What is a Bank-led Sponsorship?

Most aspiring fintech / startup companies that embed payments into their solutions are always struggling to find regulatory cover as provided by money transmitter licenses.

Most don’t know that bank-led sponsorships are also available and they provide a host of services whilst at the same time protecting these startups under their regulatory umbrella.

Learn how Bank-led sponsorships can help you.


Have you ever wondered what a bank led sponsorship is? Hello. My name is Faisal Khan. I’m a banking and a payment consultant, and I will answer this question for you today.

When you have a fintech startup or any payment or banking related startup, one of the biggest most difficult things to find is access to banking as well as having those dreaded money transmitter licenses. What you may not know is that you can actually go in partner up with a bank and have the bank led sponsorship take care of everything else. What that basically says is, the bank controls the money. The bank handles the money for you on behalf of your customers and the bank provides you an account what is called an FBO account, for benefit of. It’s not for benefit of you but rather for benefit of your customers.

You as an app owner or app provider, will simply partner up with the bank. Every user that downloads the app or signs up is essentially opening a bank account with the bank that you’ve partnered up with. Every funding source to add is actually funding that account and as a basic tenant, you are subscribing to a core product or a service offered by the bank which in this case could be account opening as well as ACH. So, when you have a user, and, you know, the user signs up with you, you open a bank account. Bank handles all the KYC information, bank handles all the compliance. You don’t handle anything. You’re simply connecting to the banks API.

So, the API is a conduit between the bank all the way to the user and it’s absolutely secure. Wherever funds need to be moved, the bank moves them. Because you are not moving the funds on your or by yourself as a, as the operator of this app, you are not licensed. And you are not required to be a money transmitter because you simply are not moving the funds. You don’t have access to the funds. The funds moved by the bank on behalf of the instructions sent by the user and how those instructions sent, were sent by the API.

So, it’s like standing instructions sent via the API and the bank executes it. And what the bank says is you know I will open a sub account for you and all the sub accounts for every user will be FBO account, for benefit of. Let’s say there’s John, so for benefit of John, for benefit of Mary, for benefit of Faisal and so forth. And these accounts are basically all bundled up under the account of the app operator. But the functioning and the operating of the account is done strictly by the bank. The KYC, the compliance, the regulatory frameworks, the reporting, everything is done by the bank. And what the bank does is, it goes into a partnership with you. So, you as an app operator maybe bringing that technology stand, the marketing, the first level of customer support, but the financial handling and the back end is all outsourced to the bank.

That is what a bank led sponsorship is all about. If you have any more questions, please feel free to ask in the comments below and I’ll be happy to help. Thank you. Take care.

This page was last updated on September 1, 2022.

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