Payment App AML Obligations: What Venmo, Cash App, and Their Competitors Must Do

Consumer payment apps - platforms that allow users to send and receive money via smartphone - have grown from novelties to essential financial infrastructure for millions of Americans. The largest platforms process hundreds of billions of dollars in transactions annually. This scale, combined with the ease of use and the potential for anonymous or pseudonymous transactions, has made consumer payment apps a significant focus of FinCEN's AML enforcement attention.

Payment app operators that qualify as money transmitters under the BSA are subject to the full suite of BSA compliance requirements: FinCEN registration, written AML programs, customer identification, transaction monitoring, and suspicious activity reporting. The customer identification requirement is particularly challenging for consumer payment apps, which are designed for frictionless onboarding. Balancing user experience with BSA compliance is one of the defining operational challenges of the sector.

Transaction monitoring for consumer payment apps must address the specific typologies of payment app misuse: peer-to-peer transactions that aggregate to large amounts, rapid movement of funds through multiple accounts, and the use of payment apps to receive proceeds from fraud schemes. The fraud-to-money-laundering pipeline - where fraud victims send money to payment app accounts controlled by bad actors, who then rapidly move the funds - is a significant and growing typology that payment app operators must address.

The regulatory focus on consumer payment apps in 2023 has been on two areas: customer identification failures and SAR filing quality. Several enforcement actions have cited payment app operators for failing to collect adequate customer identification information and for filing SARs that lack the specificity needed to be useful to law enforcement. These are foundational compliance failures that reflect programs that were designed for scale rather than compliance quality.

For smaller payment app operators and fintech startups building payment functionality, the lesson from 2023's enforcement activity is clear: compliance infrastructure must be built into the product from the beginning, not retrofitted after growth. The cost of building compliance into your product architecture at launch is a fraction of the cost of remediation after an enforcement action - and the reputational damage from a public enforcement action can be existential for a consumer-facing fintech.