Accounts on the bank's core

Overview

Synctera is a Sub-Ledger to the Bank and the Ledger of Record for the FinTech. With this, there are multiple accounts that need to be established Internal to Synctera and on the Bank’s Core. The accounts on the Banks core act as an aggregated mirror to the accounts on Synctera’s Ledger to ensure control and transparency for the Bank and the FinTech.

When we think about the structure of the accounts it is useful to understand the difference between Bank accounts, FinTech Accounts, Program Accounts and the FBO.

Bank Accounts are accounts set up at the Bank level that will be under the direct control of the Bank and Synctera nor the FinTech will have direct access to view these accounts e.g. Interchange and Settlement Accounts

FinTech accounts are accounts set up on the Bank’s Core solely in the FinTech’s name and for direct access by the FinTech. Synctera does not record these accounts on our ledger e.g. Operating Account.

Program Accounts are accounts outside of the FBO that are mirrored on Synctera’s Ledger e.g. PnL Accounts and Reserve Accounts

The FBO account on the Bank’s core holds the aggregate of end customer funds only. It’s equivalent on the Synctera Platform is the sum of all end customer accounts.

There are many accounts that will need to be opened during the intake process of a fintech, in order to support the relevant accounting and reconciliation functions to maintain healthy balances. This is done both on the bank side via accounts opened on the bank’s core, as well as on the Synctera side through what Synctera calls “Internal Accounts”. Generally, the Bank’s core will have less accounts as it is used as an aggregate of the very detailed Synctera Ledger.

Accounts on the Bank Core

The bank is required to open accounts at two levels:
The bank level: these accounts are only required to be opened once, and are agnostic of fintech partners/used for all relevant programs
The fintech level: these accounts are opened per fintech program (based on program requirements), but will need to be opened multiple times (i.e. ach settlement account for fintech A, and ach settlement account for fintech B)

Bank Level Accounts: Used for All Fintechs (opened once)

Fed Settlement Account

This account is set up for the new ABA assigned to support fintech programs with Synctera. The bank may have one settlement account with the Fed for ACH, Wires, and Checks (based on which payment types are enabled on the ABA), or the bank may also choose to have a Fed settlement account per payment type. It is up to the bank to determine/open these accounts.

Mastercard/Visa Settlement Account - Network Settlement Account (Separate for each Network)

These accounts are used for daily settlement with the card network providers. Generally, the bank will open one settlement account per network type (Mastercard, Visa, etc.), and accounts are further split/opened based on Debit vs. Credit programs at the ICA level. These accounts will be opened/assigned during the card implementation process with the relevant network.
i.e. Bank may have a Mastercard Debit settlement account, a Mastercard Credit settlement account, a Visa Debit settlement account, etc.

Card Write Off Account (aka Penny Jar) ((Separate for each Network))

For Card Settlement in the daily drawdown from the network, every once in a while we will see differences of a few pennies due to rounding differences in the network file against settlement files provided by the network. Based on this, we will be unable to allocate these rounding differences to a specific FinTech, and the Bank will have to write these pennies off at the Bank level.

Network Suspense Account (Separate for each Network)

For daily card settlement with the network, there are times when network files do not have the attribute information needed to allocate a transaction to a specific fintech. In this scenario, the transaction needs to be parked in a fintech agnostic Network Suspense account, while waiting for the updated network information (usually resolved within 1-2 days - and sent through by the network). Once the attributing information is sent, the transactions will be swept out of the Network Suspense account and into the relevant fintech’s Card Settlement account.

Fintech Level Accounts: Opened per Fintech Program

FBO Account(s) - GL or DDA Account Titled “Bank Name For the Benefit of FinTech's End Customers”
The FBO account is a reflection of all end-customer funds of the Fintech. This account at the Bank will be updated EOD with the entries for each active tenant and each active payment rail. for the benefit of the end-customers

• Smart Card Programs: we also require a Loan account which is typically a GL - called the Loan GL, this is also treated as an aggregate account for the purpose of collating money owed to the bank by end customers for any type of credit programs. The mechanics and ownership of the account are identical to an FBO.
• Other Credit Programs: for unsecured programs, in addition to the Loan GL account, we also require a Loan GL offset Account that are assets towards the FinTech. This account will be by definition the offset of the Loan GL. This account will accrue the balance of funds owed to the bank and represents the remaining asset balance with the bank.

Settlement Accounts - GL Accounts which are titled in the Bank’s Name

Settlement accounts are transient accounts that hold the amount of cash in transit that might be charged to the customer and has not settled or cash that has settled but has not yet reached the customer’s account. It is mainly there to account for timing differences between the settlement windows of the networks and the customer. There should be one account per payment rail settling through the bank per fintech - based on which payment rails the fintech is offering to its end-customers. i.e. ACH Settlement account, Wire Settlement account, Card Settlement account, Check settlement account, etc.

• Note: clearing account = settlement account
• Account Holder of these accounts is the Bank

Reserve Account ** - DDA Account titled with the Naming Convention: Bank Name Reserve Account for FinTech. Access should be restricted by the Bank**

This is an account that utilizes the Naming Convention: “Bank Name Reserve Account for FinTech”, which is used by Synctera and the Bank to cover any losses incurred by the program and not already covered by the Fintech. The fintech is responsible to ensure the account is funded in line with their contractual agreement, as defined in the PAL. When the funds are depleted, the Fintech is responsible for topping up the reserve account to always stay funded to the defined threshold amount. The bank will restrict the access of the FinTech to allow deposits only. The Bank will have the rights to use funds in this account for contractually agreed payments of the FinTech for the program that the FinTech has not made.

• Smart Card Programs: we also require an additional Credit Reserve Account which is dedicated to cover any past due account from smart card, which is a specific requirement for the lending product. Banks generally maintain different accounts to track and report these different types of reserves.
• Other Credit Programs: For unsecured credit programs, we also require a Repurchase account. These are typically established as a DDA. These accounts can be thought of as pre-funding accounts and represent liabilities towards Fintech. The account will be used for the purpose of collating money owed to the bank by end customers for any type of credit programs.

Adjustment/Fraud Loss Account(s) - DDA Account or GL Accounts
This is a more generic account that will be in the FBO naming structure that will be used to cover fraud, losses, other write off amounts, fees, reward programs for the FinTech, etc . Since the account(s) reflect money owed to/from the FinTech (only the FinTech) and as such impact directly the FinTech PnL, these accounts are referred to as PnL accounts on the Synctera Ledger. The bank can choose to only have one such account (i.e. one adjustment account for the fintech program), or the banks can choose to open multiple accounts based on the program type (i.e. accounts for fees and rewards, Fraud Loss account for fraud/loss only, etc.). However the aim is that Synctera will manage the more granular view of the reason for an adjustment, so the Bank is not required to open multiple adjustment accounts as a result. Best practice is to keep the number of adjustment accounts on the Bank’s core to 1. Any negative balances will be pulled from the FinTech’s operating account on a daily basis. Any prefunding by the FinTech would also roll up into this account.

Operational Account - DDA Account
This is an account in the FinTech’s name that is for discretion of the fintech to use and operate, generally to pay program fees. This is the only account that the fintech should have unrestricted online banking access to. Synctera will work with the Bank to utilize this account to pull from in the event of a customer Negative Balance, issuing a Provisional Credit and other scenarios when funds need to be transferred into the FBO.

Interchange Account (For Card Programs Only) - GL Account
This account is necessary for any FinTech with an active card program. The interchange account is used to post the daily interchange accrual, separate from the card settlement account. This account will collect the interchange amount over the course of a month, and at month end Synctera will collect the full interchange amount and disburse to the bank and the fintech based on agreed rev share split via the invoicing/billing process.
Included with Pulse (Secondary PIN/POS network) settlement are Switch Fees. These fees can be recorded in the interchange account or in a separate fee account. They will be settled with the FinTech through the invoicing cycle at the end of the month.