Keane's Unclaimed Property Blog

FinTech Unclaimed Property Types & Concerns

All businesses have an obligation to report unclaimed property, but due to the rapid growth of FinTech, unclaimed property concerns and new property types have surfaced that are causing these companies to take a closer look at compliance.

In order to understand how unclaimed property affects the FinTech industry, it is important to define what is FinTech, what types of property are common in the industry, and the impact that each property type has on FinTech companies.

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 What is FinTech? What are Common Property Types?

FinTech is generally understood as the use of technology to provide alternative financial services which includes new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services.

There are many types of FinTech products and services, each with varying implications and obligations for companies with regards to unclaimed property.

Payment Processing

One type of service is payment processing. Payment processors facilitate payments from one party (buyer) to another party (seller). Recently, there has been rapid growth in the payment processing industry with a large number of new entrants in the space.

In some cases, funds go through a payment processor, while in other cases another financial services provider such as bank, handles the funds. As a payment processes, that exchange can impact who the holder of unclaimed funds ultimately is.

Stored Value Cards and E-Gift Cards

It has become increasingly common for retailers to issue stored value cards and e-gift cards as an alternative payment mechanism.

Additionally, retail companies may sell not only their own gift cards, but those of other companies as well. One common example are the gift card racks that are set up in many grocery stores, convenience stores, or pharmacies. In these cases, a payment processor is involved in the sale of third-party gift cards and facilitate the transfer of the payment for a gift card from the grocery store to a third-party retailer.

If a gift card from a certain retailer is purchased at such a location, a payment processor is often the one facilitating the transfer of my payment for the gift card from the location to that retailer.

The sale of e-gift cards over the internet can also impact a company’s unclaimed property obligations especially depending on the method of delivery of the e-gift card. Unlike physical gift cards sold at retailers where the purchaser and recipient of the gift card are often anonymous to the gift card issuer, issuers may have name and address information for the owners of certain e-gift cards.

For example, if an online purchaser elects to have a physical gift card mailed to the recipient the company, arguably, has name and address information of the owner. If an online purchaser instead elects to have it instead elects to have an e-gift card emailed to the recipient the company may still capture a name and address information for the purchaser if, for example, he uses a credit card to make the purchase.

It may be possible that a state could take the condition that this information should serve as the proxy for the owner’s name and address for unclaimed property purposes.

Virtual and Crypto Currencies

Many companies are issuing virtual and crypto currencies as new markets continue to grow. One important question that has risen from an unclaimed property perspective, is what type of property do you categorize these currencies as? Are they money? Do they hold actual monetary value? Are they stored value? Are they securities?

Prepaid Accounts and E-Wallets

Many companies are offering prepaid accounts and e-wallets as alternative payment mechanisms.

Some things to consider for FinTech unclaimed property purposes:

  • Depending on how a user can load his prepaid account or e-wallet, for example by using a credit card, a company may obtain name and address information for the account holder.
  • A company may obtain owner name and address information if it requires a user to provide it to register for or open an account. For example, banks treat prepaid accounts similar to deposit accounts that are subject to CIP and collection of this information.

Credits Paid vs Credits Earned

This concept can arise in different FinTech situations. For example, some companies may allow a user to earn virtual currency through playing a game, and may also allow that user to purchase additional virtual currency.

Another area where this distinction often arises is in connection with rewards, promotional, or loyalty programs. Some frequent flyer programs today allow members to not only earn miles but also purchased them.

A company might have a promotion where someone buys $50 worth of e-gift cards he will receive a $10 promotional e-gift card. The exchange of consideration in these examples may have unclaimed property implications.

FinTech Unclaimed Property Compliance

Even though the Fintech Industry is still growing, companies are rapidly uncovering new potential types of unclaimed property that require a closer look for compliance.

It is always a safe practice to keep adequate records of each property type to ensure that your company is in a good position to fulfill its compliance obligations with your jurisdiction’s unclaimed property laws and regulations.

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Compliance, Unclaimed Property Reporting

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