New US Instant Payment Infrastructure, FedNow, Highlights The Need For Compliance-by-Design In Fintech


Digital innovation in the financial industry is reshaping markets and challenging the dominance of traditional banks. Fintech companies have been driving product innovation in payments, settlements/clearing, and online loans, forcing legacy banks to adapt to changing customer expectations and outdated cost structures. Despite the challenges faced by fintechs, the pace of innovation in financial services is not slowing down, especially in the United States. With the launch of the new instant payment infrastructure, FedNow, the U.S. is catching up to other countries in facilitating immediate payments and transactions.

Key Takeaway

The launch of FedNow in the United States highlights the need for banks to adopt a compliance-by-design approach to fintech innovation. By incorporating regulatory limitations into technology development, banks can navigate evolving compliance requirements, mitigate risks, and stay competitive in an industry undergoing rapid digital transformation.

Challenges of Greater Innovation

However, with greater innovation comes greater responsibility. Banks need to adapt their approach to assessing and integrating new technological solutions to meet evolving compliance requirements. The introduction of initiatives like FedNow brings potential risks for fraud and financial crime. To navigate these challenges, banks must embrace a compliance-by-design approach to technology development, using regulatory limitations as the foundation for future digital solutions.

Shifting Regulatory Perimeter

Fintech companies are poised for success because they operate in unregulated areas of finance, have fewer assets to manage, and can innovate on a larger scale. In contrast, traditional banks are burdened by rules, have large asset portfolios, and often struggle to keep up with rapid innovation. To level the playing field, banks must adopt a new mindset and prioritize compliance-by-design in their innovation strategies.

Adapting for Success

Compliance-by-design involves proactively incorporating regulatory requirements into the development of new technologies. By doing so, banks can mitigate risks, ensure compliance, and maintain their competitive advantage in the industry’s race towards digital transformation. It is crucial for banks to prioritize innovation that aligns with regulatory frameworks, addressing compliance needs from the outset.

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