How EMIs Became ‘Systemically Important’ to Finserv

A new independent report commissioned by ClearBank and produced by financial services analyst Celent examines the EMI market across the UK and Europe

Despite holding estimated deposits of €35 billion (US$38bn) across Europe—an increase of 84% from 2019—electronic money institutions (EMIs) often struggle to find a banking partner that meets their needs.

That’s according to a new independent report commissioned by ClearBank and produced by financial services analyst, Celent, which examines the EMI market across the UK and Europe. 

It also assesses the growing systemic importance of EMIs, as well as how the sector is reacting to a particularly challenging few years and resulting regulatory focus.

ClearBank and Celent’s research highlights the interconnectedness and complexity of the fintech ecosystem, where banks, EMIs and other fintechs are as much cooperative partners as they are rivals.

In other words, there are very few instances cases where an EMI can offer its services without a bank involved somewhere in the value chain. Banks are providing safeguarding services, credit and banking services, and acting as sponsors for account-to-account payments systems.

Contributing to the growth of fintech

E-money licences allow firms to offer limited payment and financial services and do not require the same high capital reserves as a banking licence. 

While, unlike banks, deposits held by an EMI are not guaranteed by a deposit protection scheme, they are required to safeguard their customers’ funds at all times through third-party arrangements.

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

“EMIs have played a key role in the growth of fintech and are now systemically important,” explains Zilvinas Bareisis, Head of Retail Banking and Payments at Celent, and co-author of the report.

“We live in an age of ‘coopetition’, with the same entities competing in one area and cooperating elsewhere. This is the case for banks and EMIs; they can compete and partner on the way to capturing this opportunity.”

EMIs look to add new new banking partners

In carrying out the research, Celent spoke to representatives from a host of industry players including banks, EMIs and fintechs that are EMI clients.

Key findings include:

  • 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 far 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. For banks worried about counter-party risk, this will increase confidence in EMIs and remove barriers to collaboration.
John Salter, CCO at ClearBank

“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,” adds John Salter, Chief Customer Officer at ClearBank.

“Their customers and regulators are—partly in 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.”

Read the full report: UK and European banks and EMIs: Friends or foes?


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