Fintech and Banking: Utilizing Bank Sponsorships for Compliance and Regulatory Issues
Bank sponsorships are vital for the fintech ecosystem as they are intermediaries between modern financial services and the traditional banking industry. Through these relationships, fintech startups may benefit from established banks' financial networks, regulatory licensing, and compliance frameworks. Furthermore, fintechs can zero in on further developing their technological solutions and user experience by collaborating with sponsor banks, as they will have confidence that experienced partners oversee the core banking and regulatory obligations.
So, what are sponsor banks, and how can fintechs leverage these partnerships to further their company's interests? This article highlights how banks can provide more than you might expect for your fintech company and why securing the right bank partner is vital to optimize your operations.
What are Sponsor Banks?
Sponsor banks are defined as a licensed financial institution that handles funds transmission and may provide additional banking services for a company's customers within a BaaS model, which lets the company avoid having to obtain a license themselves. These banks are labeled "sponsored" because they typically form partnerships with Fintech companies, giving them numerous opportunities to market their products and partner with other Fintechs. Brokering these services together has shown significant improvements to the end goal of retail banking, which helps users streamline their finances and have one consolidated center of services.
Sponsor banks typically have growth avenues that Fintech companies can utilize to grow their operations. One benefit of a sponsor bank is being a member of major card associations like Visa or Mastercard, which allows banks to facilitate credit card offerings by non-financial entities. Some of the vital roles of sponsor banks are to enable the movement of money with the fintech company's product and oversee compliance for their partners.
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With all the benefits that bank sponsorships derive, it's evident that securing a sponsor bank is necessary to integrate into your business model. Let's look at how we can navigate this milestone of your fintech business cycle.
Navigating Bank Sponsorships
It's essential to start by noting that success also comes from being a good partner. Understanding the regulatory landscape, aligning our goals with our bank sponsor partners, and presenting our revolutionary product to solve a specific need are all as essential as our product's infrastructure.
Knowing the nuances of our product, staying up to date on our technology stack, knowing our server limits, and taking into consideration how it will affect our partner's customers - if our product has any flaws, are all essential in our business life cycle.
Furthermore, while our engineers are excellent in their craft, we must also operate as a business. Aside from our C-class, we must also retain professionalism as a company. Effective communication, legal matters, and flexibility are also essential to iron out before the presentation. Starting in a more minor program may be the avenue to go before bringing our landscape-changing product to a bigger market.
Bank Sponsorships for Compliance and Regulations
Now, let's move on to one of the most significant topics in fintech: compliance and regulations. We've all heard it, done some research, and know one thing—it's a convoluted field that takes a team of people to navigate. However, with our bank sponsorships, we find that this isn't such a daunting task.
With compliance demands from our sponsor banks at the forefront of our partnerships, the depth of knowledge from our partners in banking gives access to the banks' regulations and frameworks for AML (Anti-Money Laundering), KYC (Know-Your-Customer Standards), and more. Not only does bank sponsorship assist with credibility, it also reaffirms the partnership by ensuring compliance matters are handled. Similarly, bank sponsorships offer guidance on financial regulations, which let Fintech companies return to what they enjoy the most-- their business.
Criteria for Bank Sponsorship Success
Arguably, the most critical decision—selecting an appropriate bank sponsor—is crucial early in the fintech business cycle. While you can find a bank sponsor through our Fintech Map, it's essential to prioritize finding a bank with solid regulatory experience and a sponsor that aligns with your future strategic goals.
Some other things to look out for when finding a bank sponsor are as follows:
- Credibility of the banking institution
- Technical Integration Possibilities
- Market Access and current clientele
- Similar visions and values for innovation
As all Fintechs are looking for sustained growth, it's essential to examine value propositions and core competencies to ensure that your partnership has long-lasting value that will be mutually beneficial in the long term.
Choosing a Bank Sponsor
Now that we can see that bank sponsorships create many benefits for everyone involved—including a hand in compliance and regulations—we've identified the criteria for finding a bank sponsor. We can now browse the fintech map for banks aligning with our core value propositions.
Take a look at our map below to find prospects that align with your fintech today.
Conclusion
Establishing a bank sponsorship is one of the most significant milestones for all fintechs who overlap in the banking industry. With a bank's ability to brokerage services together and to bring fintechs to a bigger market, securing a partnership should be one of the highest priorities post-development. Leveraging a bank's credibility, compliance standards, regulation, technological possibilities, and infrastructure are all necessary to thrive in the bustling market of financial technologies. However, we must also remember that the partnership must be mutually beneficial at the core and that both companies must be aligned on their vision and values. With both companies aligned, we can lay the foundation for a fruitful partnership that keeps both companies pacing for sustained growth and innovation.
Whether browsing from the industry or a fintech looking to find the next step in your business cycle, look at our map to find your next bank sponsor today.