Why Revolut wants a banking licence – Cyber Tech

It is all in regards to the distinction between an emoney supplier and a financial institution …

I’ve been having an ongoing debate with a Revolut fan about the truth that they’ve an emoney licence, as an EMI (Digital Cash Establishment), and that they aren’t a financial institution in Britain.

It’s a part of the continuing debate about their makes an attempt to get a full banking licence from the FCA and, thus far, failing (they did get one the opposite day in Mexico!).

The query requested by Max Karpis, an early Revolut investor, was: Hey Chris, what do you concentrate on this Paul’s debate?

The Paul in query is my colleague on the BBC Paul Lewis, who has usually tweeted (or do we are saying X’d as of late?) that Revolut shouldn’t be a financial institution and subsequently has points with lending and deposits.

Max agrees that Revolut’s lending is restricted in the event that they should function as an EMI licenced agency, as a result of capital necessities, and that’s the reason their focus is on getting a financial institution licnese. Nonetheless, he disagrees on deposits as, working with licenced banks, they are often simply as trusted as an EMI for financial savings below their licence. To be precise, his remark was that “Revolut in partnership with banks presents FSCS financial savings accounts by way of the app solely, he completely ignores the very fact”.

The cash is safeguarded?

I pushed again and mentioned no. That is made clear by many firms on this house, corresponding to N26 who clearly state on their web site that “the important thing distinction between an e-money licence and a banking licence is the place the client’s cash is held, in addition to how it’s protected. E-money companies should use a associate financial institution to carry funds, and your cash is not protected by the European Deposit Assure Scheme (DGS).”

Moreover, it’s essential to know that EMIs do NOT supply financial institution accounts, as a result of they can not obtain deposits in the identical manner as banks, and that’s as a result of they should have deposit ensures, i.e. prospects funds as much as €100,000 aren’t protected below the European Deposit Insurance coverage Scheme.

It’s all about belief within the establishment to guard your cash and, in the event that they lose it, to reimburse you. An EMI, even with safeguarding deposits, doesn’t have that requirement.

Greater than this, an EMI could also be authorised to challenge digital cash and supply cost companies, however they aren’t allowed to lend cash. Transact Funds make this even clearer on LinkedIn:

“The basic distinction between the banking licence and EMI licence is the power to lend cash. EMIs are prohibited from providing any type of lending and should ringfence shopper funds. That is totally different to the standard enterprise mannequin of a financial institution, whose revenue margin depends on producing earnings on deposits by way of providing lending merchandise.

“Because of assembly such rigorous safeguarding standards, buyer deposits with a financial institution are additionally assured by a deposit assure scheme, whereas with the EMI they aren’t.”

Max argues that an EMI is as protected as a financial institution and solely want a licence to lend.

This is the reason Revolut desires that banking licence within the UK. They’ve one within the EU by way of Lithuania and now in Mexico however, with 40 million customers and rising quickly – together with a valuation of greater than $25 billion (as of April 15 2024), which is a forty five% rise on the yr earlier than – the UK banking licence is essential to their growth plans. In any case, seven million of their forty million customers are UK based mostly.

My view? An EMI shouldn’t be as protected as a financial institution as, in the event that they had been, why does Revolut want a banking licence. A financial institution ensures its deposits; an EMI doesn’t or, moderately, not in the identical manner.

What do you suppose?