When European fintech companies set their sights on the lucrative U.S. market, they often underestimate one of the biggest barriers to success: regulatory compliance. While Europe operates under a more harmonized regulatory framework, the U.S. is a maze of federal, state, and sector-specific financial laws. Many fintech firms have tried to expand into the U.S., only to find themselves trapped in a web of licensing challenges, compliance costs, and regulatory uncertainty.
Some, like N26, were forced to exit after facing insurmountable compliance hurdles. Others, such as Revolut, have struggled for years to obtain a banking license, slowing down their expansion. However, a few companies, including Wise, successfully engineered compliance into their systems from the outset, allowing them to scale without major regulatory setbacks.
So, what makes or breaks a fintech’s entry into the U.S. market? And why do some companies fail where others succeed?
The U.S. Compliance Minefield: A Challenge Too Big for Some
The U.S. fintech market is not just one market; it’s 50 different ones. Each state has its own money transmitter licenses, compliance rules, and financial regulations, layered on top of federal oversight from agencies like:
- FinCEN (Financial Crimes Enforcement Network) – AML and KYC regulations.
- CFPB (Consumer Financial Protection Bureau) – consumer protection laws.
- OCC (Office of the Comptroller of the Currency) – federal banking oversight.
- FDIC (Federal Deposit Insurance Corporation) – bank insurance requirements.
Case Study 1: N26
The German neobank N26 launched in the U.S. in 2019, hoping to replicate its European success. However, within just two and a half years, it shut down operations and withdrew from the U.S. market because of regulatory complexity and licensing issues. N26 struggled with U.S. licensing requirements, lacking the state money transmitter licenses needed for full compliance.
Heavy competition from local fintechs like Chime and Varo Bank made customer acquisition costly. Regulatory uncertainty led to operational inefficiencies, draining resources. By 2022, N26 decided to focus on its core European market rather than continue battling U.S. regulators.
Case Study 2: Revolut
Another high-profile fintech struggling with U.S. regulations is Revolut. Unlike N26, Revolut is still operating in the U.S., but its expansion has been significantly delayed by regulatory obstacles.
In 2021, Revolut submitted a draft application for a U.S. banking license, aiming to offer full banking services. Two years later, Revolut still had not received approval, and as of 2023, it hadn’t even submitted a formal application.
Instead, Revolut operates through partnerships with U.S. banks, but this limits its ability to scale and innovate. Without a full U.S. banking license, Revolut faces higher operational costs and regulatory dependence, which has slowed its North American ambitions.
Case Study 3: Wise – A Compliance-First Approach That Worked
When Wise, a global leader in international money transfers, expanded into the United States, it also faced one of the most complex financial regulatory landscapes in the world.
Ensuring regulatory compliance while maintaining Wise’s core principles of speed, transparency, and low-cost transactions was a major engineering challenge. Nikolay Mironenko, Wise’s 4th engineer and a leader in its technical expansion, played a key role in designing the systems that allowed Wise to meet U.S. regulatory requirements while staying scalable and efficient.
“We had to build an infrastructure that can withstand one of the most regulated financial environments in the world,” Mironenko explains.
In the U.S., Wise had to comply with multiple layers of regulation across different agencies and implement strict anti-money laundering (AML) controls and transaction reporting. Unlike Europe’s single regulatory framework, Wise had to obtain individual licenses in each U.S. state to legally operate its money transfer service. In states where Wise isn’t directly licensed, it operates through banking partnerships, which require federal compliance oversight.
Each of these regulations imposed specific requirements on Wise’s engineering and compliance systems. This meant that Mironenko and his team had to design an adaptive compliance framework that could operate across different jurisdictions without slowing down transactions.
How Wise Engineered Compliance at Scale
Instead of treating compliance as a business-side issue, engineers at Wise built regulatory safeguards directly into its financial infrastructure.
1. Automated KYC & AML Compliance
- Machine Learning-Based Identity Verification: To meet FinCEN and state-level AML regulations, Wise developed an automated Know Your Customer (KYC) system that performed real-time document verification and biometric authentication.
- Automatic Transaction Monitoring: Every transaction going through Wise’s U.S. platform is analyzed for suspicious activity, with machine learning models detecting unusual patterns in payment behaviours.
- Automated Regulatory Reporting: Wise integrated automated Suspicious Activity Reports (SARs) filing, ensuring fast, accurate reporting to regulators without delaying transactions.
“Manually handling KYC and AML at scale is impossible,” Mironenko says. “We built an intelligent system that validates identities, detects fraud, and auto-reports suspicious transactions without slowing down payments.”
2. State-by-State Licensing Compliance
- Scalable Licensing Infrastructure: Wise engineered a modular compliance framework that could adapt to different state licensing requirements.
- Real-Time Regulatory Adjustments: Since state regulations constantly evolve, Wise developed dynamic compliance settings, allowing the system to adjust automatically to new legal requirements.
- Seamless Integration with Banking Partners: Where Wise lacked direct licenses, it partnered with Community Federal Savings Bank, which is supervised by the OCC, ensuring continued legal operation.
“U.S. compliance changes from state to state and even year to year,” Mironenko explains. “We built flexible compliance mechanisms that adjust as regulations evolve so we can stay ahead of legal shifts.”
3. Secure Customer Fund Protection
- Segregated Accounts: Wise keeps customer funds separate from operational funds, storing them across institutions like Goldman Sachs and JPMorgan Chase, ensuring security and liquidity.
- Automated Reserve Management: Wise’s engineering team developed a risk-based funds management system, optimizing liquidity levels while staying within regulatory capital requirements.
- FDIC Pass-Through Insurance: Customers opting into Wise’s interest-bearing USD balance get FDIC insurance protection up to $250,000.
By automating fund segregation and ensuring cash liquidity, Wise maintained full regulatory compliance while protecting customer assets.
Lessons for Fintech Startups Entering the U.S. Market
Expanding into the U.S. isn’t just about product-market fit, it’s about navigating a regulatory maze that can make or break a fintech. Here’s what successful entrants get right:
- Compliance is a Launch Requirement, Not an Afterthought
Many fintechs treat compliance as a post-launch hurdle, only to find themselves buried in legal roadblocks. “The U.S. fintech market is tough, but if compliance is built into your architecture from the start, it becomes a huge competitive advantage,” says Mironenko. - Each State is Its Own Market
Unlike Europe’s unified framework, U.S. fintechs face a patchwork of state regulations. Companies must either secure multiple money transmitter licenses or rely on bank partnerships, which can limit control and scalability. - Automation is Key to Scaling
Manual KYC, AML, and transaction monitoring can’t keep up with growth. Fintechs that automate compliance, from identity verification to fraud detection; stay ahead while reducing operational costs. - Regulatory Uncertainty is a Cost – Plan for It
U.S. financial laws shift constantly. Startups that budget for ongoing legal support, compliance updates, and adaptability avoid costly setbacks. - Trust is a Growth Strategy
Strong compliance isn’t just about avoiding fines, it builds customer confidence. Features like transparent pricing, regulatory oversight, and secure fund management create long-term competitive advantages.
Image via Pixabay/Geralt
