Top considerations for banks when partnering with fintechs

Banks looking to gain access to new technological innovations for loan or deposit generation or for the ability to offer products and services to a wider customer base continue to rely on fintech organizations. Fintechs offer a broad range of digital products for players in the banking industry and relationships between fintechs and banks continue to grow in popularity..A few key considerations to keep in mind when evaluating a banking/fintech relationship include:1. What is the structure of the relationship?• Will the fintech have access to customer information, direct customer access, or be patched into the bank systems?• If the fintech will be used for deposit generation, will customers have their own accounts or will pooled FBO accounts be utilized (which trigger additional regulatory requirements)?• Also, be wary of triggering brokered deposit regulations.2. Who is responsible for AML/BSA and other regulatory responsibilities?Engaging a fintech for services does not relieve a bank of its regulatory requirements. Banks also have an obligation to ensure that any third parties with whom they engage are complying with regulatory requirements. Fintech organizations touting that they are “not a bank” and “are not subject to the same compliance requirements” should raise red flags and warrant additional due diligence.3. What is the fintech’s track record and history?Appropriate due diligence and risk assessment is a critical step in evaluating a potential fintech. Consider:• Can the organization demonstrate expertise in their respective subject area?• Do they understand all applicable regulatory requirements (including banking requirements) and can demonstrate compliance?• Are there appropriate data security and operational disruption protocols in place?• Can they provide other bank references?Only after a bank is satisfied with its review should it proceed to negotiate a definitive contract with a fintech. That contract should thoroughly lay out the agreed-upon structure and detail the legal requirements and all operational and technical considerations and responsibilities going forward.If you wish to explore these considerations in more detail or if you have questions on the implications for your bank specifically, please feel free to contact Amber L. Kraemer (akraemer@winthrop.com) or Miles T. Patton (mpatton@winthrop.com). Amber L. Kraemer, shareholder at Winthrop & Weinstine, and Miles T. Patton, associate at Winthrop & Weinstine, represent community and regional banks on a wide range of corporate and banking matters, including mergers and acquisitions, branch sales and assumptions, capital planning and issuance, compliance and regulatory issues, corporate governance, and third-party vendor negotiations and agreements.The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship.In some jurisdictions, this communication may be considered attorney advertising.