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FinTechs belonging to this area offer traditional banking services in a modern way, usually through online services or mobile applications as well as ancillary services – e.g. enabling customers to manage their giro- or custody-accounts online and in real time or offering e-wallet services. Keywords in this context are also API-Banking or Banking as a Service (BaaS)/ Bank as a Platform (BaaP).
API-Banking:
API stands for application programming interface and is offered to access data banks and to extract and insert information. API-Banking consequently means the access to data banks of banks to offer new and innovative banking applications.
Through these services FinTechs offer services with new functions, e.g. enabling customers to manage their accounts online and in real time.
BaaS – Bank as a Service/BaaP – Bank as a Platform:
The API-based Bank as a Service platform has a full banking licence, but merely serves as the back end for standalone independent FinTechs, which “use” the licence and the back end of the bank to offer new financial services, launch additional financial products or expand into additional markets.
Introduction
Attitude of the country towards online-banking services
Although the UK banking industry remains dominated by the big “bricks-and-mortar” banks, online FinTech banks (often referred to as “Challenger Banks” or Neobanks”) are growing in market position and popularity. The growth has been driven by various factors, such as traditionally poor (and reducing) customer service levels by the mainstream banks, the ease of use and sophistication of banking apps, and the UK Government’s desire to increase competition and fragment risk concentration in the UK banking sector.
As a result of growth in popularity of online banks, many traditional banks have embraced FinTech’s and technological change, seeing it as an opportunity for their own growth and to reduce operating (particularly staff) costs.
Generally, the UK regulators are supportive of innovation in the financial services sector. Numerous challenger banks and FinTech firms have received authorisation in recent years to carrying on banking (accepting deposits) and banking type (payment services) activities. The FCA provides a ‘regulatory sandbox’ which allows firms to test innovative products in a controlled environment.
The UK Government’s aim is to establish the UK as the global leader in FinTech and Open Banking.
Please see the General Overview of the UK’s FinTech Sector, in the Payment Services section.
Legal affairs
Obligations and requirements to provide online-banking services described above
Online banking services are regulated in the same way as traditional banks in the UK, by the PRA and FCA. The PRA is part of the Bank of England and is responsible for prudential issues such as capital and liquidity. The FCA is responsible for conduct issues, with the aim of protecting consumers, enhancing market integrity and promoting competition.
The essential regulated activity of a bank is accepting deposits. Banks authorised under FSMA are generally able to also provide Payment Services and to issue E-Money.
All banks are required to maintain adequate financial resources, and are subject to qualitative and quantitive liquidity requirements, as well as detailed reporting requirements. Broadly, banks must hold a buffer of unencumbered high quality liquid assets to meet liquidity needs under a 30-day stress scenario.
Banking is the most highly regulated of financial services activities, and banks must comply with a wide range of legislation, including the PRA Rulebook and the FCA Handbook. There