Unsurprisingly, compliance remains a priority topic in 2024 for payment companies.
As a payment executive, you probably know first-hand how innovations like instant payments, mobile wallets and embedded finance are creating new growth opportunities, yet also compliance-related challenges, for your business.
Due to the easier nature of conducting payments and instant processing, risks also increase.
FinTech Market Growth and Trends
The FinTech industry is, despite the challenges in a higher interest rate environment, expected to continue to grow: the market size is estimated at $340 billion in 2024. And by 2032, this figure could Increase almost fourfold to over $1.1 trillion according to forecasts.
Driving this growth are trends like:
- Proliferation of digital payment apps and e-wallets.
- Surge in e-commerce and contactless payments.
- Emergence of embedded finance and Banking-as-a-Service (BaaS) models.
However, the opportunities come with risks: regulators worldwide are continuously updating frameworks to address new challenges and enhance consumer protection.
For your company, whether a FinTech or traditional payments company, keeping pace with evolving regulations across regions and product lines is crucial.
Even more important, focusing on compliance helps you uphold core values of security, fairness and transparency that are key to retaining customer trust in the long run.
Constantly adapting in a high-growth environment can be challenging, but the following six strategies can help you successfully prioritise compliance:
Adopting a Proactive and Adaptive Compliance Culture
Traditionally compliance has been treated as a check-the-box activity focused on avoiding penalties. But modern regulations demand a more proactive approach focused on protecting consumers and ensuring fair market conduct.
It is now common practice to move from reactive firefighting to an adaptive compliance culture centred around ethics and consumer protection. Key elements of such an approach include:
- Fostering a culture of integrity from the top: Senior leaders should regularly communicate the importance of compliance as a strategic priority rather than just a cost centre. They should lead by example in promoting transparency, ethics and accountability at every level of the organisation.
- Anticipating emerging regulations: Closely tracking regulatory consultations and debates globally to identify new rules on the horizon proactively rather than waiting for them to be enacted is an example of a proactive practice.
- Continuous controls monitoring: Assessing control effectiveness continuously through metrics tracking, audits, and testing is more effective than relying on infrequent compliance audits.
- Encouraging transparency and escalation of concerns: Aiming to create an environment where employees are comfortable raising issues or risks without fear of retaliation helps to uncover weaknesses in systems and controls.
- Maintaining high ethical standards: Setting clear guidelines for acceptable conduct and ethical behaviour that exceed minimum regulatory requirements is what modern companies should aim for. The goal should be to avoid not just legal sanctions but also reputational risks.
By making compliance a central pillar woven into operations rather than an ancillary function, you can build trust, foster innovation responsibly, and gain a competitive edge.
Investing in Compliance Tech and Automation
Regulatory obligations for payment companies are extensive and growing rapidly. Legacy manual compliance processes are often inadequate to effectively track regulations across multiple jurisdictions and product lines to identify and remediate gaps in policies, procedures, controls, and monitoring.
Financial institutions continue to face rising compliance costs, with recent estimates showing they bore over $206 billion in worldwide compliance expenditures last year — an amount comparable to more than 12% of total global spending on research and development.
Much of this spending is being directed towards compliance technology solutions and consulting services that enable:
- eDiscovery and reporting: Automating data collection, analysis and visualisation for compliance reporting and responding to regulatory inquiries in a timely manner.
- KYC and transaction monitoring: Screening transactions, customers, and third parties against sanctions lists, and politically exposed persons (PEPs).
- Risk assessment automation: Automated control testing, self-assessments and scenario analysis to continuously evaluate compliance risk exposure.
- Orchestration: Managing the entire compliance workflow from a single platform for seamless end-to-end processes.
- Cross-department visibility: Enabling collaboration and information sharing between compliance, risk, legal and other teams.
- Policy and procedure management: Standardizing compliance policies across business lines and geographies. Providing version control, approval workflows and audit trails.
By leveraging solutions offered by Onboard, your payment company can tighten compliance oversight across products and regions efficiently while optimizing costs.
Ensuring Comprehensive AML/CFT Protections
Not surprisingly, combating money laundering and terrorist financing remains a top priority for financial regulators worldwide. For payment firms, rigorous know-your-customer (KYC) procedures, transaction monitoring, and reporting suspicious activities are crucial to avoid the reputational and financial risks of being exploited for financial crimes.
Key focus areas for 2024 include:
- Enhanced KYC for FinTechs: As FinTech payments gain popularity, regulators are tightening identity verification requirements. Biometric-based eKYC solutions can help securely onboard users quickly while meeting KYC/AML obligations.
- Understanding ownership structures: Identifying ultimate beneficial owners for corporate clients is crucial to uncovering hidden risks.
- Monitoring source of funds and wealth: Analysing customers' sources of income and fund inflows to determine consistency with their profile and detect red flags like suspicious transactions.
- Sanctions list screening: Checking customers, beneficiaries and counterparties against the latest global sanctions lists including UN, OFAC, UKHMT, European Union and more.
By integrating best-in-class KYC offered by Onboard across multiple jurisdictions, transaction monitoring, and investigation tools, your payment firm can efficiently meet growing AML/CFT compliance mandates globally.
Prioritising Data Security and Privacy
Countless security breaches and ransomware attacks aimed at FinTech companies underline the need for secure systems. Safeguarding customer data is crucial to avoid catastrophic privacy breaches that can have severe legal, financial and reputational implications.
Key focus areas for payment firms include:
- Data minimisation: Collecting, processing and retaining only data that is essential for delivering services. Remove unnecessary data fields and reduce retention periods.
- Access controls: Restricting data access only to employees who need it for authorised purposes. Multifactor authentication can add another layer of protection.
- Data pseudonymization: Masking sensitive fields like names and account numbers with random identifiers when data is used for testing or analytics.
- Encryption: Utilising robust encryption for data at rest and in transit across networks. Favour advanced protocols like AES-256 over outdated ones like TLS 1.0.
- Third-party oversight: Closely vetting processors, cloud providers and other third parties that handle your data. Ensure they have advanced security controls and compliance protections in place.
- Incident response planning: Putting formal incident response and notification procedures in place in case of data breaches. Conduct regular incident response simulations and testing.
With data protection regulations like GDPR in Europe carrying heavy fines for non-compliance, payment companies must make data security and privacy a top investment priority to avoid potentially catastrophic pitfalls.
Planning for Operational Resilience and Disaster Recovery
News stories and customers upset about banking outages are a regular occurrence. The continuous availability of payment services is crucial for economic functioning and so, regulators worldwide are introducing requirements for financial infrastructure firms to ensure operational resilience.
For instance, the EU Digital Operational Resilience Act (DORA) will require systemic payment firms to have robust incident response and recovery capabilities aimed at minimising service disruptions.
Specific measures payment companies need to implement include:
- Business continuity planning: Setting policies and procedures for maintaining critical operations during disruptions. Conduct regular training and simulations.
- Third-party oversight: Closely coordinating with vendors and partners on resilience strategies.
- Crisis communications: Developing clear frameworks for timely and accurate communications with regulators, clients and media in case of major incidents.
- Cyber resilience: Implementing best practices from standards like NIST CSF that cover prevention, detection, response and recovery from cyberattacks.
- Data and system redundancy: Maintaining resilient backups and alternative sites to ensure continuity of critical data and transaction systems during disruptions.
- Incident reporting: Putting procedures in place for promptly notifying regulators of service disruptions, cyber incidents etc. as per requirements.
By proactively planning and testing operational resilience capabilities before disruptions occur, your firms can meet rising regulatory expectations while building trust and minimizing business impact.
Utilising Compliance as a Competitive Advantage
While regulatory compliance represents a significant investment, proactive payment firms typically realise it also provides strategic advantages that can differentiate them. There are many advantages of proactive compliance strategies your company can benefit from:
- Reputation for security and trust: By demonstrating rigorous controls and transparency, your company can distinguish itself as a principled steward of customer data and finances.
- Operational discipline: The rigour of monitoring, reporting and issue management instils an operational discipline that improves quality and efficiency across the enterprise.
- Customer knowledge: Sophisticated KYC procedures provide deeper insight into customer needs and behaviours that can inform business strategy and product design.
- First-mover advantage: Tracking regulations proactively and engaging with regulators allows being better prepared than competitors when new rules are enacted.
- Culture of innovation: Compliance does not need to stifle innovation. By participating in regulatory sandboxes and trials, compliance enables controlled experimentation and progress.
Leading payment firms recognise compliance as a long-term business investment rather than just a cost centre. They deftly balance innovation with controls to ensure both consumers and markets thrive responsibly.
Work with OnBoard to Accelerate Your Compliance Readiness
At OnBoard, we know payment innovations bring new opportunities. But with opportunity comes responsibility to protect consumers and ensure compliance. Our end-to-end onboarding solution helps you manage your entire customer lifecycle — from initial prospect to full customer — in one unified platform.
With Onboard’s customisable decision engine, you can automate risk assessments, and underwriting workflows to maximise efficiency. Our real-time KYB, KYC, KYE and AML capabilities ensure you stay compliant across global markets. And our 24/7 multilingual support means you can rely on us being available when you need us.
Let's start a conversation today about how Onboard can help you keep your growth trajectory while ensuring robust oversight. Book a demo to see how our purpose-built software solutions can accelerate your compliance readiness.
