Genpact’s 360-degree sponsor bank oversight program helps de-risk sponsor operations

Genpact offers a distinct 360-degree sponsor oversight program that detects the potential risks and weaknesses in controls and designs and undertakes the appropriate mitigation to de-risk sponsor bank operations.

A key entity serving the payment industry is sponsor banks, sometimes called acquiring banks. A sponsoring bank is a federal- or state-chartered bank instituted in North America that takes on the liability that payment companies and downstream merchants generate and controls and oversees the money movement of merchant funds. Banking and financial services (BFS) firms in the payment sponsoring business or looking to become sponsor banks should take an interest in Genpact’s cohesive sponsor risk management program, which serves advisory, process, technology, and talent to successfully manage high-stakes, regulatory perusal, and complex risk layers in the business.

Sponsor banks are the middlemen of payment transactions

Sponsor banks are members of Visa, Mastercard, American Express, and other card associations and have contractual agreements with payment companies and downstream merchants to safeguard and disburse commerce proceeds to merchant accounts. Payment companies register with card associations through their sponsor banks. In return, their underlying merchants gain access to the card networks and conduct their business. In the intricate relay between financial institutions involved in processing a payment transaction, the sponsor bank’s role is to protect the integrity and reputation of the payment ecosystem and act as fiduciary guardians for the merchants’ commerce proceeds.

Genpact leverages its mature risk practice to build and enhance specific risk and compliance for sponsor banks

Genpact is helping a leading bank manage its sponsorship business, supporting a handful of US-based payment companies. Genpact conducts due diligence, audit, review of KPI reporting, risk monitoring of portfolios, controls, remediation techniques, and site visits. In this case, Genpact’s AI sanction review resulted in a more than 60% decrease in efforts. Risk controls delineated by Genpact reduced the probability of reputational risk by 70% and the risk of lawsuits by 30%.

Two factors enabled Genpact to carve out a sponsor oversight offering. It has a task force of senior practitioners experienced in managing risk and compliance for sponsor banks and a core competency in payment network rules and sponsor bank policies. Genpact’s pivot to invest in data, techs, and AI since 2015 has lent itself to effectively deploy analytics for fraud prevention, anti-money laundering, and thwarting terrorist financing in the sponsor niche area.

The scale and volume attraction validate the complexity for sponsor banks to underwrite risk

Some big sponsor banks, such as Wells Fargo, have scaled down their presence in the business, while many are jostling to become sponsor banks. In a low-margin, high-volume business, scale makes all the difference for sponsor banks. The proliferation of digital wallets, real-time payments, and buy-now-pay-later is increasing marketplace volume. Second, there is a data benefit associated with sponsor banks that third-party providers like Genpact can help unlock and create monetizable opportunities. Lastly, fintechs, especially in North America, need sponsor banks to access payment systems so they can embed banking services into their products and conduct various activities. The flywheel becomes real when it is an opportunity to support fintechs—they have the greatest disruptive impact on payments.

The Bottom Line: Genpact is helping sponsor banks fearlessly embrace their role and de-risk their operations.

Sponsor banks are under increasing scrutiny from federal and state regulators, payment networks, and indirectly by the Consumer Financial Protection Bureau (CFPB). Sponsor business is fraught with rigorous risk controls, capital, and deep expertise needs; the allure is the monetizable opportunity within payment transactions.

As the payment market explodes, Genpact can help sponsor banks grow and embrace this burgeoning opportunity by ensuring strong risk and compliance operations.