Payment Institutions: Why so slow?
- Three French PIs had received their authorisation from the Banque de France end 2010. Tens of applications are still being scrutinised by the ACP. Two reasons may account for these delays.
- First, the French regulator added in new requirements to the European threshold of 125,000 euros ongoing capital. The ACP indeed applies to these challengers the same prudential criteria as those imposed on credit institutions: rules set up to prevent money laundering and terrorism financing, as well as solvency ratios. An applicant PI must prove that it did assess the risks and set up the appropriate measures. To illustrate, Aqoba had to increase its assets by two million euros for its authorisation to be definitively granted.
- Yet another obstacle comes form unequal SSM membership rights with full-fledge banks. CSM rules are namely part of a financial self-insuring mechanism to prevent consequences of a bank’s failure. Credit institutions indeed have a five million euro minimum of own funds.
- Failing this, a PI may either use another interbank settlement mechanism (international card schemes are an alternative) or qualify for a lower status with the general purpose CSM.
- In order to protect end users' funds, the PI must subscribe an insurance and/or put these funds on a dedicated bank account. Some PIs explain that opening this kind of account is not easy, since they intend to challenge the banks.
- CSMs’ risk-adverse selection is due to the necessary prudential regulation. The PSD imposes an indirect access right for PIs to a CSM notified as presenting a systemic risk. In fact, most CSMs ensure their self-protection: partakers (called ‘Principal Members’) commit, on their funds, to settle the transactions that might be blocked by the failure of one of them. A requirement of large, liquid and available funds is the logical consequence. However, Principal Members are forbidden to discriminate against a PI requesting affiliation to a CSM.
- On this topic, ADN’co recent operational experience in assisting a PI to be authorised helps to understand the regulator's decisions and apparent sluggishness. In charge of applying general texts, the ACP learns step by step. To illustrate, the applicant is asked to cater for three years of his business plan (in general, in deficit) in addition to the above mentioned elements.
See March 2010 ADN’co Study:
Payment Institutions: Opportunities for many stakeholders
Payment Institutions: Opportunities for many stakeholders