Banks are being challenged to meet the evolving payments needs of their fintech clients. During a Sibos panel today, “Friction or fiction: Compliance in a real-time world,” bank executives from JPMorgan Chase, Citibank and HSBC discussed the challenges inherent in facilitating payments for fintechs.

“We joke internally, ‘If you’ve seen one fintech, you’ve seen one fintech,’” said Jeremy Warren, managing director of financial crimes compliance at JPMorgan. “The nature of their activity, the type of business, what flow is going through your institution, can vary.”

Some of the challenges big banks face include monitoring large amounts of small-dollar payments sent all over the world and assisting fintechs as they pivot to new forms of payments. According to the panelists, fintechs still need large banks to meet complex regulatory demands.

To address some of these issues, fintechs are coming to banks earlier in their business cycles to meet compliance standards in payments, said Warren, who noted that this newfound focus on compliance will translate to faster payments. Banks can also help fintechs navigate the complexities of international payments because setting up an infrastructure overseas isn’t something fintechs can accomplish quickly, he added. JPMorgan Chase has been investing heavily in open banking solutions for corporate and institutional clients since the start of the pandemic. With more open banking solutions for corporate clients, the bank aims to streamline its clients’ payments.

For banks serving as payment facilitator for fintechs, a major challenge is monitoring the large number of small-dollar payments sent around the world. Both Warren and Erin Zavalkoff, global head of AML compliance risk management for foreign correspondent banking at Citi, pointed to this issue during the panel.

“One of the main focuses for us is really examining the clients’ account activity,” Zavalkoff said. “That is a challenge given the volume of flows we are seeing.”

According to Zavalkoff, fintech clients are often so focused on reaching their customers that they overlook regulatory constraints, which is where big banks can step in and help. As the business models of fintechs rapidly change, Citi is taking a new approach to classifying their fintech clients. “We’re trying to govern entities based on what they’re doing as opposed to what they claim they are,” she said.  By strictly examining the activity of a fintech, the bank can better understand the clients’ changing needs.

See also: Financial industry reps worry OCC regulatory ‘sandbox’ could stifle innovation

Innovation in compliance is now extending beyond the walls of big banks. In the U.S., the Office of the Comptroller of the Currency is championing fintech bank charters, while the Consumer Financial Protection Bureau put out a request for information in July on building a more inclusive financial system. Matt Brown, global head of risk screening at HSBC, said regulators leading innovation efforts can be a major help as banks rethink their processes.

“The key for me is to bring the regulators along with the dialogue and innovation, hand-in-hand, step-by-step,” Brown said.

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