Fintech partnerships are fueling new growth opportunities for banks. But as more sponsor banks step into the role of enabling fintech programs, regulators are making it clear that oversight is not optional.
The OCC, FDIC, and Federal Reserve have all sharpened guidance around bank–fintech partnerships in recent years. At the same time, enforcement actions — from the OCC’s penalties against Blue Ridge Bank to TD Bank’s $3 billion settlement over AML failures — underscore the costs of getting it wrong. For compliance leaders, the stakes are personal: liability, reputational damage, and increased regulatory scrutiny.
The good news is that sponsor banks don’t have to choose between growth and compliance. By modernizing their identity workflows and adopting scalable oversight practices, banks can strengthen regulator trust while unlocking more fintech revenue.
Where sponsor banks can stumble
Even without external partners, banking compliance is broad and complex. Add on a growing roster of fintechs to cover and the operational challenges can pile up — and compound risk. And it’s a widespread issue: Alloy’s 2024 State of Embedded Finance Report found that the vast majority (80%) of sponsor banks struggled to meet embedded finance compliance requirements.
In our conversations with banking leaders, three common pitfalls stand out:
- Fragmented oversight. Fintech partners are often onboarded quickly without uniform due diligence standards. Compliance review becomes inconsistent across programs.
- One-time diligence. Too many banks treat initial KYB or AML checks as “set and forget.” Without ongoing monitoring, risk can creep in.
- Reactive communication. Issues surface only when regulators ask questions or when problems have already escalated.
While these are common hurdles for sponsor banks, they can be overcome with consistent, comprehensive compliance processes and programs.
Practical steps to stay compliant while scaling partnerships
The most successful sponsor banks simultaneously maintain compliance programs that satisfy regulatory requirements and stay agile enough to support fintech partnership growth. Here are some actionable steps any sponsor bank can take to do the same:
- Build a unified business identity system: Instead of juggling siloed vendors and manual reviews, leading sponsor banks are centralizing onboarding, verification, and monitoring into a single platform. This reduces inconsistencies, strengthens audit readiness, and ensures all fintech partners are assessed against the same standards.
- Automate compliance tasks with accurate, real-time data: Reduce manual risk processes and false positives by investing in automated business verification solutions that integrate directly into existing infrastructure.
- Implement continuous monitoring: Fraudsters don’t stop at onboarding, and neither should compliance checks. Ongoing monitoring of ownership changes, sanctions lists, and other risk signals keeps sponsor banks aligned with AML expectations and regulator scrutiny.
- Consolidate BEV vendors: According to the Liminal Link Index 2025, 53% of respondents are considering streamlining their BEV vendor stacks while 85% believe consolidation can improve efficiency — and a simplified stack can also improve defensibility. For sponsor banks, fewer integration points mean more transparency and simpler audits.
- Establish clear accountability structures between your bank and fintech partners: Greater accountability can be achieved by establishing defined roles and responsibilities as you implement new compliance processes.
- Documenting audit trails and maintaining proactive regulator engagement to build trust. The most successful compliance teams keep detailed audit documentation from day one and frequently interact with regulators to stay up-to-date and bolster confidence and trust in their institution.
By taking these steps, sponsor banks can start to responsibly scale their compliance ops while supporting growth via new fintech partnerships.
The path forward for sponsor banks
Sponsor banks don’t have to choose between compliance and growth. Even in a demanding regulatory environment, having the right compliance foundation in place can even act as an accelerator for fintech partnership expansion.
The path forward for sponsor banks doesn’t have to be a struggle. Be proactive by:
- Building unified systems that eliminate compliance blind spots
- Automating processes that will reduce risk and manual intervention
- Monitoring risk signals continuously from onboarding and beyond
- Engaging proactively with regulators to build trust
The stakes may be higher than ever, but so are the opportunities. By investing in scalable business identity infrastructure and proactive oversight, any sponsor bank can meet regulatory expectations while forging new fintech partnerships to fuel innovation and growth for years to come.
