BANKS AND E-MONEY FIRMS: WHAT’S THE DIFFERENCE?

It can be incredibly difficult and confusing to ascertain the status of some fintech firms. The industry has erupted with a series of tangled and often invisible links between companies (such as we saw with the Wirecard situation last summer) that can make it a struggle for even the regulator to work out what’s going on.

“It’s quite clear the environment has become a real complex network of third parties working together,” said Andrea Dunlop from the Electronic Payments Association (APA). “When Wirecard exploded, they were into a business-tobusiness (B2B) model, but off the back of them were B2B into consumers, and it was so complex how it was held together that it actually took the regulator some time to try and unpick all of that.”

The FCA’s guidance says there are “a range non-bank payment providers”, which include, in its words:

Electronic money institutions (EMIs)

Electronic money, also known as “e-money”, is stored electronically, usually in an online wallet or on a prepaid card. You can use it to make payments for goods and services. Issuing e-money is a regulated activity in the UK.

Authorised payment institutions (APIs)

APIs provide a range of regulated payment services. A type of API you could use may be a money remitter, which sends money around the world.

Small payment institutions (SPIs)

SPIs can provide the same services as APIs, but handle much smaller amounts of money. As a result, there are fewer rules SPIs need to follow. There are distinct differences between the level of protection afforded by banks and the various types of “non-bank”, which are outlined in the table below. Before signing up for an account with a provider, check which category they fall under and which protections are offered.