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Fintech is driving transformation at such a rapid pace that regulators are struggling to keep up. As imaginative start-ups simplify and streamline financial services, increased competition is leading the “old guard” of industry incumbents to tighten their defences. What we’re seeing now is a secret tug of war taking place across the European fintech landscape.
To complicate matters, the after-effects of the drawn-out Brexit “deal or no deal” saga are still being felt in the fintech industry. From 1 January 2021, UK fintech firms were no longer passported, which means they cannot actively market or advertise in the EU.
Monneo aims to facilitate and simplify access to European and international IBANs, so this issue strikes at the core of what we do. Expert legal advice received by Monneo has stated that there is no restriction or limitation, neither under UK regulations nor under EU regulations and PSD2, for UK payment institutions to provide services to EU clients if those clients seek these services.
At the same time, although discriminating against IBANs of SEPA members is a violation of EU rules, EU-based payment service providers and acquirers are now more reluctant to settle using UK bank accounts or IBANs, over concerns about regulatory complexity and increased administrative loads that they can ill-afford.
Regulatory clarity is needed to achieve compliance
When confusion and lack of understanding around regulatory changes, even from regulators themselves, creates a situation where ultra-cautious PSPs and acquirers are hesitating to do business with each other, there could be far-reaching and damaging implications for many fintechs, their customers and to the wider economy.
Fintechs offer vital services to many, like the unbanked, underbanked and migrant populations who need to be able to open bank accounts in different countries and send remittances back to their home countries. Given the importance of fintech to the economy, it’s all the more incredulous that the fintech industry is still viewed with disdain by regulators.
2021 started with a jolt for fintech, and many in the industry got another shock when payment schemes announced they would hike online payment fees for EU firms taking payments from UK-issued cards. Although this move would benefit banks more than the schemes themselves, it likely would have meant higher prices for consumers. The planned move was swiftly reversed and postponed after objections from merchants and attention from regulators.
Of course, every business wants to protect its revenue streams, but at what expense to the wider industry? While it’s easier for larger companies to withstand changing winds and interventions from regulators, smaller fintech firms find themselves far more exposed. This was illustrated by Wirecard's sudden collapse, which drew intense regulatory spotlights on the industry. Wirecard's case shows how the fintech landscape remains largely unchartered by regulators, calling into question the understanding they have of the industry as a whole, especially when there are so many different and disparate fintech companies offering such widely different services.
New challenges create new opportunities for innovation
On the positive side, the many challenges springing up from Covid-19, such as the shift to remote working, is driving the fintech industry to collaborate, share understanding and resources. The pandemic’s challenges have created opportunities for the fintech industry to help everyone navigate this new landscape, including helping in the recovery of many businesses who struggled through the pandemic.
While the fintech industry is in a state of flux right now, new players should not be deterred from entering an increasingly competitive arena. By having strong contingency plans, including becoming a regulated entity in an EU country, comprehensive legal advice, and by building a strong and knowledgeable network around your business, you will be in a strong position to grow and succeed, no matter what the future holds.
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