New on FinoLib · Volume IV: Finance Careers
I have added a new article to FinoLib, my finance education website: Fintech and Payments Finance Teams: What Every Firm Shares, part of Volume IV: Finance Careers. This page gives you the core of the topic in expert but plain language; the full article goes much deeper.
B.8 Fintech and Payments Company
The idea in plain words
A fintech or payments company is built around customer money in flight. Its finance team handles safeguarding accounting, daily settlement reconciliations, liquidity and float, and regulatory reporting for state money transmitter licenses or bank partners. Revenue accounting must also decide whether revenue is reported gross or net, meaning whether the company counts all the money it handles or only its own fee.
Key points
■Sizes assume $50–500 billion of annual payment volume and 1,000–5,000 employees.
■Under the model MTMA, permissible investments must at least equal outstanding money transmission obligations, and a minimum tangible net worth applies.
■A principal reports revenue gross and an agent net; the same $3.5 million gross profit can show as $13.0 million or $3.5 million of revenue.
A closer look
A payments or fintech company’s largest balance-sheet items are usually not its own: customer and merchant funds in flight between a payer and a payee. Its finance function is therefore built around three questions a software company never asks: is every dollar of customer money held where the law says it must be, does the cash in the bank reconcile to the ledger of who is owed what, and how much of the money passing through the platform is the company’s revenue. The table assumes a licensed payments company processing roughly $50–500 billion of payment volume a year with 1,000–5,000 employees; at a Series B fintech the same work is done by five to fifteen people.
A worked example
Worked Example: The Safeguarding and Net Worth Check
A licensed money transmitter has total assets of $1.5 billion and, at month-end, outstanding money transmission obligations (customer balances and payments accepted but not yet paid out) of $412.6 million. Regulatory finance runs two tests using the MTMA model formulas. Test Formula and substitution Result Minimum tangible net worth greater of $100,000 or (3% × $100 million) + (2% × $900 million) + (½% × $500 million) = $3.0 million + $18.0 million + $2.5 million $23.5 million Permissible investments cover $415.0 million held − $412.6 million owed $2.4 million surplus A $2.4 million cushion on $412.6 million of obligations is thin: one day of unreconciled payouts or a single settlement account wrongly classed as a permissible investment can turn…
Why It Matters
When a payments company fails, the question regulators and courts ask first is whether customer money was where the books said it was. A break left open in a suspense account is not a bookkeeping nuisance here: it may be customer money the company cannot locate. The finance roles that look most junior in this table, settlement finance and reconciliations, are the ones that prove the company is solvent toward its customers every day.
Recap
A fintech or payments company’s finance function is built around customer money in flight: safeguarding accounting, daily settlement reconciliations, liquidity and float, and regulatory reporting.
B.9 What Is Common Across All Eight
The idea in plain words
Across the eight company types, three things appear every time: a controller function, a planning function, and a function that faces whoever supplied the firm’s capital or trust. Two newer patterns run through all of them: a Global Business Services or shared-service layer for routine transaction work, and teams whose first job is to prove that other people’s money is where the books say it is.
Key points
■Capital providers differ: shareholders, LPs, policyholders, venture investors, fund boards and investors, bank partners.
■Transactional accounting and reconciliations increasingly sit in GBS centers while judgment and sign-off stay onshore.
■Banks, funds, asset managers, insurers and payments companies all hold money that belongs to others.
A closer look
Despite the structural differences above, three functions appear in some recognizable form in every one of the eight firm types in this Part: a controller/accounting function (someone must close the books and produce accurate statements), an FP&A function (someone must turn the numbers into forward-looking decisions), and a relationship function pointed at whoever supplied the firm’s capital or trust: shareholders at a corporate, bank or software company, LPs at a PE or hedge fund, policyholders and regulators at an insurer, venture investors at a startup, fund boards and fund investors at an asset manager, and bank partners, regulators and investors at a fintech.
Recap
Every one of the eight structures has a controller, an FP&A function and a function that faces the firm’s capital providers. Transactional work increasingly moves to GBS centers.
What the full article covers
In the full article I take you through these sections:
■B.8 Fintech and Payments Company
■B.9 What Is Common Across All Eight
It includes worked examples, a recap, a reveal-on-click quiz and the official sources behind every figure.
Volume IV: Finance Careers
Read the full article on FinoLib
The complete article, Fintech and Payments Finance Teams: What Every Firm Shares, with every worked example, diagram, quiz and source, is free to read in Volume IV, Finance Careers on finolib.com.
Explore the Finance Education Series: Vol. II — Capital Markets · Vol. I — Global Economy · Vol. III — Finance Encyclopedia · Vol. IV — Finance Careers · Vol. V — Personal Finance