As we all know, the payment landscape is changing rapidly. Neo-banks, alternative lending companies, and fintech companies are challenging the way payments happen on an almost daily basis.
While focused on providing a great customer experience, often these smart, young, nimble companies are not as intimately familiar as banks with the plethora of regulatory requirements that have been established to protect the payments ecosystem.
Venture Capitalists care about growth. Compliant growth has more traction. Challenger banks and FinTech looking to grow at scale, and build a model for long term success need to be aware of the rules and regulations that have been established, and build these into their solutions from the beginning.
Collaboration is key to success. Disruptive solutions can provide a game changing experience, whether via mobile device or other technology platform. However, core capabilities on the back-end typically leverage standard payment infrastructure, and the gateway to payments is via established financial institutions.
FinTechs need to understand banks’ risk appetites. Financial institutions have significant regulatory oversight. They will want to have confidence that their partners also comply to these requirements.
Fintech solutions tend to get complex very quickly and so these requirements need to be architected into solutions at an early stage.
As start-ups don’t typically have the resources to invest in large legal and compliance teams, they will want to tap into resources that are available to help them navigate these complex waters.
For FinTechs in California, WesPay (https://www.wespay.org), and the Federal Reserve Bank of San Francisco (https://www.frbsf.org/banking/fintech/), are two good resources to reach out to.
The Federal Reserve System is one component of the national bank. They are responsible for the nation’s money policy, maintaining the stability of the financial system, fostering payment and settlement safety and efficiency, consumer protection and community development, as well as supervising and regulating financial institutions.
The Federal Reserve System has developed a FinTech Navigate program through the Federal Reserve Bank of San Francisco that provides consultation to financial institutions and FinTech companies to help them navigate the industry regulations and ensure safety and soundness of the financial ecosystem. For example, they can help those companies wishing to become a charter bank understand the different chartering authorities, rules and implications for each, and help them choose the right one to work with. Additionally, they have regulatory, payments, and technology programs, and host conferences each year on various research topics.
WesPay is a non-profit trade association based in San Francisco that focuses on helping financial institutions grow and improve use of electronic payments through education and advisory services around payments strategy, process improvement and payments regulation. They also have a FinTech initiative to keep a pulse on the emerging payments and FinTech landscape.
If you are a FinTech interested in developing a robust payment solution that will scale and attract investments, you will want to learn about the regulations that impact your business, and make compliance part of your core infrastructure. Consulting with WesPay and the Federal Reserve System of San Francisco are two great places to start to get you on track.
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