Several financial services start-ups in the United Kingdom have decides that partnering with banks is likely to be stifling, so they are trying to get their own banking licenses, according to an article in the American Banker.
That’s not what Starling, Mondo, Atom Bank, and the most recent entrant Tandem plan to do. Borrowing a term from the software and venture capital crowds, these startups aspire to become “full-stack” chartered banks under the welcoming eye of the U.K. government. (In June, the mobile-first Atom Bank secured its banking license, for example.) In addition to collecting interchange fees, they plan to make money from holding deposits and overdraft lending.
As expected, they have run into regulatory hurdles even though the UK regulators say that they are trying to promote start-ups.
Mondo’s Blomfield says the process has gone from nearly impossible to excruciatingly difficult and significantly cheaper: What would cost at least 100 million pounds to start a bank can now be accomplished in the tens of millions because of a change in the rules.
Despite the challenges of financial regulations, these efforts could herald a change in the way new financial services companies come to market. Currently companies like Simple will launch, partner with a bank and then sell themselves to a larger player like BBVA. However, even in the United States there are companies like CBW Bank of Kansas where an entrepreneur bought the bank to serve as an anchor for designing new products. Another example that comes close is Green Dot Corp. For years the industry speculate over which bank Green Dot might sell itself to, but instead, the company bought a bank, launched a debit product in GoBank, and has opened up a software development center in China.
The problem is that despite the best efforts of start-ups on both sides of the pond, banking licenses with their intensive capital requirements may be out of reach for many entrepreneurs. Additionally, the regulations on financial services seem to tighten further every day.
All of that said, banks and credit unions need to recognize that the world is rapidly changing. They may soon find that competitors who have the same kind of charter also have a much different approach to doing business.
Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group
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