Red Flags in Fintech Payments – And How to Avoid Them

In recent years, fintech companies have become key players in international business. The best ones are truly revolutionizing global transactions, offering fast, simple, and accurate payment solutions instead of slow and complex global bank transfers.

Fintech companies provide the technology to bridge the gap between the old, traditional financial institutions and the modern demand for speed and convenience. They often partner with banks or even function as banks themselves – holding and sending funds on behalf of their clients.

But with so much money passing through fintech companies, it’s essential that businesses pay attention to how their fintech partners operate. And here’s the rub: Not all fintech companies adhere to the highest standards of compliance, which has potentially catastrophic consequences for the businesses that rely on them. When a fintech fails, companies need to know their funds will be safe and accessible. A recent example is the high-profile collapse of Synapse – which led to $160 million in frozen funds across dozens of companies worldwide.

The takeaway? Don’t take unnecessary risks with your money. Here are the most common red flags to look out for in fintech:

1.  No money transfer licenses
   Some fintech companies do not hold licenses for transferring funds in the areas where they operate. That means there are no external regulators to hold them accountable to local regulations. This includes strict requirements to safeguard funds in segregated customer money accounts, so such funds are protected in case the fintech goes under.
2. Work with sub-prime banks
   Not all Fintechs have high transparency standards about their banking relationships, and chances are they work with banks with limited reach, high transfer fees, or questionable ethics. They might bundle different kinds of payments, such as commercial payments and salary payments, in ways that save them money on delivery but cost their clients more in fees due to unnecessary transfers to correspondent banks.
3. No internal governance
   Fintech companies must have an effective internal oversight system. This will ensure that money is never sent to people or institutions facing global sanctions, and prevent fraud. Fintechs that have no internal system for proper fund management represent a risk.

Select your fintech partner carefully

Look for Fintechs that are properly licensed in the jurisdictions where you intend to render your services. A license in a top tier jurisdiction like the UK gives reassurance that the licensee is overseen by a reliable regulator such as the FCA, who will ensure the licensee conducts its business in line with minimum regulatory requirements. This includes, but is not limited to, being regularly audited by independent audit firms on topics such as AML or safeguarding of customer funds.

Customer funds protection

Licensed fintechs are obligated to take steps to ensure client funds always remain segregated from corporate funds. Papaya’s clients fund their accounts through Papaya’s wallets. Those wallets are held in J.P. Morgan bank in client money accounts, segregated from other clients’ and Papaya’s own funds.

Papaya gives each client’s wallet a unique bank account number (IBAN). When clients add money to their Papaya wallets, they do so by making regular bank transfers to these specific account numbers. The dedicated IBANs ensure full segregation of funds, protecting client money and maintaining a clear separation from  Papaya’s own assets.

That means that client funds would be accessible even if something happened to Papaya.

Bank-level security

By leveraging J.P. Morgan’s account infrastructure and payment rails, Papaya maintains strict bank-level security measures.
Papaya’s platform adheres to strict international security standards and certifications: ISO 27001 and 27701, SOC1 Type II, SOC2 Type II, GDPR, and CSA.
Papaya’s security practices constantly evolve, adding tools and solutions to ensure we meet the highest standards today and the challenges of tomorrow.

Papaya’s Top-Tier Payment Network

Papaya partners with first-tier banks, such as J.P. Morgan, to establish accurate payment rails. These are tailored to the cross-border delivery of salaries to employees, taxes to all local authorities, and payment to benefits vendors. The network replaces the patchwork of inefficient solutions, such as multiple banks, unnecessary fees, and inconsistent delivery times that dominate the payroll and payments industry.

Full payment visibility

Our wallet infrastructure and platform provide our clients with visibility into all their payments activity. All steps in the payment journey are visible to them. This reduces risks and avoids the usual delays in all their payments and activity in banking.

Fast delivery time

By utilizing optimal rails and removing unnecessary bank transfers, Papaya both reduces fees and increases the speed of payment delivery.
Transactions are instant in countries where instant rails are available. In 95% of Papaya’s payments, funds arrive on the same day. In other countries, arrival takes no longer than 72 hours.

Ensuring Compliance and Preventing Fraud

Papaya maintains internal controls through technology and an in-house compliance team, so it always meets the strictest global regulatory standards.

Know Your Customer (KYC) checks

Papaya conducts KYC to verify the identity and legitimacy of a client and determine whether Papaya can establish a business relationship with the company.
Papaya Global adheres to stringent Know Your Customer (KYC) practices, considered a benchmark in the industry, and offers a globally unified process. Our Anti-Money Laundering (AML) checks incorporate state-of-the-art, AI-powered tools to meticulously screen each transaction.
Account validation

To prevent transaction errors, Papaya conducts specific tests to verify beneficiary details.
This ensures the account can accept payments and that all details are valid and correct.

Fraud Prevention

Papaya fully complies with all legislation applicable in the jurisdictions where the company is operational, including but not limited to, AML and ATF. Papaya has policies in place that enable our systems to always be in control of the origin and destination of the funds both when onboarding clients and throughout the lifecycle of the business relationship.

Papaya has licenses in multiple Tier 1 jurisdictions globally

Find more about Papaya licensing you can visit the licensing section of our website.

To learn how Papaya can transform your global workforce payments, book a demo today.