Five Fintech Solutions Every Bank Should Have

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If Money 20/20 was any indication, it seems like banks are finally ready to really embrace fintech. Small and medium-sized banks have realized that their technology budgets can be used for things other than building and managing technology in-house to keep up with large financial institutions with big budgets and neobanks with brand new tech stacks. A tech stack is the combination of technologies a company uses to build and run an application or project, and typically consists of programming languages, frameworks, a database, front-end tools, back-end tools and applications connected via APIs.

For banks starting to explore fintech partnerships, we’ve compiled a list of the top five fintech solutions every bank should have in its tech stack today.

1. Account Opening Platform
New customer acquisition is one of the most important components of a successful financial institution. An online account opening platform powers an omnichannel interface to onboard new customers quickly and seamlessly. A good account opening platform should also provide a customizable user interface, increased account conversion rates and detailed reporting.

2. Identity Decisioning Platform
An identity decisioning platform, or IDP, automates identity and risk decisions across the lifecycle of your customer. IDPs power smart decisions that can reduce risk for your business while providing a frictionless customer experience for identity verification and onboarding, ongoing transaction monitoring and credit underwriting.

IDPs are the decision engine behind the account opening platform that helps banks determine whether to accept or reject an applicant. It continues to monitor that client’s account activity and powers underwriting decisions. Your IDP should connect to multiple data sources through application programming interfaces, or APIs, allowing you to add and change data sources as needed. By bringing all of your identity and risk decisions into one platform, you’ll see a holistic view of your customers and automate more decisions.

3. Open Banking Platform
Your customers expect to be able to access their financial data across various apps. Open banking platforms make it easy for banks to securely share data with third-party businesses through an API that allows customers to connect their banking data. Open banking platforms are the key component connecting your bank to popular apps like peer-to-peer payments, financial management and cryptocurrency investments.

4. BaaS Platform
You’ve probably noticed the trend of non-bank businesses beginning to offer financial products. This trend is powered through BaaS, or banking as a service, platforms. BaaS platforms enable a third-party business to integrate digital banking or payment services directly into their products by connecting them with a bank. This model allows non-financial institutions the ability to offer a financial product without getting a banking license. Unlike open banking platforms, which share the financial data within a bank account to a third-party business, BaaS platforms transfer the complete banking services into a third-party business’s product.

5. Know Your Transaction Solution
If your bank is starting to think about how to approach cryptocurrency and digital assets, one of the first things you’ll need is a Know Your Transaction, or KYT, provider to complement your Know Your Customer (KYC) procedures. KYT solutions help you remain compliant with anti-money laundering laws when monitoring crypto transactions. A KYT solution allows banks to track crypto funds and ensure they are not coming from mixers (a service that mixes streams of cryptocurrency to improve anonymity and make it more difficult to trace), foreign exchanges or blacklisted addresses.

Fintech companies can provide a lot of value to banks. Many of them are built to plug into your existing infrastructure and be up and running in weeks. They can help banks be more agile and adapt to new customer needs faster, save banks money on engineering resources and bring focused expertise to their category. Alloy also has resources available to help banks select fintech partners and build out their tech stacks.

Five Trends in AML Compliance in 2021

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This year has been a significant and active one in the world of anti-money laundering (AML) compliance. Digital payments are taking the world by storm, regulators are cracking down on new types of fraud and the U.S. government has pledged to be more proactive in enforcing AML laws.

Regulators have not been idle, issuing fines to banks around the globe totalling $10.6 billion in 2020. But it hasn’t been enough to deter fraud rates. What can banks expect for AML regulations for the remainder of 2021, and how can they prepare? Here are the main trends in AML compliance of 2021, and their impact on financial institutions.

1. Much-Needed Updates From Anti-Money Laundering Act of 2020
The Anti-Money Laundering Act of 2020 (AMLA) is arguably the most transformative AML law in a generation. AMLA amends the Bank Secrecy Act (BSA) for the first time since 2001 and modernize it for today’s money-laundering and fraud climate. For several years, regulators have focused on modernizing AML compliance programs at banks, encouraging innovation and improving the coordination and transfer of information between financial institutions. AMLA could have a significant impact toward these goals when coupled with regulators’ ongoing efforts.

Financial institutions are now required to have AML officers who can quickly incorporate reports into their transaction monitoring programs. It brings even more pressure for banks to modernize their operations through better technology. AMLA also allows the U.S. to subpoena records related to any account at foreign banks that maintain correspondent accounts in the United States, enabling the regulators and the government to fight money launderers who seek to take advantage of the lack of communication between countries to commit international crimes.

2. Tightening UBO Laws
Under the AMLA, the Financial Crimes Enforcement Network (FinCEN) requires certain companies to file information on the beneficial owner of the reporting company, along with the identity of the person who has applied to form or register the company. This is part of the overarching trend of gathering more information on your customers.

Customer due diligence is now a more complex and lengthy process to gather the right types of information. This goes hand in hand with the Corporate Transparency Act (CTA), which requires financial institutions to verify customer information against FinCEN’s Ultimate Business Owner (UBO) registries. Verifying UBO information can be costly and time-consuming, especially since most countries have not published public ownership registers.

3. Better Software, Better Tech
Regulators around the world are pushing banks to use better software and incorporate emerging technologies. As financial fraudsters get more intelligent with their approaches, the only way for banks to fight back is with technology that matches those capabilities and can adapt to new threats. Compliance teams are increasing in size and expense. The benefit of better software is that many of these processes can become automated, which helps keep costs down.

4. Crypto Regulation
The novelty of virtual currencies allows fraudsters use them to their advantage while escaping regulators’ purview. According to Chainanalysis’ 2021 Crypto Crime Report, 270 cryptocurrency addresses received $1.3 billion in illicit digital coins in 2020.

How is the U.S. approaching the regulation of cryptocurrencies? Several agencies have been involved with the regulation of virtual assets, including the U.S. Securities and Exchange Commission, Commodity Futures Trading Commission and FinCEN. From an AML perspective, the biggest change has been to require cryptocurrency exchanges to complete a Know-Your-Customer (KYC) process for every customer.

5. SAFE Banking Act
The SAFE Banking Act aims to normalize cannabis banking and reduce the risk of liability for banks that offer services or loans to MRBs (marijuana-related businesses). To date, the SAFE Act has not been passed into law, and payment processing remains a confusing space for banks and MRBs alike. Under the administration of President Joseph Biden, however, there is hope that the industry will see a marijuana policy that reduces confusion at the federal level.

What are the overarching trends this year? AML laws are encouraging financial institutions to be more transparent, implement better technology and build more comprehensive customer profiles. Banks that want to be proactive will need to ensure their policies are up-to-date with the new regulations, their infrastructure can integrate more data sources and their KYC processes are automated, while also offering a great customer experience.