A new report from cross-border payments and FX fintech, Neo, has revealed that 95% of Payment Service Providers (PSPs) have experienced their bank accounts being closed or restricted by their banking partners. Worse still, 71% reported that the closures or restrictions occurred with minimal transparency and no explanation from their bank.

The report entitled ‘Beyond Banks: The Rise of Fintech Solutions in the Payment Service Provider Industry’, presents findings from a survey of 100 C-suite professionals at PSPs across Europe. It aims to shed light on the challenges they face in their banking relationships and their strategies for overcoming them.

Nearly three-quarters (69%) of PSPs rely on just three or fewer banking partners. A PSP relying on fewer than three banks is in a precarious position, especially since safeguarding banks typically don't make up the majority of these banking partnerships. If a safeguarding bank was to fail, like we saw in 2023’s banking crisis, these firms would face significant risk.

The research also revealed that only 2% of PSPs have been able to open an account with a traditional bank in under six months, with the average time stretching to nearly a year (11.5 months). As a result, many are now exploring alternative solutions. Over one-third (39%) of PSPs have one to three EMI/PSPs, while almost half (48%) maintain relationships with four to five EMI/PSPs demonstrating a strong preference for diversified fintech partnerships. Three-quarters (75%) of PSPs are actively exploring fintech solutions as potential replacements for traditional banks.

Other notable findings include:

• The top pain points when working with traditional banks: lengthy onboarding processes (44%), incompatibility with crypto exchanges (29%), risk of account closure (25%), legacy technology (23%), and poor customer support when payments are blocked (19%).
• The main cross-border payments issues: limited capabilities of banking platforms (31%) such as real-time payment processing and multi-currency handling, reconciliation of flows for receivers (26%) and reporting of transactions in ERP or TMS (24%). 
• Banking services PSPs rely on: transaction processing (40%), technology services (38%), liquidity management and investment of balances (35%) and safeguarding accounts (26%). 
• Regional differences: a particular pain point in the UK was the reconciliation of flows (43%), In Italy, 40% said limitations of banking platforms were the most significant issue and 40% in France said reporting transactions in ERP or TMS was the largest problem.
• Essential qualities when selecting a fintech partner: security of funds (31%), speedy onboarding (26%) and low, transparent fees (26%) were the key factors.

Laurent Descout, Co-Founder and CEO of Neo, comments: “PSPs have evolved from card processors to become critical intermediaries in the financial ecosystem, facilitating electronic transactions between merchants, consumers, and financial institutions. Despite this, the vast majority have faced poor treatment from their banks including account closures and restrictions with little transparency from their bank. This lack of transparency not only hampers immediate operations but also complicates future planning and risk management. They also represent a potential breach of regulatory obligation if the PSP is left with no other bank to safeguard clients’ funds.

“For those that have faced account closures, it takes a ridiculously long time to get another one set up with traditional banks. These significant delays impede PSPs' ability to scale and operate efficiently in international markets, affecting their competitive edge and growth potential. The complexity of opening an account could be why so many PSPs rely on such a small pool of banks, leaving them at risk if their partner should fail.

“The good news is that PSPs now have alternative options to traditional banks and many are exploring them. The ongoing shift toward fintech is reshaping the market, driving competition, and setting new benchmarks for efficiency and service. As this continues, fintech providers who truly understand the diverse needs of PSPs across regions will be best positioned to capture market share and form lasting partnerships."