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The AltFi view on bank(ing): Fintech mustn’t mislead people

When is a bank, not a bank?



Weekly Leading Article

Over the last decade, the line between being a ‘bank’ and offering ‘banking-like’ services has blurred to the point of near-irrelevance in the eyes of most consumers.

Quickly- Is Monese a bank? What about Tide?Cashplus? Or Revolut? Not easy questions to answer.

In fact, in the latter’s case, whether Revolut is a bank depends more on which country you’re in, and whether Revolut has decided to apply either of its two banking licences to those markets, or not.

Last week’s decision by the FCA to call on all e-money firms to clarify what they are, and aren’t, with their customers—in particular regarding the fact that money isn’t FSCS protected up to £85,000—will bring some welcome clarity to the sector.

Yet the ambiguity between ‘bank’ and ‘banking’, and the willingness of consumers to place their trust in ‘banking’ services like Monzo pre-2017 and Revolut in the UK today, is partly what has fueled the fintech explosion.

The on-ramp provided by an e-money licence for banking-like services is a crucial piece of the fintech puzzle. Indeed it’s something that the regulator has allowed to happen.

And advocates point out that e-money protections, specifically the safeguarding of cash that happens where deposits must end up in a ‘bank’, are more than adequate.

Furthermore, the regulator’s decision to force e-money firms to email their customers over the next six weeks, informing them that their deposits are not FSCS protected, will likely have little impact on established players like Revolut or Tide.

Yet, for nascent challengers, it runs the risk of spooking their customers.

Ultimately, fintech mustn’t mislead people. Customers must be made aware of the risks and the protections, whether they’re banking with a ‘bank’, or a ‘banking-like’ e-money institution.

Over the past few years, the ambiguity allowed by the regulator has allowed fintechs to stretch the rules and lulled consumers into a false sense of security.

It’s time to treat people like adults and help them make the right financial decisions for their circumstances—and a one-off email enforced by the regulator is probably not the long-term solution.

The AltFi Leader is a new weekly view for 2021 from our editorial team. We’d love to hear your ideas, thoughts, feedback and constructive criticism:

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