According to Reuters, the new US regulator bank rules will require banks to reinforce recordkeeping for accounts that fintech companies hold on behalf of customers.

Custodial Accounts

In a statement posted on the FDIC website, the US regulator noted that banks hold customer funds in individual deposit accounts. Fintech companies- which are typically non-bank firms, don’t place funds belonging to their customers in individual accounts within banks. Instead, all customer funds are lumped up together in a one custodial account in a bank.

Often, custodial accounts hold funds belonging to thousands of fintech customers. This means that banks that host such accounts for fintechs may not necessarily know the individual owners of the funds held in the custodial accounts.

The new FDIC proposal for banks seeks to change this situation. Under the proposed rules, FDIC-insured banks will be required to maintain accurate records of individual owners of funds held in custodial accounts. Additionally, such banks will be expected to reconcile accounts for each individual owner each day.

Safeguarding Customer Funds

FDIC’s bank proposal comes months after Synapse Financial Technologies collapsed early this year. Synapse was a bank-fintech middleman whose collapse led to the freezing of numerous accounts. Through the new rules, the banking regulator will ensure that customers can access their funds in a timely manner, even in situations where there is a failure on the part of the bank.

“The Notice of Proposed Rulemaking approved by the FDIC Board today is an important step to ensure that banks know the actual owner of deposits placed in a bank by a third party such as Synapse, whether the deposit has actually been placed in the banks, and that the banks are able to provide the depositor their funds even if the third party fails,” FDIC Chairman Martin J. Gruenberg said.

Under the new US regulator strengthened rules third parties such as Synapse will have to maintain beneficiary records for as long as they meet specific requirements. These requirements include banks maintaining open access to beneficiary records even in the event of insolvency or bankruptcy.

Synapse filed a bankruptcy application in April 2024. Accounts belonging to thousands of customers from partner banks were frozen. One of its partner banks, Evolve Bank & Trust, was providing banking services like deposit accounts to fintech firms.

Bank Merger Regulation

The US banking regulator is planning to introduce a new policy to tighten scrutiny of bank mergers that combine banks with assets that are valued at over $100 million. The new policy will underscore the need to maintain stability in the banking sector. The policy is set to update FDIC’s merger guidelines that have been in existence for the last 16 years.

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Wise stopped enrolling new clients for several months to overhaul its infrastructure after securing a Reserve Bank of India license. The license allows the Wise app users to send more money overseas.

Big Market

Wise India plans are focused on facilitating cross-border payments. The fintech firm says it will commence financial services in the coming months.

“India is a huge market for remittance. We will be primarily focusing on cross-border movement that’s currently almost entirely done by banks,” Wise Head of Expansion for Asia Pacific, Shrawan Saraogi, said.

In the Indian market, Wise will be taking on leading lenders like State Bank of India and ICICI Bank Limited which have dominated the outbound remittance market. Their dominance has been enabled by dated international payment rails, strict capital controls, and heavy taxes that reduce the impact of rival fintechs.

India’s external remittances for 12 months ending March 2024 stood at $32 billion, up from $27 billion the previous year. The remittances were mainly for educational, travel, and family expenses.

Not the First Time

This isn’t the first time that Wise has served Indian clients. The fintech company has been providing outbound payments in Asian countries since 2020 through a bank tie-up. However, the outbound remittances were previously capped at $5000 per transaction.

With the new Dealer 2 license, this will no longer be the case. Wise is revamping its back-end processes to comply with reporting and tax rules before it starts taking in first time customers under this license. India charges a 20% levy on external remittances.

Affordable Service

Wise overseas remittances will be more affordable than most of its Indian rivals. On average, the fintech charges a 65 basis points remittance fee globally. This is several times lower than that of Indian banks.

“We think we can be a pretty meaningful player in that market because we will launch a product that will be fast, that will be cheap, that will be transparent,” Saraogi said.

The Asia-Pacific market contributed a gift of Wise’s global revenue for the year ending March 2024. This was the second highest revenue for the fintech company after Europe, the UK excluded.

Fintech Rush

India’s digital payments market is expected to grow and hit the $7 billion market by 2030 up from $300 billion in 2018.

In 2022, digital transactions accounted for 46% of payments in the country. It is this opportunity that has attracted global fintech companies like Revolut and Wise to the Indian market.

In April, Revolut got a Prepaid Payment Instruments license from the Reserve Bank of India. The company already has 200,000 users on its waiting list, even though it is looking to unveil payment tools in the country soon.

Related Article: Revolut to Unveil Services in UK After Bagging Banking License

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