How pay-access apps can ensure compliance as US regulators crack down on the sector

Regulators across several US states are scrutinizing apps that enable employees to access salaries before their pay days. 

Pay-access apps provide a service where workers can access money, both pocket change and bigger amounts, and then pay them back on their next payday. 

The startups in this sector include companies like Earnin, PayActiv and Even Responsible Finance. The case many of them are making is that they only offer professionals access to money that they have already earned, providing them with a cheaper alternative to payday lenders. 

Like payday lenders, pay-access apps get access to bank account information when people take out money. The amount is later automatically collected. 

However, these businesses are not able to file for collection lawsuit or have their debts roll over with additional fees. These are things payday lenders can do. 

Despite these differences, regulators in the US are not certain that pay-access startups are different enough from payday lenders. That is why authorities in California, New York and a handful of other states are now looking into how this new sector should be regulated, according to the Wall Street Journal.

But this might provide businesses in the sector with a chance to influence how the new laws and rules will look like. “Most regulators do some sort of consultation,” says Niclas Nilsson, founder and CEO of Capnovum, the RegTech company specializing in compliance, when speaking exclusively with RegTech Analyst. “And if you’re awake and you dedicate resources to stay proactive, you have a lot to win.”

In general, he advises any company operating in finance to remain vigilant in regards to changes in legislation affecting them. “Companies that continuously scan for regulatory updates affecting their business, and proactively engage with regulators, can often generate competitive advantage from changes to regulations,” he says.

“Of course, there’s a lot of things changing all the time,” Nilsson tells RegTech Analyst, “that you as a provider of these kind of services need to keep an eye on to stay in business and compliant, whether or not you are able to influence the direction of regulations.”

The key to doing this, he says, is to look at other jurisdictions and how they have regulated the area in question. This also includes looking at international standards.  

But that is not the only piece of advice offered to entrepreneurs operating in the FinTech space. They must also ensure they stay abreast of anti-money laundering and counter-terrorism legislation. “AML-regulated businesses, including FinTech companies offering payment [and] remittance platforms must identify and assess their enterprise risks associated with their customers, products, channels and geographic risk exposures and then build an AML program with appropriate and proportionate mitigating controls,” Anthony Quinn, founder and CEO of Arctic Intelligence, the RegTech company specializing in anti-money-laundering compliance, tells RegTech Analyst.

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