Sponsor banks play a vital role in the modern payments landscape, enabling fintechs, payment facilitators (PayFacs), and other third parties to operate as sponsored programs using their banking licenses. But with that role comes responsibility - including the often-overlooked requirement of escheatment.
When unclaimed funds go unmanaged, the consequences for sponsor banks can include state audits, financial penalties, and reputational damage that extends to downstream partners. And behind every unclaimed balance is a real customer, merchant, or program that may never have realized those funds were still sitting idle. Understanding your escheatment obligations is essential to protecting your institution and maintaining trust with regulators, partners, and customers.
What is Escheatment in the Sponsor Bank Model?
Escheatment is the process of turning over unclaimed or abandoned funds to the state after a defined dormancy period. For sponsor banks, these funds may originate from multiple sources within a diverse partner ecosystem, including:
- Dormant partner or sub-merchant accounts with residual balances
- Returned or uncompleted payouts that remain unclaimed
- Uncashed checks issued to customers, sub-merchants, or partners
- Inactive digital wallets or reserve accounts managed through fintech partners
Because sponsor banks operate in layered relationships - partner platforms, processors, sub-merchants - identifying escheatable property and determining ownership can be complex and often unclear.
Why Escheatment Is Especially Challenging for Sponsor Banks
Ambiguous ownership
When funds go unclaimed, determining whether responsibility lies with the bank, the partner, or the sub-merchant is not always clear.
Data fragmentation
Payment and account activity data may live across multiple systems - partner dashboards, processor files, third-party APIs - making inactivity hard to track.
Multi-jurisdictional complexity
Partner networks may span all 50 states, each with its own dormancy rules, reporting deadlines, and file formats.
Unclear audit trails
Returned funds or inactive balances may sit unnoticed without strong reconciliation workflows.
Together, these gaps make it easy for escheatable funds to go undetected until an auditor surfaces them - at which point the risk has already materialized.
Common Escheatment Scenarios for Sponsor Banks
Two Approaches to Effectively Managing Escheatment
Sponsor banks carry the ultimate regulatory responsibility, even when programs operate day-to-day customer experiences. Escheatment oversight is not just a compliance need - it’s a foundation of trust across the partner ecosystem.
Broadly, sponsor banks can take one of two approaches, and many mature programs use a blend of both.
Bank-Managed Operations
Under this model, the sponsor bank brings escheatment operations in-house. The bank receives account, transaction, and balance data from each program and applies its own rules, monitoring, and reporting processes, then bills each program for the services.
This approach works best when:
- The bank wants maximum control and consistency across programs
- Data quality and feeds are reliable and standardized
- The bank prefers a single audit trail and unified reporting framework
Key responsibilities for the bank:
- Aggregating program data into a single system of record
- Identifying dormant or abandoned balances
- Sending (or coordinating) due diligence outreach
- Filing consolidated state reports
- Remitting funds and storing long-term records
Strengths:
Full visibility, consistent compliance, simpler audits, and reduced risk of partner variability.
Challenges:
High operational lift without automation, requires strong data pipelines and cross-team coordination.
Partner-Managed Operations
In this model, partners take responsibility for day-to-day escheatment workflows while the bank oversees, validates, and intervenes when needed.
Fintech partners manage operational steps - identifying dormant accounts, performing outreach, and filing reports - while the bank ensures the underlying process is sound, well-documented, and performed effectively.
This approach works best when:
- Partners have mature compliance operations
- Programs maintain direct relationships with end users
- The bank wants to scale many programs without operational bottlenecks
Key responsibilities for programs:
- Implementing their own escheatment policies and procedures
- Tracking dormancy, performing outreach, and filing reports
- Providing the bank with evidence of compliance
Key responsibilities for the bank:
- Approving the program’s escheatment policy and controls
- Conducting periodic reviews and spot checks
- Ensuring alignment with regulatory obligations
Strengths:
Operational scalability, reduced day-to-day lift for the bank, and closer alignment between the program and its end users. State filings use the program’s entity and tax information.
Challenges:
Variability in partner processes, fragmented audit trails, and heightened risk exposure if oversight is insufficient.
How Most Sponsor Banks Find the Right Balance
Many banks adopt a hybrid model: programs execute certain operational steps, but the bank retains final authority, reporting visibility, and long-term recordkeeping.
Regardless of the approach, success depends on two capabilities:
- Reliable, timely data from every program
- A unified layer of oversight that can withstand regulatory scrutiny
This is where purpose-built tools like Eisen bring clarity, consistency, and audit-ready oversight.
A Step-by-Step Approach to Escheatment for Sponsor Banks
Identify Dormant Balances
Monitor for inactivity - no logins, no withdrawals, failed payouts, untouched accounts - and map these to the correct state timelines.
Conduct Due Diligence Outreach
Most states require outreach before reporting, often by first-class mail. In a partner ecosystem, this may mean contacting the fintech or their end user.
Report and Remit to the State
File NAUPA-compliant reports and remit funds via approved methods. Many states require negative reports even when no property exists.
Retain Records and Prepare for Audit
Maintain activity logs, outreach documentation, and transaction histories for 10 - 15 years.
How Eisen Helps Sponsor Banks Manage Escheatment with Confidence
Eisen’s compliance platform is purpose-built for financial institutions with complex partner ecosystems. We streamline escheatment for sponsor banks by helping you in multiple ways.
- Escheatment Manager: Identify unclaimed funds across all partners, track dormancy rules for every state, and generate accurate, compliant reports in a fraction of the time.
- Outreach Manager: Initiate and track owner notifications with customizable templates, verified contact details, and delivery confirmations - so you’re always audit-ready.
- Disbursement Manager: Execute payments to multiple states seamlessly - ACH, check, or other methods - while keeping reconciliation clean and transparent.
The Bottom Line
For sponsor banks, escheatment is not just a back-office frustration. It’s a critical compliance obligation with real regulatory, financial, and reputational stakes. Strong escheatment practices don’t just protect the institution - they protect the people and businesses who rely on it.
By building a proactive process and leveraging the right tools, you can safeguard your institution, your partners, and your customers from unnecessary risk.
Looking for support? Reach out to our team to learn how our escheatment services help sponsor banks streamline escheatment and stay ahead of regulatory requirements across their partner portfolios.
