“They seemed to be making it up as we went along,” quipped Nick Ogden, founder of ClearBank, in summing up the twists and turns in the slippery bank licensing process for Europe’s financial technology startups, or fintechs. That journey, it seems, is set to become simpler. Last month, the European Central Bank announced it’s working on new licensing guidelines for fintechs.
Though it’s still relatively modest, the fintech sector has been grabbing market share from traditional banks, in sectors ranging from lending and insurance to “cryptocurrency” payments in bitcoin. Since July, the ECB has issued euro-zone licenses to six fintechs, and two applications are currently being processed, according to Jukka Vesala, director general for micro-prudential supervision at the ECB.
Fintech firms seek different shades of approval as a bank. Some, like Germany’s N26, wanted to be full-service, online retail banks from the start. “Without a banking license we would have been 100 percent dependent on a banking partner and very limited in our decision-making,” said Valentin Stalf, co-founder and CEO of N26, in a German magazine interview. Others such as ClearBank, a new British clearing and settlement bank, offer services to other firms, such as access to payment systems and core banking technology.
In principle, the same rules should apply to all providers of banking services, whether traditional institutions or brash, innovative start-ups. But on a few key issues, the ECB’s banking regulators are especially finicky with fintechs. Although member states are generally supportive of applicants (who usually apply in their country of residence), the pioneering nature of their business means the banking authorities who pore over applications face a steep learning curve.