The European Central Bank (ECB) may start requiring bank startups that want to enter the FinTech zone to have more liquidity and capital buffers.
According to a report in Reuters, citing draft licensing guidelines issued by the ECB, the move is due to the risks associated with FinTech banks. According to the report, the ECB said FinTechs may need more liquidity because of their volatile, price-sensitive clients. They could also require more capital as they branch into more mature, untested markets, which will result in an aggressive pricing strategy.
“Online depositors can exhibit price-sensitive behaviors, being more likely to withdraw their deposits and switch to a competitor paying higher interest rates,” the ECB said, according to Reuters. The report noted that the ECB has already given out six FinTech banking licenses, with two applications still in the pending stage.
The ECB noted in the guidelines that the majority of FinTech companies don’t need a license from the ECB, because – unlike the FinTech banks – the businesses are limited and are not lending cash that was collected via deposits. The report noted the ECB may also ask the FinTech banks to create plans to wind down the bank, if necessary, in a way that is orderly and solvent. It will also request that the banks can demonstrate their competence on the information technology front, and may require them to have a designated employee who is in charge of information technology.
The feedback for the new guidelines is open until Nov. 2, reported Reuters. While the FinTech market in Europe is still small, those banks have been stealing market share from traditional players in all sorts of segments, from payments to lending.