Fintech

FDIC: Banking with third-party apps

Published

8 months ago

6 June, 2024

What to know about fintech, banking relationships and deposit insurance

Technology has continued to transform banking in recent years. Traditionally, consumers opened deposit accounts directly with banks (in person, on the bank’s website, or via the bank’s mobile app). The easiest way for most consumers to be confident that their money is safe is to open an account directly with insured depository institutions, such as FDIC-insured banks and savings associations.

Increasingly, some consumers are choosing to open accounts through non-bank companies (typically online or through mobile apps), such as technology companies that provide financial services (often called fintech companies), which may or may not have business relationships with banks. Whether and how a bank is involved is crucial to understanding whether or not your money is protected by deposit insurance. However, in some cases, it is not always clear to consumers whether they are dealing directly with an FDIC-insured bank or a non-bank company.

FDIC deposit insurance coverage

If you open a deposit account directly with an FDIC-insured bank, you are insured up to at least $250,000 by the FDIC, which is backed by the full faith and credit of the U.S. Government.

Most banks offer online and mobile banking options, as well as having branches, giving you the option to do your banking at a branch or while you’re at home or traveling. Online or in person, banking customers with deposits at FDIC-insured banks benefit from deposit insurance coverage.

Non-banking companies

But what if you open an account with a non-bank company that says it will deposit your money in an FDIC-insured bank? Will you be eligible for FDIC deposit insurance coverage? The short answer is: it depends.

It is important to be aware that non-bank companies themselves are never FDIC insured. Even if they claim to work with FDIC-insured banks, funds sent to a non-bank company are not eligible for FDIC insurance until the company deposits them into an FDIC-insured bank and after other conditions are met. If the nonbank company deposited your funds into a bank, then, in the unlikely event of the bank’s failure, you may be entitled to what is called FDIC “pass-through” deposit insurance coverage. However, the nonbank company must take certain actions for your funds to qualify for FDIC insurance.

For example, after the non-bank deposits funds into a bank, records must be kept to identify who owns the money and the specific amount each person owns. Ownership of money is important and is generally determined by applicable deposit account agreements and state law. There are other requirements too. It is important to make sure you read the disclosures and terms of service carefully to understand whether your account may be eligible for FDIC insurance.

However, FDIC deposit insurance does not protect against the insolvency or bankruptcy of a nonbank company. In such cases, although consumers may be able to recover some or all of their funds through an insolvency or bankruptcy proceeding, often administered by a court, such recovery may take some time. As a result, you may want to pay particular attention to where you place your funds, especially money you rely on to meet normal day-to-day living expenses.

Non-bank companies, including fintechs, can offer a variety of financial products and services. They may or may not offer access to deposit products at FDIC-insured banks. If a non-bank company claims to offer access to products that it claims to be FDIC insured, you must identify the specific FDIC insured bank or banks where they claim they will deposit the funds. You can confirm that the bank they claim to work with is FDIC insured BancaTrova. If you experience technological issues with services provided by a non-banking company, such as in its app or website, you may experience error messages, slow response times, or site crashes that temporarily prevent access to your accounts or other mobile banking services. Be sure to contact the non-banking company’s customer service as soon as possible to help resolve the issue.

How can I avoid fake banks and apps?

You should be aware of the potential for scams and be careful to protect your money. Scammers often create fake websites so similar to bank websites that they can easily trick consumers into providing personal information or money. Scammers have also developed fake apps that contain malware. When you download the app, the malware steals personal information from your device or locks it, holding it for ransom until you pay the scammers. Be wary of apps or websites that ask for suspicious permissions, such as granting access to your contacts, text messages, stored passwords, or credit card information.

To determine if you are dealing with an FDIC-insured bank and see if the URL is in FDIC records, you can use our BancaTrova tool. Because many FDIC-insured banks have provided URLs for their websites, if a website is listed in FDIC records, you can be more confident that it is operated by a bank. You can also contact the FDIC at 877-ASK-FDIC (877-275-3342) between 8:00 AM and 6:00 PM ET Monday through Friday, or 8:00 AM until 1:00 PM ET on Saturdays, to report a suspicious fraud.

Additionally, you can call an FDIC Deposit Insurance Specialist at 1-877-ASK-FDIC or email the FDIC through our website, ask.fdic.gov. FDIC deposit insurance experts are happy to help you confirm whether or not you are dealing with an FDIC-insured bank and to assist you with any questions related to deposit insurance.

It’s important to understand who you’re dealing with before handing over your money or sharing personal information. If you send money to a scammer or fraudster, it may be difficult or impossible to get your money back. Knowing the characteristics of impostor scams and fake banking websites and apps can help you avoid becoming a victim.

For more information on fintech and mobile banking, visit:

FDIC Fintech: A bridge towards economic inclusion

FDIC Fact Sheet: What the public needs to know about FDIC deposit insurance and crypto companies

FDIC: Understanding deposit insurance

FDIC: Are my deposits insured by the FDIC?

FDIC: Electronic Deposit Insurance Estimate (EDIE)

Consumer News from the FDIC: Bank with apps

Consumer News from the FDIC: Is my money insured by the FDIC?

Consumer Financial Protection Bureau (CFPB): Finds that billions of dollars stored on popular payment apps may not have federal insurance

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

6 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

6 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

6 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

6 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

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Aveni Assistance
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Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”