The year 2025 is not only seeing the financial sector transformed by technology tools, but it’s also being influenced by the very tangible cost of not updating compliance. Perhaps one of the best cautionary stories can be found in the construction space, where antiquated AP (Accounts Payable) processes have yielded more than $1 billion in IRS fines. This isn’t simply a construction issue. For fintech executives, the scenario heralds the imperative to recast how compliance is addressed in an accelerating, technology-driven business.
The incident should be a shot across the fintech boardroom. While the construction sector is struggling with outdated systems and decentralized processes, fintech companies might be next in line, particularly those growing rapidly or with complicated contractor ecosystems. With increasing regulatory focus on digital payments, gig economy, and third-party suppliers, it’s high time for fintech to take a cue from these mishaps and strengthen its financial processes before ending up as the next headline.
Old School Compliance Methods Are Shattering Today’s Businesses
Despite the spread of automation and smart financial platforms, a lot of businesses fail to comply in traditional ways: spreadsheets, email strings, stovepipe data, and last-minute tax season rushes. In the building industry, this piecemeal process resulted in a steep rise in compliance errors, particularly with regard to misclassified workers and delayed or inaccurate 1099 reports.
One of the main reasons that accounted for the $1 billion in fines was that someone did not monitor and report payments to contractors correctly. Building firms tend to deal with hundreds or even thousands of subcontractors and gig workers, and traditional paper systems just could not cope.
Now, contrast this with fintech companies. Digital lenders, neobanks, and embedded finance companies also interact with huge contractor ecosystems. They depend on third-party developers, fractional CFOs, consultants, and vendor marketplaces, all of them subject to complex tax reporting regimes. If fintech continues to address compliance as an afterthought instead of a central process, it will run the risk of following the same path.
“When compliance is addressed as an occasional task, it ultimately becomes a strategic risk.” – Jeffrey Cronin, CSO, Zenwork
Why AP Workflows Need to Get Ahead of Compliance
Both in construction and fintech, Accounts Payable workflows are the foundation of compliance readiness. AP is not about paying invoices; it’s about how information flows from vendors, systems, and regulators. When disruptions occur in those channels or they become out of date, risk seeps silently.
Poor Data Hygiene in Vendor Onboarding
The initial point of breakdown usually starts at vendor onboarding. In construction, numerous companies did not get the correct taxpayer information (TINs) or confirm W-9 forms during the onboarding process. These tiny mistakes compounded into misplaced forms, mismatches, and IRS penalties.
Fintech institutions often onboard freelancers and vendors through product interfaces or finance portals. In the absence of automated TIN matching or W-9 validation, they risk creating errors at scale. Worse still, these gaps usually don’t show up until tax season or an audit.
Lack of Real-Time Validation and Filing Automation
IRS fines usually occur due to mistakes that real-time validation could have prevented. In construction, late reporting, misprinted 1099-NECs, and non-matches in payer/payee details comprised most of the fines.
Fintech processes can’t include manual review when they’re processing 1099s by the thousand or handling AP across multiple states. Automation software, such as Zenwork’s Tax1099, provides critical protections such as real-time validation, automatically generated forms, and instant audit trails.
Disconnected Systems and No Audit Trail
Another, and sometimes deadly, gap is the absence of end-to-end visibility. In most penalized construction companies, AP information was kept in isolation from compliance systems, with audits impossible to follow.
Fintech ecosystems are not usually different. Disconnected ERPs, AP software, and CRM systems prevent it from being easy to confirm what was paid, when, and to whom, exposing firms to risk when regulators show up.
The Fintech Mirror: Where Risk Already Could Be Lurking
Fintech firms might think they’re safe from construction-level failures due to their tech-first DNA. However, the truth is that growth tends to outrun operational discipline. That’s where compliance cracks could already be developing:
#1: Embedded Finance Operations
Platforms enabling third-party firms to integrate banking, lending, or payments capabilities expose themselves to multi-party compliance complexity. Each transaction can have potential IRS implications, particularly if you reach 1099 thresholds.
#2: Global Contractor Payments
Increased globalization of remote teams and international partnerships has increased regulatory reporting complexity. Fintech companies paying global contractors can inadvertently create withholding requirements or report earnings incorrectly under IRS or FATCA regulations.
#3: Product-Led Growth with Zero Finance Input
High-growth fintechs typically roll out features without complete compliance and finance review. For instance, the new marketplace feature or contractor onboarding process may forego W-9 collection or TIN verification, giving rise to silent compliance debt.
#4: Standalone Systems Without Central Coordination
Several product lines, vertical organizations, or growth through acquisitions tend to create siloed financial operations. With no system of record for vendor pay and tax data, companies are grappling with the same visibility crisis that has damaged the construction industry.
“In high-growth fintech, what gets overlooked isn’t just a cost center, it’s a penalty magnet.” PwC Fintech Risk Report, 2025
Building a Resilient Compliance Infrastructure: Lessons from Zenwork
Zenwork, and its Tax1099 platform, has demonstrated what a contemporary compliance framework can be. The sector its principal case study is the construction industry, but the capabilities are addressing fintech CEOs directly.
Compliance Built In from Day One
Zenwork allows vendors to integrate tax verification and form management into the very heart of their vendor onboarding process. This ensures that we have W-9s, TINs, and all required data in place before we issue any payments.
Real-Time Dashboards and Filing Status
Through complete API integration with ERPs and payment systems, Zenwork enables real-time filing status dashboards, giving CFOs and compliance leads unobstructed visibility into rejections, deadlines, and mismatches.
Scalable for High-Volume, High-Velocity Environments
From disbursing tens of thousands of microloans to facilitating peer-to-peer payments, Zenwork’s automation design scales with velocity. This is essential for businesses processing tens of thousands of 1099s in multiple states.
Smart Audit Trails and IRS Communication Logs
Most critically, perhaps, Zenwork leaves a digital breadcrumb trail for each transaction, form, and filing, so audits are both possible and repeatable. With the IRS ramping up audit rates for misclassification and underreporting, this feature is no longer a luxury.
Why 2025 Is a Turning Point for Compliance Automation
The IRS has publicly acknowledged that it is ramping up enforcement activity, especially in industries that are heavily dependent on contractors. Construction was the initial big victim, but fintech could be next.
In its 2025 Regulatory Modernization Roadmap, the IRS identified fintech companies providing peer-to-peer payments and gig work integrations as “under review” industries. That is not hypothetical enforcement.
Further, as SEC and OCC regulations shift toward embedded finance and third-party risk, fintech companies will be responsible not only for their transactions but for the compliance stance of their entire vendor and contractor universe. Waiting could mean financial loss, reputational harm, and regulatory backlash that sidetracks funding or partnerships.
Compliance-Driven Fintechs Will Win Investor Trust
Investors are increasingly concerned about operational risk, especially in compliance-intensive industries. In due diligence, companies that show an automated, auditable, and proactive compliance infrastructure are viewed as more mature and less risky.
It is particularly important for fintech startups approaching a funding round or acquisition. A clean compliance stance can be the difference between a closing that goes off without a hitch and a red-flagged deal.
Venture capital firms such as Andreessen Horowitz and Ribbit Capital have already named compliance infrastructure as a leading consideration for fintech portfolios in 2025. Acting ahead of regulation isn’t merely about staying out of trouble; it’s about pulling in capital.
Whether you’re managing thousands of 1099 contractors, scaling cross-border payments, or preparing for your next audit, the smartest move you can make right now is understanding how Zenwork’s model of automation-first compliance can be adapted to your operations.
If the past year has proven anything, it’s that manual compliance no longer scales and the IRS is no longer lenient.
FAQs
1. Why should fintech care about what happened in construction?
Because both industries rely heavily on contractors, compliance cracks in AP can trigger the same penalties.
2. What’s the biggest compliance risk for fast-growing fintechs?
Onboarding vendors without TIN verification or W-9s, errors that often go unnoticed until tax season or audits.
3. We use modern platforms, are we still at risk?
Yes. Without real-time validation, audit trails, and system integration, gaps can still form behind the scenes.
4. Can automation prevent IRS fines?
Absolutely. Tools like Zenwork automate filings, check data in real time, and reduce human error.
5. How do we know if our compliance setup is falling behind?
If your AP, tax, and onboarding systems don’t talk to each other or leave no audit trail—you’re likely exposed.
Join this Zenwork event to learn how to keep your financial operations penalty-proof. Grab your seats now!
