With the rise of fintech, financial services companies are rapidly bringing fresh products to market. However, in this vibrant environment maintaining compliance is becoming increasingly complex as the scope of these laws is extensive, and amendments are frequent, bringing an increased risk of noncompliance and threatening sustainable growth.
Read on to learn more about how businesses manage compliance burdens, keep up with regulation changes, and ensure products don't fall into compliance gaps.
The Importance of Staying Compliant With Credit and Payment Regulations
From card providers rolling out new payment cards to fintech startups introducing disruptive innovations, organizations in the financial services sector face immense scrutiny regarding compliance. The regulatory obligations in payments, data privacy, capital requirements, and more create a complex web that can be challenging to navigate.
The specific repercussions organizations could face as a result of non-compliance include:
- Costly fines and legal penalties: Regulatory bodies like the CFPB, FDIC, and FTC frequently issue substantial fines to non-compliant companies, which can amount to millions of dollars depending on the severity of the violations.
- Intensive audits and scrutiny: Compliance shortcomings may trigger exhaustive additional reviews, spot inspections, and prolonged audits by regulators. This scrutiny can stymie operational momentum and eat up resources.
- Losing critical business partnerships: Vetting by potential partners and vendors will take compliance into account. If found lacking, you could get rejected from deals that are vital for growth.
- Massive systems overhaul: In addition to fines, reestablishing compliant processes, controls, and systems after the fact can involve expensive consulting and technology upgrades.
- Higher risks of security breaches and fraud: Compliance violations like weak customer data protections make companies prime targets for hackers and fraudsters, introducing potential legal, reputational, and financial damages.
- Inability to move forward with funding events: Pre-IPO companies must demonstrate compliant operations to generate investor confidence to progress through funding rounds and eventual IPOs.
Falling out of compliance can even lead to the closure of projects, resulting in financial losses, a damaged brand, and a breach of customer trust. Getting back on track after failures can be an uphill battle.
Compliance as a Critical Component of Go-to-Market Strategies
Given the immense risks, innovators in financial services simply cannot afford to treat regulatory adherence as an afterthought but must put compliance at the center of go-to-market plans from the start.
Here are some of the key reasons that compliance deserves prominent consideration in your planning:
- Avoiding devastating fines and legal actions: Staying abreast of relevant regulations and having systems in place to enforce them protects you from stiff penalties.
- Building consumer confidence and loyalty: Customers view financial compliance as a guarantee of security and trustworthiness when choosing providers of cards, loans, fintech tools, and more.
- Preventing service disruptions: Rigorous compliance helps prevent self-imposed or regulator-enforced shutdowns, account restrictions, and other operational disruptions that frustrate users.
- Accessing partnerships and funding: Potential partners and investors often take a hard look at compliance history. Failures can threaten vital relationships and jeopardize VC funding rounds or IPOs.
- Protecting from fraud: The strict security and privacy protocols that regulators demand also help shield businesses from breaches and unauthorized transactions that turn into financial and legal problems.
Proactively addressing obligations such as credit regulations or payment regulations early on prevents costly missteps that threaten companies. It also validates customer trust in the integrity of your offerings and ensures smoother operations.
Google partnered with Marqeta to rapidly launch and scale its popular Google Pay balance card. With Marqeta taking on the complexity of card program compliance and keeping up with regulations, Google was able to accelerate time-to-market and saw a surge in consumer and merchant adoption, transactions, and partner integration.
How Do You Ensure Compliance?
Here are some best practices you can implement to help you develop a robust compliance framework that mitigates regulatory risks and maintains customer trust:
- Assign a dedicated compliance team or officer: Appoint knowledgeable personnel to exclusively oversee day-to-day compliance processes. Consider formally designating an executive like a Chief Compliance Officer to consolidate accountability.
- Stay updated on regulatory changes: Assign compliance staff to continuously monitor announcements from key regulatory bodies to stay on top of the latest guidance in areas such as payment regulations or credit regulations.
- Regularly review and interpret new laws and regulations:Schedule periodic reviews of existing and amended requirements. Assess the impact of regulatory changes on current policies, procedures, control mechanisms, and compliance documentation. Update these items accordingly to realign with the latest rules.
- Leverage technology for compliance:Employ purpose-built automated compliance software tools for streamlined monitoring, reporting, and auditing capacities. Incorporate AI and machine learning into platforms to enhance oversight capabilities. Automation increases the efficiency, consistency, and comprehensiveness of compliance activities.
- Foster a culture of compliance:Ensure formal messaging and actions from leadership emphasize compliance as a top priority. Encourage open communication across levels regarding potential issues or lapses without fear of retaliation.
- Maintain detailed documentation: Keep organized records of all compliance policies, controls, procedures, training programs, and other protocols. Maintain thorough audit trails for transactions, data flows, filings, and other business activities. Documentation provides proof of diligent compliance for any audits.
- Engage in proactive communication with regulators: Routinely seek direct guidance from oversight bodies on any unclear or gray areas around requirements. Respond promptly and completely to regulatory inquiries, notices, requests, or audits.
Managing all aspects of compliance in-house can prove expensive, time-intensive, and complex. A more efficient option to deal with legislation like payment regulations or credit regulations is to partner with compliance specialists.
By integrating Marqeta’s Know Your Business APIs, Torpago found an easy way to ensure card program compliance and reduce fraud without taxing internal resources. Just months after implementation, as Marqeta auto-verified identities and monitored customers in the background, Torpago’s commercial card transaction volume jumped 2.3x.
What Is Compliance-as-a-Service (CaaS)?
Compliance-as-a-Service (CaaS) refers to leveraging external specialists to handle extensive financial regulations and requirements. It encompasses third-party expertise, managed services, and purpose-built software to validate that programs adhere to obligations like PCI DSS, KYC, AML, Reg E, and Reg Z.
CaaS is offered as an off-the-shelf compliance infrastructure with ongoing support, in contrast to the task of building large internal teams to stay on top of multifaceted and constantly changing regulations. The promise is to allow companies to focus their energy on innovation and advancing core offerings.
As regulation and monitoring grow ever more complex, Compliance-as-a-Service is expected to be increasingly proposed as a solution in the coming years.
Partner with Experts to Streamline Compliance
Enforcing rigorous compliance with regulations poses immense challenges, demanding continual legal interpretation, operational oversight, and system control. It also requires you to provide document trails and be able to demonstrate the steps taken to comply.
This is where the value of a specialized partner like Marqeta becomes clear. As an issuer processor with decades of payments expertise, Marqeta has built an advanced, end-to-end platform to reinforce client compliance capabilities.
Marqeta’s robust, global compliance infrastructure and experienced team smooth the way to launching compliant offerings.
Marqeta’s strengths include:
- Decades of legal expertise in meeting requirements for sponsored banks and card schemes
- A reduced compliance burden for clients thanks to a team of international compliance and legal experts
- KYC APIs to automate onboarding and reduce operational burdens
- Risk management tools and program management support
- Monitoring of transactions for unusual activity to ensure compliance with laws governing payment instruments and money movement
Find out how Marqeta’s compliance expertise can help you accelerate time-to-market. Learn more
