back Back

EMIs bridge the gap in FinTech growth amidst banking constraints

By Puja Sharma

February 01, 2024

  • APIs
  • APP Fraud
  • Banking Licence
Share

electronic payment

  • New research from Celent, commissioned by ClearBank, finds EMI deposits have grown 84% from €19 billion in 2019
  • EMI have a critical role to play in the financial ecosystem, however deposits are not covered by protection schemes and require safeguarding
  • Banks can work with and support EMIs in capturing the embedded finance opportunity

ClearBank, the enabler of real-time clearing and embedded banking for financial institutions,  announced a new report on the Electronic Money Institution (EMI) market in the UK and Europe. The independent report, commissioned by ClearBank and produced by leading analyst house Celent, finds that EMIs now hold deposits of €35 billion across Europe—an increase of 84% from 2019—but often struggle to find a banking partner that meets their needs.

The report, UK and European banks and EMIs: friends or foes?, is based on in-depth interviews with over a dozen industry players, including banks, EMIs, and FinTechs that are EMI clients. The report estimates the value of funds held and safeguarded by EMIs in the UK and Europe, based on national and EU-level reports and financial data from EMIs. It also examines the growing systemic importance of EMIs, and how this sector is reacting to a particularly challenging few years and the resulting regulatory focus.

An e-money licence allows firms to offer limited payment and financial services and does not require the same high capital reserves as a banking licence. Unlike banks, deposits held by an EMI are not guaranteed by a deposit protection scheme, however an EMI is required to always safeguard its customers’ funds, through third party arrangements.

The report highlights the interconnectedness and complexity of the FinTech ecosystem, where banks, EMIs and other FinTechs are as much cooperative partners as they are rivals—there are very few cases where an EMI can offer its services without a bank involved somewhere in the value chain. Banks provide safeguarding services, credit and banking services, and act as sponsors for account-to-account payment systems.

By considering EMIs as key clients and partners in offering embedded finance, there is an opportunity for partner banks to capture a greater share of the €35bn in deposits across the UK and EU.

The report also examines how the EMIs, and their relationships with banks, are affected by the fintech downturn and increased regulatory pressure. It finds that:

  • Safeguarding of customer funds, as required by Electronic Money Regulations, is receiving more scrutiny from the customers and partners of EMIs. However, EMIs have limited choice in the safeguarding arrangements open to them.
  • Many EMIs are looking to add new banking partners to provide additional risk mitigation and resilience.
  • When an EMI is selecting a banking partner, ease of integration and risk appetite alignment are much more important than price.
  • EMIs expect regulation to tighten in response to market failures. However, this is welcomed by EMIs as a way to increase their reputation by demonstrating accordance with higher compliance standards. And for banks worried about counter-party risk this will increase confidence in EMIs and remove barriers to collaboration.

“EMIs have played a key role in the growth of FinTech and are now systemically important. We live in an age of ‘coopetition’, with the same entities competing in one area and cooperating elsewhere,” said Zilvinas Bareisis, Head of Retail Banking and Payments at Celent, and one of the co-authors of the report. “This is the case for banks and EMIs—they can compete and partner on the way to capturing this opportunity.”

“EMIs fill the gap left by incumbent banks unwilling or unable to support the FinTech sector and now play a significant role in how financial services are delivered,” said John Salter, Chief Customer Officer, ClearBank. “Their customers and regulators are, partly in a response to recent failings, demanding a greater emphasis on safeguarding, operational resiliency, fraud and AML controls. This report supports our core belief that cooperation and collaboration are key to better services for consumers and businesses”.

Previous Article

February 01, 2024

Conferma Pay & ConnexPay team up to simplify payment processes

Read More
Next Article

February 01, 2024

Mastercard & Emirates NBD to boost digital banking in Egypt

Read More








IBSi Daily News Analysis

Fraud

February 23, 2024

APIs

Regulated firms battle surge in financial crime attempts, research reveals

Read More

IBSi FinTech Journal

  • Most trusted FinTech journal since 1991
  • Digital monthly issue
  • 60+ pages of research, analysis, interviews, opinions, and rankings
  • Global coverage
Subscribe Now

Other Related News

February 23, 2024

The Weekly Wrap: all you need to know by Friday COB | February 23rd

Read More

February 22, 2024

Vidyut raises $10m in Series A Funding round led by 3one4 Capital

Read More

February 22, 2024

In the Indian banking sector, account takeover fraud are on the rise, study shows

Read More

Related Reports

Sales League Table Report 2023
Know More
Global Digital Banking Vendor & Landscape Report Q4 2023
Know More
Wealth Management & Private Banking Systems Report Q4 2023
Know More
IBSi Spectrum Report: Supply Chain Finance Platforms Q4 2023
Know More
Treasury & Capital Markets Systems Report Q4 2023
Know More

IBSi Sales League Table

The industry acknowledged barometer of global banking technology vendor performance!
Get your copy now!
close-link
Get your copy now! IBSi Sales League Table 2023