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Safeguarding and client money: Why dedicated accounts trump pooled accounts

Most traditional banks can only provide pooled safeguarding and client money accounts to fintech customers. At Griffin, we're building something different.

Portrait of Shanzé Ijaz Munir
Portrait of Howard Rees
Shanzé Ijaz Munir, Howard ReesTuesday 10 October 2023

Whether you’re a startup or well-established fintech in the UK, as long as you are carrying out a regulated activity, you are duty-bound to adhere to the FCA’s standards on managing your customer’s money.

To protect the interest of customers, the FCA requires fintechs to hold customer money in bank accounts that are completely separate from their own operational and business expense accounts. They also need to reconcile customer funds and show that they can track exactly whose money is going in and out of these accounts daily.

Most traditional banks are built on legacy technology limiting their ability to provide anything other than pooled accounts to fintechs for managing customer money. This leaves the burden of reconciling these accounts squarely on fintechs.

The pooled problem explained

To avoid the hassle of opening and managing hundreds or even thousands of individual bank accounts, legacy banks offer companies a single pooled account for their safeguarding and client money requirements.

On the surface, pooled accounts might look like a more straightforward choice‍—‌managing one customer funds account has surely got to be easier than managing thousands? However, convenience for banks becomes a challenge for regulated fintechs who are required to meticulously keep track of each customer's financial activity within the shared pool.

To achieve this, they often need to buy or build a sophisticated ledger system. This additional level of complexity comes with higher costs and is a burden for emerging fintechs who may not have the capacity to handle more complicated back-office processes, and the increased potential for errors.

Some banks offer virtual accounts that function as a ledger over the pooled accounts. Virtual accounts are sub-accounts linked to one main account, which typically replace the need to open multiple physical bank accounts. While they can ease some reconciliation challenges by offering greater visibility over cash flows, they don't solve the problem of outdated technology in the core banking system, complex integrations, and visibility of customer data to help banks manage risk and financial crime.

The dedicated solution

At Griffin, we’ve designed an alternative to tackle the challenges fintechs face with using pooled accounts. Our API-first approach means our customers can programmatically open separate client money or safeguarding accounts linked to each customer: we call this our dedicated model.

In practical terms, this means that each customer’s money is stored within their own dedicated bank account, as opposed to a virtual representation. This streamlines the process of tracking customer funds as our dedicated account structure enables instant reconciliation. Essentially, you don’t have to buy or build a separate ledger as our platform is your ledger.

The case for dedicated accounts

Growing fintechs that need to manage individual customer balances‍—‌but don’t have the time or resources to build out or buy a ledger‍—‌will benefit from dedicated accounts. Dedicated accounts provide a huge range of benefits, including:

  • Bank as a system-of-record. Reliable and comprehensive record keeping, reducing windows of error where your records are out of sync with the actual location of the funds.
  • Less risk for you and your bank. Greater visibility on individual customer activity strengthens protection of customer funds and prevention of money laundering, reducing the risk of economic crime.
  • Unique account number and sort code combinations. Personalised banking for each customer helps reduce payment errors and creates a better experience for the end user.
  • Integrated ledger. Ensures instant reconciliation and straightforward reporting, replacing error-ridden manual processes.

Why we still offer pooled accounts

If dedicated accounts are so much better than pooled, why does Griffin offer both? The simple answer is that large and mid-sized fintechs already use pooled accounts, primarily due to the lack of viable alternatives. They have invested considerable time and resources building technology to support these pooled accounts. Fintechs who hold customer money with multiple banking partners may also find it challenging to transition to a dedicated model seamlessly.

With this knowledge, we’ve tried to simplify some of the inherent problems of pooled accounts.

  • Quick onboarding for you and your customers. We don’t think it should take months to open a bank account. We’ve made substantial investments in automating our onboarding, KYC and KYB processes, so you can get set up with us quickly and easily.
  • Easy integration. We’re an API-first bank, which means it’s straightforward for you to integrate your existing ledger with our platform.

Companies that are not ready to switch to a dedicated model can still take advantage of our pooled accounts

Holding safeguarding and client money with Griffin

At Griffin, we offer customers both dedicated and pooled accounts to meet their safeguarding and client money requirements. Both account types are created using the same robust APIs and can easily connect to the same payment systems and user interfaces.

Interested in opening an account for client money or safeguarding with Griffin? Try it in our sandbox!