Life in the United States and most modern industrialized countries is driven primarily by data. Google alone processes 20 Petabytes of data every day (1 petabyte = 1 million gigabytes).1 Economies are built on data; marketing strategies are given life through data. However, a sector that continues to lag behind in the data-driven world of tomorrow is Banking, and in particular how Banks and their business relationships fail to leverage their collective data in their Bank Secrecy Act / Anti-Money Laundering (BSA/AML) Compliance programs.
A good example of where Banks can improve their use of, and sharing of, collective data is the growing Fintech sector. Fintech Banking in the United States has been a steadily increasing sector of the financial world, with the number of Fintech companies in the USA rising from about 4,000 in 2014 to over 10,000 in 2023.2 Representing transactions in the hundreds of billions of dollars every year, these Fintech companies, often offering banking services to customers young and old, are increasingly concerned with convenience and buzz terms like “frictionless onboarding,” which often equates to being able to open a Checking or Savings account with little more than a name and a Social Security Number. While there are certainly advantages to being able to serve one’s customers with as little of an intrusion into their lives as possible, one of the casualties of this shift to Fintech Banking and the use of Neo-Banks has been efficiency and efficacy in the way these partnerships handle AML/BSA Compliance.
For banks, a partnership with a successful Fintech company can be a match made in heaven. The bank, eager for new accounts and deposits, is willing to allow the Fintech to use accounts managed and operated by the bank for the Fintech’s customers, particularly as the bank is typically not liable for any losses sustained by those accounts due to fraud or misuse. Instead, those losses are passed to the Fintech partner as an operating loss. Meanwhile, the bank’s deposits and account volume skyrocket. The Fintech, eager to offer near-instantaneous banking options (and the associated fees), needs the bank because it needs accounts through which to operate. One would then assume, given the mutual benefit of the arrangement, that collaboration and data sharing would abound! This is typically not the experience for BSA Compliance departments and consultants, and often information must be requested on a customer-by-customer basis. The result is that time, and money, are wasted in efforts coordinating information and data sharing between banking partners, such as providing the partner bank crucial Know Your Customer (KYC) information or promptly warning a partner bank of possible illicit or suspicious behavior. If a Bank allows transactions to move through their accounts on behalf of a Banking Partner, and this results in an average of 2,000 alerts being generated each month on the Bank’s side of the relationship, and 1,200 of them require Requests for Information because the Bank does not have access to the data it needs to investigate, this can result in hundreds of hours of unnecessary work every month, just because the partners have not found an efficient way to share information.
Traditional Banks are not immune to the effects of ineffectual data sharing. In the world of money laundering, layering is the act of moving illicit funding via several smaller pieces, typically to obfuscate the source and movement of the funds should they be scrutinized, or to avoid scrutiny altogether. This naturally includes the movement of these funds between separate institutions, done because bad actors are well aware of the lack of transparency between different financial institutions. If a fraudster wishes to cloud the trail of illicit funding they are introducing into the system, they need only move the funds between multiple banks, typically employing multiple names at each. If they manage to avoid thresholds for reporting or detection for even some of those accounts, the lack of information sharing between banks would make the coordinated effort of one person (or group of people) slip through the cracks, with only a portion of suspicious activity ever having been noticed or reported.
While there is a current system in place for the reporting of suspicious activity and data sharing between financial institutions, typically referred to as 314b requests, the program is completely voluntary, which is apparent after even a cursory view of associated statistics. For reference, the number of Suspicious Activity Reports (SARs) filed with regulator FinCEN in 2023 totaled about 4.6 million, but the number of SARs which referenced information received via 314b was less than 30,000. This works out to less than 1% of all SARs filed during the year, which anyone who has worked in BSA/AML Compliance will tell you is woefully low given the reality that a significant majority of money laundering will employ multiple avenues of fund movement through multiple financial institutions. It is clear from these numbers that utilization of 314b data-sharing requests between institutions is negligible at best and is hampered by its voluntary nature. There are consequences, expensive ones, when these gaps are not addressed. In December 2024, the Consumer Financial Protection Bureau (CFPB) levied suit against Zelle (P2P payment processor), as well as three large Banks (Bank of America, Wells Fargo, and JPMorgan Chase) which are part owners of Zelle’s parent company Early Warning Services (along with additional owners Capital One, PNC Bank, Truist, and US Bank). The suit alleges these entities allowed customers to lose more than $870 Million to fraud, all while not sufficiently implementing controls to prevent customers from being victimized. Zelle may be a Fintech, but a Fintech owned and controlled by large banks representing a vast pool of data and knowledge. Deficiencies at the highest levels betray the systemic consequences of poor data sharing and coordination efforts across the financial spectrum.
As financial institutions continue to fight for deposits and compete with increasingly frictionless means of fund transfer (cryptocurrency, P2P payments), the increased need for data and information gathering and sharing will be paramount, as well as new technological advances such as AI to interpret the meaning behind the numbers at scale. In 2023 Stripe, one of the most successful Fintech companies currently, processed $640 Billion in payments, and the Finance as a Service industry has been estimated to climb to over a trillion dollars per year by the early 2030’s.3 Zelle itself, despite its flaws and regulatory obstacles, still processed $481 Billion in transfers in the first quarter of 2024 alone.4 With an incoming administration in the White House which has signaled a bullish attitude towards virtual currency, Fintech companies and neo-banks will continue to proliferate and the activity they process will become increasingly decentralized and complex. Banks that want to compete and thrive in this era need to educate themselves and understand that increased data sharing and information fluidity between Banks and Banking Partners will keep their customers safer, keep their BSA Compliance costs down, and allow them to scale their programs without the concern of regulatory gaps which may cost them significant financial and reputational losses.
SOURCES
[1] https://skill-lync.com/blogs/how-google-handles-over-40000-petabytes-of-data-on-a-daily-basis#:~:text=Google%20has%20built%20one%20of%20the%20largest%20and%20most%20sophisticated,be%20stored%20and%20protected%20securely. Accessed 12/23/2024
[2] https://www.statista.com/statistics/1476784/us-number-of-fintechs/#:~:text=The%20number%20of%20fintechs%20in,compared%20to%20the%20previous%20year. Accessed 12/20/2024
[3] https://www.globenewswire.com/news-release/2024/10/22/2967018/0/en/Fintech-as-a-Service-Market-Set-to-Reach-USD-1305-7-Billion-by-2032-Driving-Growth-through-Technological-Advancements-and-Increased-Adoption-of-Digital-Financial-Solutions-Research.html#:~:text=In%202023%2C%20Stripe%20processed%20over,to%20enhance%20their%20service%20offerings. Accessed 12/20/2024
[4] https://www.azcentral.com/story/money/business/consumers/2024/12/23/zelle-scottsdale-based-operator-sued-consumer-financial-protection-bureau/77174045007/. Accessed 12/23/2024.
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© Copyright 2025. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
