FinTechs and FIs Find Common Ground on Scaling Real-Time AML Compliance

Recent announcements and partnerships have shown core banking’s appeal — not just for traditional FIs, but FinTechs too — as anti-money laundering (AML) efforts must scale and move into real-time functionality, ideally automated, to monitor real-time transactions.

Struggling with the Legacy Systems

Generally speaking, core banking providers help FIs upgrade their back-end processes and move toward always-on connectivity as traditional firms modernize in incremental fashion.

PYMNTS Intelligence reported earlier this year that, as detailed in the report “Core Strength: FIs Must Modernize to Meet the FinTech Challenge,” in collaboration with Galileo, 75% of banks struggle with implementing new digital solutions due to their legacy infrastructure.

The Federal Reserve Bank of Kansas City detailed in a report that core providers’ “payment hub architecture” can improve depository institutions’ customer experiences “by making their transactions more seamless and unified. A payment hub may connect with front-end, customer-facing mobile apps and banking software through an API.”

FinTechs Strive to Automate Compliance

On the other side of the equation, for the digital upstarts — the FinTechs — core banking solutions help manage onboarding, card issuance and payments processing.  As noted here by PYMNTS in recent coverage, in the first half of 2023, FinTechs and digital banks accounted for 47% of new accounts, marking a significant increase from 36% in 2020.  As for the expansion beyond traditional accounts, we found that 41% of consumers who hold their primary bank account at a digital-only bank also hold their primary credit card with the same institution.

The lines are of course blurring, as more banks are partnering with FinTechs.  PYMNTS Intelligence has estimated that 65% of banks and credit unions have entered into at least one FinTech partnership as measured last year, with 76% of banks viewing FinTech partnerships as necessary to meet customer expectations. And a full 95% of banks are focused on using partnerships to enhance their own digital product offerings.  The commonality, of course, is remaining compliant with local, national and global regulations as these firms scale.

Though “core banking” applies to the basic functions of account set-up and maintenance, compliance is increasingly becoming part of the end-to-end integrations that seek to ensure that both traditional and digital-only firms remain in sync, via API connectivity, with shifting regulations.

In one recent announcement last week, Europe’s ComplyTek, which provides AML compliance solutions, said it had partnered with core banking firm Advapay, which offers embedded payments solutions, to give FinTechs what is being termed “advanced AML compliance.”  The modular approach that is a hallmark of core banking initiatives is evident across both firms: Advapay offers its FinTech clients the ability to issue virtual cards, and ComplyTek’s modules include internal audit management and regulatory reporting.

Also in a Europe, and in evidence of the partnership model, core banking platform Tuum said in August that it had partnered with ComplyAdvantage, which focuses on financial crime intelligence.  The collaboration is focused on FIs’ real-time AML screening and risk assessment.

Separately, as noted here, Hitachi and Shizuoka Bank have completed verifications for a core banking system that will reportedly go live on Amazon Web Services in 2027, and will expand its core banking to other FIs, to be packaged as “OpenStage.”

DataVisor said over the summer that it had introduced new features to allow client firms to configure and customize fraud prevention and AML strategies across banks and FinTechs.

 

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