There has been significant growth in the number of bank-fintech partnerships over the past year. These partnerships, while beneficial for both parties, don’t come without compliance obligations.
In 2023, marketing compliance is as important as ever for fintechs. Here are the top marketing compliance trends and stats that fintechs should know in 2023 to stay compliant.
Fintechs are struggling with comprehensive oversight, bandwidth, and regulatory change
As part of our 2023 State of Marketing Compliance Report, we surveyed fintech compliance leaders on their organizations’ marketing compliance practices for insights into trend information on the depth of compliance programs, concerns, and challenges.
According to the survey, the top marketing compliance challenges for fintechs are comprehensive oversight (35%), bandwidth and headcount (27%), and keeping up with regulations (21%).
Fintechs are modern, agile, and use disruptive technology to drive results. Regulations, on the other hand, are quite the opposite—cumbersome and tend to lag behind advancements in technology. That mismatch has created a tough scenario for fintechs since they often partner with financial institutions (partner banks) that face a myriad of federal and state regulations.
Understanding these regulations (and how to comply with them) has created challenges for fintechs as they seek to disrupt the financial and banking system. On top of this, the sheer volume of partners and the marketing materials they’re putting out leave compliance teams struggling to keep a comprehensive oversight of the fintech brand. This has placed compliance front and center as an important discipline to ensure the success of fintechs and their partners.
Given that regulatory scrutiny will likely tighten as fintechs increase their participation within the financial system and become more profitable, putting a heightened focus on compliance technology should continue to drive the market share and revenue that fintechs promise, and can help alleviate compliance teams’ struggle with oversight through automation and scalability.
60% of fintechs aren’t monitoring all of their third parties for compliance
While 40% of fintechs are monitoring everything for compliance, the other 60% are only doing sample QA or only reviewing materials when an issue is brought to their attention.
Third-party relationship management is a constant struggle for companies and is on the short-list of examination and audit questions for federal and state regulators. If a fintech company offers services or delivers products for a bank, the relationship is treated as a third-party relationship and regulators expect the bank to include the fintech company in the bank’s third-party risk management assessment.
Fintechs understanding their own compliance obligations and actively monitoring their own third parties, including any marketing affiliates and merchant partners, would provide greater comfort to their banking partner that reputational and regulatory risk can be mitigated timely and effectively.
Fintechs should also consider demonstrating to their partner the capabilities of their current compliance program, adherence to federal and state regulations, and any available policies and procedures, including monitoring programs, audit programs, and training programs.
Bonus content: The Ultimate Compliance Checklist for Bank-Fintech Partnerships and BaaS Providers
Employee costs and compliance technology are top areas of compliance spend for fintechs
Fintechs are focusing their compliance budgets on employee costs (41%) and compliance technology (35%).
As fintechs increase profitability and have greater participation in the financial system, more attention will be placed by regulators to ensure the innovations and activities provided by fintechs can safely be deployed within the regulated banking system.
Fintechs should make collaboration with regulators a priority—this would allow them to stay on top of the latest compliance developments and have the regulators understand the risk management and compliance solutions fintechs have in place to ensure consumers have access to the digital financial services they provide in a manner that is consistent with consumer protection obligations.
65% of fintechs lack compliance monitoring on at least one marketing channel
Only 35% of fintechs reported that they monitor all of the marketing channels they’re currently using.
Regulators understand that to acquire high-value customers and meet performance goals, fintechs have invested in a number of marketing channels, often through an affiliate program. With the consumer experience in mind, regulators strive to ensure consumers are not facing any unfair or deceptive practices no matter the marketing communications channel-be it through a website, social media, SMS messages, or phone calls-and will expect the same level of investment and attention to be paid to all of their sales and marketing channels.
This is especially important for fintechs as they are often consumer-facing and have the responsibility to disclose accurate information about their products and services and any third-party relationships they may have, such as with a banking partner.
Given fintechs present the value of customer acquisition for a financial institution, such as a bank or credit union, this consumer interface creates potential risk that any required, timely, and properly-placed disclosures will be lacking.
It’s important for fintechs not to lose sight and be responsible for oversight of their own sales and marketing practices, despite the fact that their banking partners handle any federal requirements and any state-by-state licensing that would be necessary for operations.
Federal and state regulators will be concerned with how both fintechs and their banking partners are being vigilant and proactive about providing the consumer with the appropriate information and disclosures necessary to make sound decisions.
Get full insights on marketing compliance trends for fintechs + partner banks.
Proactive compliance monitoring is key
PerformLine’s omni-channel compliance monitoring solution was built to automate the monitoring and remediation of regulatory and brand compliance violations, on all internal and external channels including web, messaging, calls, email, documents, and social media. Our turn-key industry rulebooks are built on years of experience working with regulators and industry clients.
Speak to one of our experts today to learn more about mitigating your risk and ensuring brand safety so that your partnerships can thrive.
John Zanzarella