It is evident the banking sector faces major threats on all fronts. Digital money, mobile payments, cryptocurrencies, and DLT are just some of the competitors right now. There are also fintech banks, which often pose a legitimate challenge to the rest of the financial sector. If it is up to the European Central Bank, however, that may not be the case much longer. More specifically, they may introduce higher bigger capital buffer requirements in the future.
No one will deny fintech banks pose some unique challenges. At the same time, they need to seek a banking license just like other financial institutions. On paper, there is no reason to introduce specific requirements for these new ventures. The ECB feels different about this new trend, though. Their goal is to demand larger liquidity and higher capital buffers from fintech banks moving forward. A very odd decision that will cause some friction, to say the least.
ECB Somewhat Scrutinizes Fintech Banks
What is remarkable is how the ECB confirms there is a growing number of banking license applications from fintech banks. That in itself is pretty positive news overall. However, this poses a new set of challenges, according to the central bank. So much even they drafted a new guide on the licensing process for such financial entities several new additional requirements will be added if the bank gets its way. This will make it more difficult for new competitors to enter the market whatsoever.
At the same time, once has to acknowledge there is some truth to these potential requirements. Providing greater liquidity levels makes a lot of sense. These banks have a far more volatile customer base who may come and go at any given moment Traditional banks often tie customers to them for at least two full years. Moreover, the banking sector is quite crowded right now. Having more capital on hand is needed due to aggressive pricing strategies.
Although these new requirements are still in draft form, they may be introduced soon. It remains to be seen when and if that is the case, though. There is a consultation period until November 2nd. Fintech banks are a very real trend that will not go away anytime soon. They bring much-needed competition to traditional banks as well. Giving consumer more options to choose from is always positive. Whether or not these new requirements will make life more difficult, remains to be seen.
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