“If I was starting a payments business today I would look at e-money and think it wouldn’t be attractive … because the capital requirements are so much tighter,” said Nik Storonsky, chief executive of digital bank Revolut, per FT.
He added that Revolut has multiple revenue streams, including fees from subscriptions and trading, but newer companies could face hardships if they depend on collecting charges from card transactions.
“A standalone e-money business does not make sense with the new rules,” he said. Revolut has a full banking license in the eurozone and is applying for one in the UK,
The Financial Conduct Authority (FCA) extends licenses to FinTech companies that enable those firms to offer some financial services to consumers, like payments and money transfers. Scores of startups operate in the U.K. as “payment institutions” or “e-money institutions,” the news outlet said.
The new mandates, which are slated to become permanent sometime in 2021, include rigid risk-management tenets. Like banks, FinTechs would be required to have comprehensive plans to wind-down.
“Given the importance of the payments and e-money sector to consumers’ everyday lives, it is important that firms are resilient and ensure customer funds are adequately protected to maintain trust and confidence in the sector,” the FCA told FT.
Rich Wagner, chief executive of Cashplus — previously an eMoney firm and is now a bank — also said that the proposed new rules would burden startups.
“There used to be a pretty big difference in the number of compliance people you needed in an e-money firm versus a bank. Now the number of compliance people you need in e-money institutions is going up, but you still can’t use the customer deposits … the business case to become a bank has become stronger,” he said, per FT.
UK Finance, a banking and finance industry group, last month released a new report about promoting international trade in financial services. Meanwhile, businesses in the U.K. are still reeling from the pandemic and Brexit.
The growth of the U.K.’s FinTech sector could be threatened by Brexit’s lack of protections in its deal with the European Union. The sector could be further hampered by the rise of special purpose acquisition companies (SPACs) in the U.S.
