Of course, for any aspiring FinTech, this may not seem like the most stirring part of launching a new payments product. Yet, the truth is that regulatory understanding and planning should be paramount. Also, instead of attempting to overcome regulatory challenges in-house, FinTechs should partner with a bank identification number (BIN) sponsor, as these partners have proven regulatory expertise and experience. By going this route, FinTechs can minimise any risk of non-compliance.
Why understanding market complexities matters
In the payments environment, accurately defining the phrase “regulatory expertise” is quite complicated. This is because there is a vast level of legal requirements across different industries and jurisdictions. Not only this, but such requirements are also changing and adapting on a constant basis.
Given this situation, this could be somewhat overwhelming to a FinTech whose strength is in strategic and speedy innovation, not the rigorous process of grappling with often complex regulation. However, there should be no temptation to view the need for a comprehensive regulatory roadmap as anything other than critical to the success of the product.
Needless to say, when FinTechs and programme managers choose a BIN sponsor, it is a given that they must choose one that holds the required regulatory permissions. For example, a license that enables passporting across the European Economic Area (EEA). However, they should also ensure that their chosen partner has a clear understanding of the complexities of each regulatory landscape in which they operate. The key value that a sponsor provides is applying their knowledge and experience to the exact requirements of the customer and its market, from day one of the product launch and beyond.
However, legislation within this space does not stand still, meaning it is essential to know that the BIN sponsor also has the ability to manage and continually keep on top of an ever-shifting regulatory landscape of its entire portfolio.
Yet why is this so important? For a BIN sponsor, if a regulatory issue occurs with one of its programmes, it has the potential to negatively impact other customers relying on this sponsor.
There have been a number of recent examples of such episodes occurring in the payments market leading to programme managers incurring the cost and disruption of finding a new sponsor through no fault of their own. This highlights the need to ensure when choosing to work with a BIN sponsor that they can successfully manage all of their customer’s programmes.
Critical considerations for FinTechs and cross-border growth
Ambitious FinTechs aiming to scale across countries, continents and even the world is no longer an unrealistic expectation. Yet, there’s no getting away from needing to understand and plan for the many regulatory intricacies and nuances that will be present during this process. With this in mind, there are three pivotal areas to consider.
Differences exist between each member state within the EU
There’s no one-size-fits-all approach between member states of the EU. European regulation gives each member state the independence to interpret and/or implement directives as they see fit. Make sure that your BIN sponsor appreciates this and guides you accordingly.
In the wake of Brexit, FinTechs face a key decision on if they require a European License to operate outside the UK.
For example, if such businesses are not directly offering a card product, they are not bound by Scheme rules such as VISA and Mastercard, and some e-money products may not have a legal requirement for a European licence.
However, as outlined previously, member states do have the freedom to stipulate their own set of specific local requirements, and whilst one may not require an EU licence, another state may insist on it.
The management of a worldwide product involves a wide variety of partners, in effect, a patchwork, to provide the necessary regulatory foundation. Challenges arise from this, especially around where the dividing line of responsibility amongst partner organisations begins or ends. From the outset, there needs to be absolute clarity of such responsibilities for a programme to work seamlessly, ensuring there are no issues.
A good approach is to foster a like-minded global network. For example, in the case of Know Your Customer (KYC), the more the entities that are involved work together to find a common route to customer onboarding, the fewer barriers exist to the customer. The overall effect of this approach is that it provides an improved customer journey and increased customer numbers for the programme.
To be clear, for each of these three areas, the responsibility falls to the BIN sponsor to ensure they understand all regulatory requirements. It also means that they are constantly keeping on top of upcoming changes – relevant to the launch and expansion of the programme, thus removing any burden for their customers.
For FinTechs focused on launching highly innovative products, remove the regulatory pressures and work with a BIN sponsor that has the expertise, experience and track record of launching many international payment products.