A quiet fortune cycles through the U.S. banking system every single year — and most banks aren’t capturing it.
Over $40 billion in class action settlements are administered annually in the United States. Banks typically hold the funds, earn float, and provide custody. But once disbursement starts, the economics break apart. This is not because banks lose the relationship.
It happens because they do not extend their account structure into the operational layer. That layer is what drives settlement execution. Settlement administrators occupy that layer.
The settlement market is bigger than you think
Class action settlements aren’t niche events. They are a recurring, high-value, high volume and mostly untapped revenue vertical. It spans industries, deal sizes, and settlement timelines.
Consider the numbers:
- The Goldman Sachs securities settlement (2023): $215 million
- The Equifax data breach settlement: $575 million
- The Facebook Cambridge Analytica settlement: $725 million
- The Volkswagen emissions scandal: over $14.7 billion
The sweet spot for banks is the $50M–$500M range. Deals are frequent enough to build a strong portfolio. They are large enough to create solid float income and transaction revenue per case.
At current interest rates, a $200 million settlement generates $8–10 million in float income. This assumes a typical 12-to-18-month holding period. A bank managing ten settlements of that size could earn $80–100 million in yearly float revenue.
That float is only the base layer. Every disbursement carries payment fees, reporting adds platform revenue, and unclaimed property services command premium pricing. More importantly, settlement administrators are not one-off clients – they expand. A single strong execution often unlocks treasury, escrow, and broader commercial mandates. The infrastructure already exists. What’s missing is one account system that makes current banking tools into a clear product for this flow.
Why traditional demand deposit accounts fail at settlement scale
The instinct to use a standard DDA for settlement fund management is understandable. It’s what banks know. It’s what they have. But a Demand Deposit Account has five hard limits that make it unfit for class action payouts. Understanding each one is key to finding the real solution.
1. One account, one owner
A DDA is designed for a single account holder. A class action settlement has hundreds of thousands. A single account has no built-in way to sub-allocate funds. You cannot reserve $347 for one claimant and $1,204 for another in that same account.
2. No internal ledger hierarchy
A DDA holds a balance. Nothing more. Tracking which part of a $200 million balance belongs to each claimant needs an outside system. You may use a spreadsheet, a database, or a third-party tool. None of these connects directly to the bank’s payment rails.
The moment that external system and the core ledger fall out of sync, the payment reconciliation processes goes haywire and there is a lost opportunity of offering this as a product.
3. No payee instruction management
Hundreds of thousands of claimants. Each banking at a different institution. Each preferring a different payment rail. Each with unique tax status and notification preferences. A DDA has no mechanism to store or manage any of this. That data simply has nowhere to live.
4. No automated exception handling
When a payment fails, a DDA generates a return — and stops there. At settlement scale, even a 2–3% return rate means thousands of failed payments requiring manual resolution, prone to human errors. There is no automated way to retry a returned payment, update preferences, or allocate an unclaimed reserve. Every exception becomes a manual event.
5. No interest attribution or calculation
A DDA earns interest on its aggregate balance but cannot allocate that interest across internal sub-balances. In court-supervised settlements, interest allocation is often required by law. This gap creates compliance risk and adds significant operational burden.
The result is predictable: banks either avoid this market or handle it manually. This also leads to predictable errors, delays, and legal liability. Either way, the revenue walks out the door.
The infrastructure fix: Virtual accounts and FBO structures
Composable virtual account management platforms close this gap — not by replacing the physical bank account, but by adding the intelligent allocation layer that legacy banking infrastructure has always lacked.
The architecture is elegant. A single trust infrastructure holds multiple FBO (For Benefit Of) accounts simultaneously — one per settlement. Each has its own virtual account hierarchy, claimant population, and disbursement timeline.
More banks are adopting modern operating systems that let them pursue new growth opportunities without rebuilding infrastructure or adding layers of technology. For each new FBO, they simply activate the required virtual account structures, payment rules and digital experiences.
Each settlement sits in a single physical DDA held in the administrator’s name as an FBO account — funds legally ring-fenced and belonging to the claimants, as required by any court-supervised settlement. Everything beneath that FBO is virtual: no physical accounts, no new account numbers, just a precise, real-time ledger tracking exactly how every dollar is allocated at every point in time.
Each virtual sub-account carries the claimant’s allocated amount, their payment instruction, applicable interest calculation rules, and complete transaction history. When disbursement triggers, funds move from the FBO to whichever financial institution the claimant banks with — via whichever rail they prefer.
Across a portfolio of ten, twenty, or fifty concurrent settlements, the bank operates from a single unified infrastructure. New cases onboard into the existing platform. Administrator relationships deepen into treasury, escrow, and commercial banking mandates. The float compounds. The fees stack. The relationship expands.
Rule-based logic also governs fund release. Disbursements can be conditional — releasing only when a claimant’s tax documentation is confirmed, when a court approval event is logged, or when an eligibility threshold is met. Every rule is auditable. Every event is timestamped. The entire disbursement lifecycle becomes programmable, with automated reconciliation, rather than procedural.
How virtual account management works across a portfolio of settlements:
Own the platform. Own the market.
No two settlements are the same. No two disbursement timelines, interest calculation requirements, or escheatment schedules look alike.
A bank that licenses a third-party VAM platform and adds it to legacy systems will hit a wall fast. The first custom case will expose the limits. In this market, almost every case needs something custom.
A bank that owns composable virtual accounts doesn’t hit that wall. Sub-account hierarchies, conditional release logic, interest attribution rules, unclaimed fund triggers — all of it configured by the bank’s own team, at onboarding, without a vendor queue. The platform bends to the case. Not the other way around. The $40 billion opportunity isn’t going anywhere. The question is which banks own the infrastructure to capture it — and which ones are still waiting on a vendor to build it for them.
Discover how Finzly’s virtual account management platform helps banks automate fund allocation, streamline disbursements, and unlock new revenue opportunities. Talk to our experts.
