The Truth Behind “USD Accounts” in Latin America: What Fintechs Don’t Tell You

(Versión en español)

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By Rogelio Cardozo

Across Latin America, more and more people rely on “USD accounts” offered by fintech apps. But behind every “open your USD account in minutes” are completely different legal and regulatory structures—some secure, some fragile, and others overly optimistic.

In a region where inflation is chronic and income stability is a luxury, understanding these differences isn’t about becoming an expert—it’s about protecting your money.

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“USD Account” Means Nothing Without Context

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Fintechs across Latin America use the same label—“USD account”—to describe radically different products. To truly understand what you are getting, it is essential to know what license the provider holds, how this impacts the legal agreements related to the offered services (accounts), and which regulator oversees the underlying activity.

Here’s the reality:

• Very few services are actual U.S. bank accounts under U.S. banking regulation.
  
• Others are stored-value instruments offered by MSBs (Money Services Businesses), known in the region as PSPs, procesadores de pagos, or Casas de Cambio.
  
• Some are foreign accounts issued through European or UK EMIs.
  
• Others are prepaid programs disguised as bank accounts, also offered by MSBs—not banks.
• And some are synthetic USD balances (with no real bank account behind them, just an internal ledge
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  Behind the glossy screens and one-click onboarding, the legal plumbing varies dramatically.

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The 5 Legal Structures Used Today

A. Direct U.S. Bank Accounts (Regulated Deposits – Named Customer Accounts)

• You are the legal owner of the account.
  
• Funds sit in the bank’s core ledger under your name.
  
• The bank handles all regulatory obligations (CIP/KYC, statements, Reg E, escheatment, reporting).
  
• FDIC insurance applies directly, up to $250,000.
  

Very few U.Sfintechs serving Latin America offer this model due to regulatory complexity.

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B. Banking-as-a-Service via FBO Omnibus Accounts (MSB-Led Model)

• A single FBO account (“For Benefit Of”) held by the fintech at a U.S. bank
  
• The fintech keeps a sub-ledger with each user’s balance
  
• Users are beneficiaries, not account holders
  
• FDIC pass-through applies only if every record is perfect
  
• Responsibilities are split across bank + MSB
  

This is the most common modelamong apps offering USD to LatAm users.

Examples: Uttopia, Dollarize, Pana Card

Key implication: Marketed as “USD accounts,” but legally these are MSB programs built on top of an FBO account—not individual bank accounts.

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C. Prepaid Wallets / Stored Value (MSB or EMI)

• Legally a prepaid account, not a bank account
• Funds kept in pooled FBO accounts; fintech owns the ledger.
• Payment processing usually offered though a third-party payment processor.
• Many fintech’sthat look like neobanks are actually prepaid programs in disguise.
• Consumerconfusion is intention

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Key implication: The user believes they have a U.S. bank account—but they don’t.

Note: The examples above(Uttopia, Dollarize, Pana) fall under the FBO structure and use prepaidwallets/cards as their product layer.

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D. Offshore Electronic Money Accounts (UK/EU EMI Model)

• USD wallets issued under UK/EU e-money rules.
• Not deposits, not insured, not under U.S. banking regulation.
• Marketed as “global USD accounts,” but the dollars are not in the United States.
• Their structure can complicate US-origin payments like payroll or contractor payments.

Examples: Wise, Payoneer.

Key implication: Risk increases because regulatory protections differ between countries.

E. “Synthetic Dollars” (Stablecoins or Internal Ledger Balances)

• No bank account behind the scenes
• The fintech issues a USD-denominated balance backed by stablecoins or similar assets.
• User holds a claim, not a deposit
  

Examples: Coinbase, Kraken,Strike

Key implication: The “USD”is only as strong as the discipline and governance of the issuer.

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Why It Matters: What Happens in a Bankruptcy

Understanding the legal structure is not theoretical—it determines who owns the money, how it is recovered, and what protections you have if something goes wrong. When a fintech or its partner bank fails, the differences between a named bank account, an FBO program, an EMI wallet, or a synthetic balance become pain fully real.

Equally important is who regulates the company—because regulators shape how effectively legal agreements and consumer protection laws are implemented, funds segregation, and fiduciary duties.

Here’s how each structure behaves in a crisis:

A. Direct U.S. Bank Accounts

If the fintech goes bankrupt:‍

·     Your funds are not part of the fintech’s estate.

·     You are the legal owner; the bank continues operating your account.

‍If the bank goes bankrupt:

·     FDIC insurance pays you directly, up to $250,000per depositor.

Regulatory implications:

• U.S. banks are supervised by the FDIC, OCC, or state     regulator: ownership accuracy, consumer disclosures, Reg E protections,     and mandatory segregation.
• Consumer protection duties are defined by federal     law, leaving little ambiguity, and the regulator will audit them.

Bottom line: The safest (legally speaking) and most transparent model.

How users can ensure this: by directly signing the bank account agreement, no doubt here.

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B. BaaS via FBO Omnibus with Sub-Ledger (theMSB-driven model)

If the fintech goes bankrupt:

• You are not the accountholder.
• Your money sits in an FBO pool and may be delayed     while records are reconciled.

‍If the bank goes bankrupt:

• FDIC pass-through insurance applies only if records and titling meet strict requirements.
• Any failure by the MSB or bank in record keeping makes     recovery complex.

Regulatory implications:

• The fintech/MSB is regulated by FinCEN at the federal     level and by state financial regulators —focused on AML/KYC, not consumer protection.
• Legal agreements are less standardized than in     banking, and often written by the fintech.
• No fiduciary duty unless explicitly added.
• Segregation depends on MSB discipline and state examinations.

Bottom line: It works, but relies heavily on operational discipline.

How users can ensure this:You’d need access to the FBO agreement—usually impossible. This model requires trust in the provider. Furthermore, check whether the company is a licensed MSB with a state and is registered with FINCEN.

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C. Prepaid / Stored Value

If the fintech goes bankrupt:

• Funds are theoretically segregated, but you depend entirely on the fintech’s ledger.

If the payment processor or partner bank goes bankrupt:

• Funds are frozen until ownership of the pooled funds is resolved.

Regulatory implications:

·      FinCEN + states: segregation required but focus on AML/KYC, not fiduciary duty.

·      Ledger accuracy varies.

·      Programs involve multiple parties (program manager, processor, custodians), increasing complexity.

Bottom line: The legal structure works—but only if the program manager is competent.

How users can ensure this: Same as the BaaS via Omnibus FBO structure, but additionally you need to identify all the third parties (i.e., card or payment processors, custodians, etc.) to understand the complexity of the program and also ensure the wallet provider is a licensed MSB. Otherwise, rely on a trusted brand or simply accept that the protection is operational rather than regulatory.

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D. EMIs (Europe/UK)

If the EMI/fintech goes bankrupt:

·      Funds are “safeguarded,” but not insured.

·      You become a creditor, and payout depends on the insolvency process of the EMI’s home regulator.

If the EMI’s partner bank goes bankrupt:

·      The EMI must recover the funds from the administrator before returning them to you.

Regulatory implications:

• EMIs are regulated by EU/UK authorities, which impose     “safeguarding” but allows certain investment instruments, introducing risk.
• Agreements are governed by the EMI’s home jurisdiction — not U.S. law.
• Legal claims must be made in the EMI’s country of regulation.

‍Bottom line: Some protection exists, but only within European insolvency frameworks.‍

How users can ensure this:Verify authorization, read the safeguarding policy, and understand the governing jurisdiction—or accept the risk.

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E. Synthetic Dollars (Stablecoin-backed or internal ledger USD)

If the fintech goes bankrupt:‍

If the custodian or stablecoin issuer collapses:

Regulatory implications:

• Patchwork of state rules, no prudential supervision, no deposit insurance.
• Fund segregation depends entirely on internal representation.
• Agreements typically favor the company, giving users     limited legal recourse.

Bottom line: The riskiest model from a legal standpoint.

How users can ensure this: You would need to verify (with the help of an attorney) how assets are custodied, where reserves are held, and whether the company provides attestations or audits (and how independent they are). Otherwise, simply accept that this model is based on faith in the issuer.

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What Users Should Actually Check

In Latin America, USD “accounts”often have more makeup than substance. Everything looks trustworthy behind a blue button and a couple of emojis. And still, thousands deposit their income without knowing what they actually opened. Before trusting your money to a pretty app, you should understand what’s behind the promise.

A practical guide— pure value for freelancers and remote workers.

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How to Decode “Banking Services Provided By…”

This phrase is often used to create trust—but rarely specify whether “banking services” means: named account, FBO, prepaid, card issuance, processor relationship, or partial custody.

Where to look: the website or Terms & Conditions, for phrases like:

• “Checking accounts provided by…
• “Funds held at…”
• "Cards issued by..."
• “Deposits held at…”
• “Your funds are held in an omnibus FBO account at…”
• “The debit card is issued by…”

Interpretation:

• “Account held in your name” → real account
• “Funds held in an omnibus/FBO account” → FBO
• “Prepaid card issued by…” → not a bank account
• “Banking services provided by…” (without specifics) →     99% of the time FBO or prepaid

Rule of thumb: If the product is not explicitly specified → assume FBO or prepaid.

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Where to Find If You Are the Legal Accountholder or Just a Beneficiary

Look in:

1. Website footer .
2. "Legal", "Terms", "Disclosures"
   
3. Cardholder agreement.
4. Terms & Conditions.

Search for keywords: “omnibus,” “pooled,” “FBO, “beneficiary,”“custodial account,” “account owner.”

If a platform doesn’t specify → assume FBO or prepaid.

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Merchant of Record — How to Spot It

Before opening the account, look for:

• “Payment processing provided by…”
• “Card issued by…”
• “Transactions processed by…”
• “Services provided by licensed money transmitter…”

If the fintech processes payments→ likely MSB/FBO.

If a bank processes them →potentially stronger.

Practical action:

Count how many entities appear.

More than two → almost certainlyFBO or prepaid.

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What to Look for in the Fintech’s Terms & Conditions

Search for:“The bank is the custodian of your funds.”

If the bank is named as custodian→ FBO or real account.

If only the fintech is named → no direct access.

Look for a “Termination” section. If absent → high risk.

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FDIC Insurance — Can You Confirm It?

Truthfully: users cannot certify FDIC pass-through.

Not even most bankers can without internal documents.

But you can look for:

• “Pass-through FDIC insurance may apply.
• “Subject to meeting FDIC requirements.”
• “Eligible for pass-through.

 If it says “may,” “subject to,”or “eligible” → it’s not guaranteed.

 If the fintech doesn’t publish a detailed FDIC FAQ → assume no coverage.

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Contracts to Review Before Opening the Account

Only these are accessible and relevant:

• Terms & Conditions
• Cardholder Agreement
• Fee Schedule
• Privacy Policy

Everything else is internal and only available once you’re already a customer.

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If You Already Have anAccount: What to Look For in the Agreement

This is where the truth lives:

• Who is the custodian?
• Who is the accountholder
• How are funds treated?
• What happens in insolvency?
• Which jurisdiction governs the contract?