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Is obtaining a Banking Licence worth it?


Obtaining a banking licence is a significant decision for any financial institution considering the rigorous regulations and requirements involved. A banking licence certifies that a company meets strict government regulations and can legally operate as a bank. However, it is essential to assess the benefits and drawbacks before deciding whether pursuing a banking licence is worth it. This article explores the different types of banking licences, compares banking licences with e-money licences, discusses the application process, and examines the pros and cons of each option.


Banking licences come in various forms, including traditional licences and offshore bank licenses in jurisdictions such as Puerto Rico, Dominica and Saint Lucia, however some alternatives exist such as e-money and payment institutions licences in their different forms worldwide. Traditional licences cater to large-scale operations, while fintech licences focus on digital-only banks that offer services exclusively online. Extended licences enable fintech companies to partner with parent banks and operate under their license. On the other hand, e-money licences allow companies to offer payment and financial services but not operate as full-fledged banks or manage deposits.


Fintech companies, labeled as financial technology firms, have emerged as disruptors in the traditional banking sector. By leveraging specialised software, fintech start-ups provide banking services online, offering customers the convenience of managing their finances directly from their smartphones. This innovation aims to enhance the delivery and quality of banking services, simplifying money management for consumers.


When comparing banking licences with e-money licences, the key distinction lies in the handling and protection of customer funds. E-money firms must rely on partner banks to hold funds, and customer deposits are not protected by the European Deposit Guarantee Scheme (DGS). In contrast, licensed banks hold their customers' funds themselves, and deposits are protected up to €100,000 by the DGS. This protection ensures that even in the event of a bank's failure, customers can still receive up to €100,000 of their deposited funds.

The process of applying for a banking licence involves contacting the national supervisory authority, such as the European Central Bank, to initiate the review process. E-money licence applications typically take up to 15 months and cost between €1,500 and €3,000. In contrast, banking licences require a longer period of up to 18 months and involve higher costs, usually around €25,000.

When considering whether to opt for a licensed bank, it is important to weigh the benefits of adhering to government regulations. Licensed banks follow stringent requirements to ensure the safety of customers' funds. In Europe, licensed banks offer deposit protection under the European Deposit Guarantee Scheme, safeguarding deposits up to €100,000. Unlicensed banks and e-money firms do not provide this level of protection.


For businesses contemplating working with Banking-as-a-Service providers, the choice between a full banking licence and an e-money license is crucial. This decision determines the direction of the business, the services it can offer customers, and even its marketing approach. Therefore, it is vital to thoroughly consider the differences, pros, and cons of each licence type before making a decision.

A full banking licence allows for a broader range of services, including payment services, managing customer deposits, offering interest-bearing accounts, issuing credit cards and loans, and providing other financial products. Furthermore, it grants the use of the term 'bank' in the institution's name and marketing materials. A full banking licence provides customers peace of mind, as their deposits are protected by a deposit protection scheme, covering up to €100,000 per depositor.


To obtain a full banking licence in the EU or Tier 1 jurisdictions, a company must meet the specified criteria and minimum capital requirements, which typically start at €5 million. Extensive documentation, including a business plan, organisational structure, and potential conflicts of interest, must be submitted. Regulators also conduct interviews and background checks to ensure the integrity and expertise of the individuals involved.

On the other hand, an e-money licence allows for the provision of payment services and selected financial products, but not the full range of services offered by licensed banks. E-money institutions can accept customer funds, convert them into e-money, offer debit cards and transfers, and provide some digital financial services. However, they cannot manage customer funds, offer interest-bearing accounts, or provide standalone lending products. The minimum capital requirement for an e-money license is significantly lower, usually around €350,000, and the application process is shorter and less complex.

While e-money institutions are subject to less scrutiny and have more operational flexibility, they must keep customer funds segregated and cannot take risks with those funds. There is no requirement to join a depositor compensation scheme, but this may raise concerns for potential customers who value deposit protection. Additionally, there may be limitations on transaction volumes, impacting scalability.


On the whole, obtaining a banking licence is a decision that entails careful consideration of the associated benefits and drawbacks. Licensed banks comply with government regulations and provide deposit protection, instilling confidence in customers. E-money licences offer flexibility and innovation opportunities but may lack the comprehensive range of services and deposit protection provided by licensed banks. Ultimately, businesses must evaluate their specific needs and priorities to determine whether pursuing a banking licence is worth it.


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