We bring to your attention a column by Dmitry Kuvshinov, the Executive Director of the British fintech platform Bilderlings, written specifically for the Fintech section of the Banks.am portal.

How are European financial and technological companies regulated, in which countries is the richest infrastructure for fintech start-ups and what niches, when compared with the EU experience, are still free in Armenia?

When it comes to “European fintech”, as a rule, two types of companies are implied – with a focus on technology or with a focus on the financial component. If the world of “technological fintech” (software, applications, etc.) is extremely diverse, the “financial fintech” (i.e. those companies which provide financial services) is more complex, strict and conservative. This is, first of all, because their activities are licensed and controlled by a financial regulator.

And although the license of any EU country extends to virtually the entire EEA (European Economic Area–all EU countries, plus Iceland, Norway and Liechtenstein), each state understands the value of fintech as a niche differently and develops it differently.

A recent Bilderlings study on fintech licenses issued in the EU countries illustrates the market features in each particular EU country.

Most European fintech companies working with finances, with client money, operate under two types of licenses: EMI (Electronic Money Institution, issuer of electronic money) and PI (Payment Institution, payment institutions).

Most European fintech companies working with finances, client money, operate under two types of licenses: EMI (Electronic Money Institution, issuer of electronic money) and PI (Payment Institution, payment institutions).

Electronic money issuers usually work as a payment service, online banking or electronic wallet (the technology is about the same, the matter is in the “packaging”), offering current accounts, money transfers, currency conversion, etc. Increasingly, e-money issuers are growing into
full-fledged banks: someone gets a banking license as a result, someone does not, but in terms of the level of services provided, it is no different from traditional banks. Payment institutions, as a rule, provide online payment processing services (Internet acquiring).

“Today, the niche of financial technologies is quite wide and diverse, but the “core” of the fintech is payment services and Internet acquiring services,” the authors of the study say.

According to the data, the first EMI / PI licenses were issued in 2008–2010, but they did not have significant popularity until 2018, which literally “blew up” the market–in 2018 alone, licenses for issuing electronic money and for Internet acquiring were issued 10 times more than in the previous 10 years.

“The market of electronic money and payment services is one of the fastest-growing. Having survived the peak in 2018, which gave rise to talk about the “bubble”, it began to decline narrowing to its actual size,” Bilderlings concludes.

The PI market, according to the study, is richer and more diverse, it is faster and easier to get the license itself, judging by the number of issued licenses per year. “The EMI license, in turn, is more promising–there is much less competition in this segment when compared to PI,” the authors of the study say.

The status of “fintech capital of Europe” was thoroughly assigned to London, and statistics confirm this: 47.5% of all European EMI licenses and 37.9% of PI licenses are under the supervision of the British regulator.

However, in recent years, against the background of the epic with Brexit, other EU countries have also become active, showing a noticeable interest in the fintech niche. Among them are Lithuania and Ireland, Cyprus, Germany, Belgium, Italy, the Netherlands, Spain, Sweden. Perhaps some of them will be able to build within their own country the same infrastructure comfortable for fintech that the UK can be proud of. Although, as stated in the study, “no Brexit will abolish the attractiveness of the UK as a jurisdiction for fintech companies”.

As for Armenia, the activities of payment services, electronic money issuers and processing companies are regulated by the Central Bank. The law provides for two types of licenses for payment and settlement organizations: a license for money transfers (similar to EMI) and for the processing and clearing of payment instruments and payment and settlement documents (analogue of PI).

According to the register of the Central Bank of the Republic of Armenia, there are almost twice more money transfer organizations than clearing and processing organizations: 10 and 5, respectively. Compared with EU countries, this situation is not typical: in most European jurisdictions, the number of companies that have received a license for Internet acquiring significantly exceeds the number of payment services.

According to the Register of the Central Bank of the Republic of Armenia, the number of money transfer organizations is almost twice as large as that of clearing and processing organizations: 10 and 5, respectively. Compared with EU countries, this situation is not typical: in most European jurisdictions, the number of companies that have received a license for Internet acquiring significantly exceeds the number of payment services.

Another feature of the Armenian market of fintech services is that all payment and settlement organizations of Armenia carrying out processing and clearing also have a license to make money transfers, i.e. are larger services with a wider range of services.

As for the business model, the Armenian payment services focus on either money transfers or working as an electronic wallet (payment for goods and services, replenishment through the terminal, etc.). The niche of payment services that deal with digital banking (i.e. providing full-fledged settlement account services for businesses and individuals) is still free.

The thoughts expressed in the column belong to the author and may not coincide with the views of the editors of Banks.am.

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