The European Central Bank says that, because they pose unique risks, it may start asking fintech firms seeking banking licenses to hold bigger capital buffers and larger liquidity.
The ECB says that it is seeing an increasing number of license applications from "fintech banks", which it defines as having “a business model in which the production and delivery of banking products and services are based on technology-enabled innovation”.
With this in mind, the central bank has set out draft guides on the licensing process for these entities - which can be new entrants or existing banks which have "evolved" - that take into account the specific risks they pose.
Fintech banks may need greater liquidity levels than normal lenders because they have a volatile customer base, more likely to switch to rival providers. They may also need more capital because they are entering a crowded market and so are likely to employ aggressive pricing strategies and could also need to switch business models.
The draft guide also highlights IT-related risks for fintech banks, arguing that their reliance on technology and outsourcing, including through cloud computing, makes them vulnerable to cyber attacks.
Elsewhere, the ECB stresses that fintech banks must have people with strong technology and technical skills and knowledge on their management teams, suggesting a chief information technology officer be appointed to executive boards.
A consultation on the guide, which you can read in full below, will now run until 2 November.
Download the document now 239.4 kb (Chrome HTML Document)