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In the financial technology sector, cross-border data flows are fundamental to operations. From instant payment platforms to artificial intelligence-powered lending tools, personal and financial data must flow seamlessly across borders for fintechs to remain competitive.
However, strict regulatory scrutiny — particularly with the enforcement of the EU General Data Protection Regulation and the landmark Schrems II ruling — has introduced significant compliance risks for companies managing international data transfers.
The GDPR imposes stringent conditions on the transfer of personal data outside the European Economic Area. These transfers are only lawful when the destination ensures an "essentially equivalent" level of protection to that provided within the EU.
To achieve this level of protection, the GDPR provides several mechanisms, including adequacy decisions, where the European Commission recognizes that a third country offers sufficient protection, and standard contractual clauses or binding corporate rules, which establish enforceable safeguards through legal agreements.
To determine whether these measures are effective, organizations must conduct a transfer impact assessment, which involves evaluating the legal and practical landscape of the recipient country, including laws on government surveillance and enforcement mechanisms, to determine whether supplementary safeguards are needed.
While the adoption of the EU-U.S. Data Privacy Framework has re-established a formal adequacy pathway for transfers to certified U.S. entities, uncertainty remains. Indeed, recent structural changes to the U.S. Privacy and Civil Liberties Oversight Board and the Federal Trade Commission have raised legitimate concerns about the framework's durability.
For fintech companies, this situation presents unique complications. These companies often operate on cloud-based, decentralized infrastructures, handling vast amounts of personal and financial data that needs to move fluidly across borders to maintain operational agility.
Unlike traditional financial institutions, the architecture of fintech companies is modular; their services are real-time; and their third-party dependencies are extensive. Application programming interfaces link customer data to analytics engines, fraud detection tools, payment gateways and customer support platforms. Many of these are hosted or managed outside the EU, which results in a network of data flows that is not always fully visible to the business itself, let alone data subjects.
Mapping these data flows is one of the most fundamental, yet most difficult, steps toward compliance. Without a clear view of where data is going, it is nearly impossible to choose the right transfer mechanism or apply appropriate safeguards.
However, for startups and scale-ups, this task is often inhibited by limited compliance expertise and resource constraints. What complicates matters further is the divergence in global privacy frameworks. Fintechs with international user bases frequently find themselves navigating conflicting obligations, such as EU data export requirements, Asian data localization laws or U.S. cloud access mandates— all while trying to maintain a seamless user experience.
In this context, it is critical to choose the right data transfer mechanism. SCCs remain the most widely adopted solution due to their flexibility and accessibility. The 2021 revisions to the SCCs introduced modularity, allowing them to better reflect real-world transfer scenarios, including processor-to-processor and processor-to-controller arrangements.
However, SCCs are not ready to use as-is for fintechs, since they must evaluate whether the legal environment in the recipient country permits effective enforcement of these clauses. For this, they must be accompanied by TIAs and, in many cases, supplemented with additional safeguards.
For larger organizations with multiple entities around the world, BCRs can provide a more sustainable and robust solution. They provide a unified framework for intra-group transfers but require approval from EU data protection authorities, making them resource-intensive to implement and maintain.
When available, adequacy decisions are the easiest solution since they reduce the need for additional safeguards. However, only a limited number of countries currently wholly or partially benefit from these decisions and their future may be uncertain. New models such as industry codes of conduct and certification schemes may offer alternative routes to compliance in the future, but these remain in early development stages.
Beyond the choice of mechanism, effective compliance depends on building a privacy-resilient infrastructure from the ground up. The cornerstone of GDPR compliance for international transfers lies in conducting comprehensive TIAs that are not only rigorous but also operationally grounded.
These assessments must look beyond the formal legal environment to examine practical realities, including the likelihood of government access to data, the technical capabilities of local providers, and the enforceability of rights.
Due diligence also involves vetting third-party vendors and subprocessors. This includes reviewing their data protection practices, contractual safeguards and incident response capabilities, ideally as part of a broader third-party risk management strategy.
Technical safeguards play a key role in mitigating residual risks. Strong encryption at rest and in transit, pseudonymization and strict access controls can significantly reduce the risks associated with international data transfers. When effectively implemented, under the European Data Protection Board's guidance, these controls can mitigate risks that SCCs or BCRs alone cannot fully address.
Transparency with users is equally important. Individuals want to know where their data goes, who has access to it and what their rights are. Fintechs should offer clear, accessible privacy notices and, where consent is used as a legal basis, ensure it is informed, specific and freely given. Tools that allow users to manage preferences or view where their data is stored can also help reinforce trust.
Future trends and developments
As the fintech ecosystem continues to evolve, so too does the regulatory and technological landscapes surrounding cross-border data transfers. Staying ahead of these changes is not only a compliance necessity, but also a strategic advantage.
Looking ahead, the landscape for international data transfers is likely to become more complex, as regulatory fragmentation continues to increase. While the GDPR has become a global benchmark, it is not the only privacy regulation. Jurisdictions around the world, from Brazil to India to Kenya, are enacting their own data protection laws — each with different rules on cross-border transfers and user rights.
For fintechs operating internationally, this diversity in legal frameworks demands greater agility in governance and potentially localized compliance strategies.
The EU itself is not standing still. The long-term viability of the EU-U.S. DPF is currently being tested and further refinements to SCCs and sector-specific codes of conduct are under discussion.
However, technologies may offer privacy-enhancing solutions for cross-border compliance. Advances in confidential computing, secure multi-party computation, and federated learning allow data to be analyzed across jurisdictions without the actual transfer of data.
Moreover, automated consent and preference management tools, risk assessment platforms, and compliance-as-a service models are gaining traction, particularly among resource-limited fintechs seeking scalable solutions. Forward-looking organizations will invest in both regulatory foresight and tech-driven privacy engineering, to ensure they are prepared for what is next.
Conclusion
Cross-border data transfers are essential to fintech growth and innovation, but they pose significant regulatory and operational challenges.
GDPR-compliant mechanisms, such as SCCs, BCRs or adequacy decisions, must be embedded within a broader strategy of governance with technical safeguards and clear user communication.
Success depends on adopting a proactive mindset to anticipate changes, leverage technology and treat privacy not as a constraint, but as a cornerstone of trust and resilience.
Paul Krasy is data protection officer for the Mentor Group.
