Compliance as a Service (CaaS): Benefits & Key Features

Many companies that handle payments assume regulatory compliance is something they must manage themselves — until they discover just how complex and costly that is.

Building an in-house compliance function means hiring, training, and retaining 6-10 people to cover KYC, AML, transaction monitoring, ongoing due diligence, and more. Most businesses are not big enough to justify that, yet too large to ignore compliance. The result is juggling multiple contractors across overlapping responsibilities — expensive, inefficient, and risky.

Compliance as a service (CaaS) solves this — and providers like ConnectPay go further by bundling embedded compliance directly into payment and banking infrastructure, so businesses never have to manage it separately.

According to recent research, the CaaS market is valued at $5.2 billion in 2026 and is projected to reach $14.5 billion by 2033, growing at a CAGR of 15.8%. The growth reflects a clear trend: businesses are moving compliance out of house and into the hands of specialists.

What is compliance as a service?

Compliance as a service is a model in which a third-party provider manages an organisation’s regulatory compliance obligations on its behalf. Instead of building and maintaining an in-house compliance function, businesses contract compliance services to a specialist provider who has the expertise, technology, and regulatory authorisation to handle those obligations directly.

CaaS providers typically offer compliance management tools, expert guidance on navigating regulations, risk assessments, and ongoing monitoring to ensure organisations maintain compliance with evolving regulatory requirements. Automated CaaS solutions collect real-time data from a company’s systems and compare it against global compliance rules to identify mismatches or events that indicate possible violations – eliminating the need for manual assessments and routine checking.

In a payments and fintech context, compliance as a service typically covers:

• KYC (Know Your Customer) – identity verification and due diligence on customers and beneficial owners
• AML (Anti-Money Laundering) – transaction monitoring, suspicious activity reporting, and sanctions screening
• Merchant onboarding – compliance checks required before a business can process payments
• Ongoing due diligence – continuous monitoring of existing customers and transactions
• Regulatory reporting – generating and submitting the reports required by financial authorities
• PSD2 and PCI DSS compliance – adherence to EU payment regulations and card data security standards

Regulatory compliance and why it is so difficult

The key pain points when it comes to compliance are the strict PSD2 requirements, and the complicated AML/KYC procedures. There’s also ongoing due diligence, merchant onboarding, and a number of additional functions that add to the overall burden put on business.

As you may know, the revised, second version of the Payment Service Directive (PSD) came into force back in 2017. Its aim was to reduce the incidence of financial crime by, among other things, removing the so-called “commercial agent exemption”. The latter allowed marketplaces and other businesses avoid the requirement of becoming licensed payment service providers (PSPs).

Since the inception of the PSD2, however, businesses acting as financial intermediaries between buyers and sellers have had three options for securing compliance. They could apply for an exemption, seek to obtain a license from a central bank, or deflect the regulatory obligations onto a third party, such as a PSP license-holder.

The first option is only viable for small companies – those dealing with a narrow range of goods and services, or with a limited number of people. There are, furthermore, exemptions applicable to payment instruments valid only within a national territory, and those based on transaction value, neither of which is particularly helpful to financial (or finance-adjacent) businesses.

The second option, on the other hand, is only feasible to large companies – those able to handle the long and complex process of applying for a PSP license. This process is very demanding and can take anywhere between 6 months and several years to complete.

Incidentally, the first and second options are further complicated by the Directive’s jurisdiction-specific application. Different EU Member States interpret the PSD2 in divergent ways, making it difficult for companies to figure out what they’re expected to do and how their business will fare abroad.

The third option is the most business-friendly and hassle-free because it allows fintechs, platforms, and other financial market players to conserve resources and attention given to their clients and set growth or performance goals.

AML/KYC – the second prong of compliance – is, unfortunately, no less of a hurdle. This is because it requires collecting large amounts of data and using it for the purposes of identification, figuring out the applicability of international sanctions, providing intelligence on entities suspected of criminal activities, and more.

If you don’t have a staff experienced in these matters or can’t spare the necessary time, AML/KYC may quickly become a drain on resources and a serious growth impediment.

What are the three types of compliance?

In a financial services and payments context, compliance obligations typically fall into three categories:

1. Regulatory compliance – adherence to laws and directives issued by governments and regulators, such as PSD2, GDPR, AML directives, and licensing requirements. These are non-negotiable and carry significant penalties for non-compliance.
2. Industry compliance – adherence to standards set by industry bodies rather than governments, such as PCI DSS (Payment Card Industry Data Security Standard) for card payment handling. While not always legally mandated, failing to meet these standards can result in losing the ability to process card payments.
3. Internal compliance – adherence to a company’s own policies, procedures, and codes of conduct. In a regulated financial services context, internal compliance policies must be aligned with and supportive of external regulatory obligations.

Compliance as a service can address all three types, depending on the scope of the provider’s offering.

The one-stop-shop approach to compliance services

As we’ve mentioned in the last section, companies now have a third option for covering their compliance requirements. That option is outsourcing.

Some businesses pursue it by handing over different procedures to different companies. There is nothing inherently wrong with this approach. However, it often comes with a high price tag and sub-par results, which are due to issues arising when multiple providers take on overlapping responsibilities.

The other approach is contracting all of a company’s regulatory compliance needs out to a single PSP that offers Compliance as a Service (CaaS). Such providers typically have the experience, resources, know-how, and tools necessary for a one-stop-shop compliance service.

By outsourcing in this way, companies save both time and money, which allows them to focus on growing their business. In addition, they no longer need to deal with lengthy and complicated procedures, and to stay up-to-date on the ever-changing global regulatory landscape.

We at ConnectPay believe that the burden of compliance should be ultimately borne by the license-holder – not the company using its financial services. For this reason, we offer CaaS as an integral part of all our products. 

What are the 5 C’s of compliance?

The 5 C’s of compliance provide a useful framework for evaluating whether a compliance programme – whether in-house or delivered through compliance as a service – is fit for purpose:

1. Culture – compliance must be embedded in the organisation’s culture, not treated as a box-ticking exercise. Leadership tone and internal training are critical.
2. Commitment – senior management must be visibly committed to compliance as a genuine priority, not just a regulatory obligation.
3. Controls – robust internal controls must be in place to detect, prevent, and respond to compliance failures. In a CaaS model, the provider’s technology and monitoring systems fulfil this function.
4. Consistency – compliance must be applied consistently across the organisation, with no gaps or exceptions that create risk exposure.
5. Communication – policies, requirements, and updates must be clearly communicated to all relevant parties. CaaS providers typically support this through regular reporting, alerts, and compliance dashboards.

What are the 5 key areas of compliance?

For financial services businesses, the five key areas of compliance are:

1. KYC and customer due diligence – verifying the identity of customers and assessing their risk profile before onboarding, and monitoring on an ongoing basis
2. AML and transaction monitoring – detecting suspicious transaction patterns, filing suspicious activity reports, and screening against sanctions lists
3. Data protection – complying with GDPR and other applicable data privacy laws governing how customer data is collected, processed, and stored
4. Payment security – maintaining PCI DSS compliance to protect cardholder data throughout the payment processing chain
5. Regulatory reporting – producing accurate, timely reports required by financial authorities across all jurisdictions where the business operates

Compliance as a service providers cover all five of these areas, either directly or through specialist sub-contractors operating within a single managed service framework.

Benefits of compliance as a service

The top benefits of compliance as a service providers deliver to their clients include:

Cost reduction

Building and maintaining an in-house compliance team is expensive – salaries, training, technology, and the opportunity cost of management attention diverted from core business priorities. By leveraging CaaS, organisations can significantly reduce these costs while maintaining a higher standard of compliance than most could achieve internally.

Access to specialist expertise

Compliance regulations change constantly. Keeping pace with evolving requirements across multiple jurisdictions requires dedicated specialists. CaaS providers maintain teams whose entire function is tracking regulatory developments and ensuring their clients remain compliant – expertise that most businesses cannot justify hiring permanently.

Proactive risk management

CaaS provides proactive compliance support, allowing organisations to identify and address compliance risks before they escalate into serious issues. Automated real-time monitoring flags potential violations as they emerge, rather than discovering problems during an annual audit. CaaS minimises the risk of fines, legal action, and reputational damage by maintaining a consistent, up-to-date compliance posture.

Scalability

CaaS can quickly scale to cover additional local regulations and data privacy laws as businesses grow or enter new international markets. Adding a new market through a CaaS provider is significantly faster and cheaper than building compliance capability for that market in-house.

Embedded security

CaaS often integrates advanced security measures including encryption, access controls, and regular vulnerability assessments to protect sensitive data – particularly important for businesses handling payment data subject to PCI DSS requirements.

Focus on core business

CaaS allows organisations to reduce regulatory pressures by outsourcing compliance management to experts, enabling them to focus on core business goals. This is particularly valuable for fast-growing fintechs and platforms where management bandwidth is at a premium.

Challenges of compliance as a service

Compliance as a service is not without limitations. Understanding the challenges helps businesses make an informed decision when evaluating CaaS providers.

Data security and vendor trust

Choosing a CaaS platform requires entrusting a third-party organisation with sensitive customer and transaction data. Selecting a provider without robust security credentials introduces risk rather than reducing it. Businesses should verify that their CaaS provider maintains relevant certifications and has a clear, documented approach to data protection.

Vendor dependency

CaaS solutions can increase dependency on third-party vendors, which may limit an organisation’s control over its compliance processes. If a provider’s service quality deteriorates or its regulatory status changes, the client business is exposed. Contractual protections and service-level agreements are essential safeguards.

Integration complexity

Integration challenges can arise when connecting existing IT infrastructure with CaaS platforms, particularly for businesses with legacy systems or complex data architectures. Businesses should evaluate the integration requirements and technical flexibility of any CaaS solution before committing.

Learning curve

Technical jargon and complex compliance frameworks can create a steep learning curve for non-technical stakeholders, making it harder for leadership to understand the compliance landscape or meaningfully oversee the provider’s work. Good CaaS providers address this through clear reporting, dashboards, and regular communication in plain language.

Top compliance as a service providers

The compliance as a service market spans a range of provider types – from pure-play RegTech platforms to full-stack financial infrastructure providers that embed compliance directly into banking and payment services. Here is how the leading providers compare.

Comparison of top compliance as a service providers

Which CaaS provider is right for your business?

The right choice depends on what compliance coverage you need and how you want it delivered:

• If you need compliance bundled with payment accounts, card issuing, and banking infrastructure – ConnectPay is the only provider on this list that combines all three. Compliance is not a bolt-on; it is embedded into every product.
• If your primary challenge is AML alert volume and false positives – ComplyAdvantage’s AI-native Mesh platform is purpose-built for this.
• If you need identity decisioning across a complex partner or embedded finance network – Alloy’s configurable, multi-data-source approach is the strongest fit.
• If behaviour-based fraud detection is critical to your risk model – Sardine’s unique device and biometrics intelligence layer sets it apart.
• If global identity verification coverage is the priority – Trulioo’s reach across 195 countries and 14,000+ ID document types is unmatched.

How to implement compliance as a service

Implementing compliance as a service follows a structured process:

1. Assess your current compliance posture – evaluate your existing regulatory requirements, current processes, and where gaps exist
2. Define scope – determine which compliance obligations you need covered: KYC only, full AML, PSD2, PCI DSS, GDPR, or a combination
3. Choose the right provider – review case studies, verify regulatory status, assess integration requirements, and confirm the provider’s coverage across your operating markets
4. Integration and activation – connect your systems with the CaaS platform, configure compliance policies, and assign compliance-related processes to the provider
5. Ongoing monitoring – once implemented, the CaaS provider continuously monitors compliance activities in real-time, providing performance metrics and regular reports to ensure adherence to evolving requirements

The implementation timeline varies by provider and scope, but API-first CaaS platforms like ConnectPay significantly reduce deployment time compared to building equivalent compliance capability in-house.

FAQs: Compliance as a service