking sector during the pandemic, it’s clear that by building relationships with FinTechs, banks can take their services to the next level. Regulatory bodies have shown more interest in the role that innovation can play in the financial sector and this led to them addressing the FinTechs. There have been several regulatory bodies sponsored events to facilitate better community bank-FinTech relationships. 

The new proposed guidelines were released in July 2021, and the complementary guidelines released in August 2021 by regulators stated that FinTech partnerships are becoming vital in the growth of the financial industry. The proposed FinTech due diligence checklist acknowledges the importance of innovative partnerships for financial institutions.

With increasing relationships, the due diligence process should also be built around the relationships keeping in mind that FinTechs don’t have the compliance experience or infrastructure of a mature bank. The Federal Reserve even acknowledges that keeping up with due diligence is a huge burden for smaller banks, that’s why the “Due Diligence Guide” was built to reduce the burden by offering some tips and tricks.

What Should Sponsor Banks Do for FinTech Due Diligence?

Based on the new proposal guide, there are four main suggestions for sponsor banks to keep up with required FinTech due diligence:

1. Review the Current Due Diligence Process Against Suggested Process

The first and foremost step is to conduct a high-level assessment of the current due diligence process against all the suggested areas in the proposed guidelines. Regulators don’t want the process to be exactly as they suggest, but comparing your current due diligence process against their suggested key areas can help enhance the process in the future. 

This is also a great opportunity for businesses to review their contracts as the due diligence guide offers suggestions and examples of ideal contracts between sponsor banks and FinTechs. These contractual guidelines will help in mapping out the bank’s oversight and FinTech’s responsibilities.

2. Build a Due Diligence Process based on the Maturity of FinTechs

The second step for better FinTech due diligence as proposed by the guidelines is to tailor build the due diligence process based on the FinTech you’re partnering with. Sponsor banks should review their process for FinTechs that have several levels of maturity. 

Let’s say a FinTech company is taking its baby steps, its projected financials won’t have as much weight, and it won’t have a perfect management team and a stable source of funding. Understanding these things as a sponsor bank can help build better and secure bank-finTech relationships.

3. Your FinTech Partnerships Should Act Like a Portfolio

The FinTech due diligence process is the best way to understand how a FinTech can help in making your relationship portfolio stronger. Similar to a portfolio manager that assesses the correlation and concentrations on their investments, sponsor banks also have to evaluate whether their FinTech partnerships are focused on specific customer segments or specific industries. 

For community banks that are always full of deposits, having a better understanding of balance sheets and regulatory ratio impacts can become an essential part of the due diligence process.

4. Learning When to Say No

Both the guidance and the Federal white paper revolved around a key factor “aligning the sponsor bank’s diligence and decision-making on partnerships.” In the Federal White Paper, there’s an example where a bank refused to partner with a FinTech solely based on how they handled customer data.

Each bank needs to have core principles and regulations regarding the type of FinTechs they’re open to partnering with. These principles can be based on product type, industry type, maturity, and level of sophistication. Sponsor banks should also be ready to present their concerns to regulators about why they turned down a deal due to certain findings or simply due to misalignment of business goals.