Understanding FBO Account Requirements

This is Part 1 of a 3-part series on neobank infrastructure for healthcare. Part 2 covers the partnership decision. Part 3 analyzes unit economics.

When I started building CLIN as a neobank for dental practices, I thought holding healthcare money would be similar to consumer fintech. Send some APIs, get banking infrastructure, launch quickly. I was wrong on every assumption.

Healthcare practices handle money differently than consumers. Regulatory requirements are stricter. Settlement patterns follow treatment cycles, not paycheck schedules. And the compliance burden makes consumer banking infrastructure inadequate for professional practice needs.

Consumer FBO accounts are straightforward: single master account at the partner bank, customer funds pooled with simple ledger tracking, daily settlement, KYC focused on individual identity verification. Healthcare practices need segregated account structures. Professional liability separation (practice funds must be separated from personal funds). Trust accounting (many practices handle patient payments in trust until services are rendered). Separate tracking for insurance company payments versus patient payments. State professional license requirements that may mandate specific account structures. And the complexity multiplies across state lines.

The real costs surprised me. Partner bank compliance review: $15,000-25,000. Legal review of healthcare-specific terms: $8,000-12,000. Technical integration for segregated ledgers: 4-6 months of developer time. State-by-state regulatory review: $3,000-5,000 per state. Monthly ongoing: enhanced KYC/KYB at $8-12 per practice versus $2-3 per consumer, account maintenance at $25-40 versus $3-5, compliance monitoring at $150-300 per practice, plus $50K annually for professional liability insurance.

Settlement mechanics in healthcare are nothing like consumer patterns. Treatment-based cash flow means payments are tied to patient visit schedules, not regular payroll deposits. Monday mornings see higher volumes as weekend emergency treatments get billed. Insurance companies pay on different schedules (weekly, monthly, quarterly), so settlement systems must handle irregular large deposits without triggering fraud alerts. Revenue fluctuates seasonally, low in December/January from patient deferrals, high in September as patients use remaining insurance benefits.

// Consumer settlement logic
const settlement = {
  frequency: 'daily',
  amount: calculateDailyBalance(),
  destination: userAccount,
  timing: 'automatic'
}

// Healthcare settlement logic
const settlement = {
  frequency: 'configurable',
  amount: calculateByPaymentType(),
  destination: getSegregatedAccounts(),
  timing: 'practice-controlled',
  compliance: validateStateRequirements(),
  insurance: trackReceivablesByPayer(),
  railsMethod: determineOptimalRails(),
  reconciliation: {
    btr: processBankTransferReceipts(),
    imad: trackInternationalTransfers(),
    omad: handleOriginalMessages()
  }
}

Each settlement method generates different reconciliation files. ACH creates BTR files. Wire transfers generate IMAD/OMAD files. RTP creates ISO 20022 receipts. A healthcare neobank must process all these formats, often receiving them via SFTP with PGP encryption from partner banks. Custom development that adds months to timelines and ongoing operational overhead that consumer fintechs never encounter.

Healthcare KYC/KYB goes well beyond consumer identity verification. Every practice needs DEA registration verification, state professional license checks, NPI validation, and state board standing confirmation. Practice structures are complex: professional corporations with different rules than standard corporations, partnerships with varying liability arrangements, and ownership verification that differs from management. Unlike consumer KYC as a one-time check, healthcare practices require ongoing monitoring: license renewal tracking, disciplinary action monitoring, insurance network changes, ownership change verification. Initial verification runs $50-80 per practice. Ongoing monitoring: $20-30 per practice monthly. Plus the new CTA reality since January 2024, requiring Beneficial Ownership Information filings with FinCEN that most practices don't even know about.

Healthcare practices also trigger HIPAA considerations (they often commingle financial and patient data), state professional regulations on trust accounts and liability, and federal healthcare regulations including Stark Law, Anti-Kickback statutes, and Medicare/Medicaid compliance.

After six months of trying to build healthcare-specific FBO infrastructure, I realized the complexity exceeded our capabilities. Consumer fintech platforms couldn't handle BTR/IMAD/OMAD reconciliation files, couldn't process SFTP+PGP encrypted settlement files from multiple bank partners, and couldn't maintain the ongoing compliance monitoring that healthcare KYB requires. We needed partners who understood both the banking rails complexity and the healthcare regulatory environment. That rare combination took months to find.

Data sources: CLIN neobank development documentation, banking partnership analysis (2024-2025), Federal Reserve FBO account guidelines, state professional licensing requirements