Financial technology, also referred to as Fintech, grew in importance over time. Initially started as a efficient way to utilize the foreign exchange markets and the brokers operating in it. To provide swift access to their accounts, Fintech firms apply for a license as an Electronic Money Institution to provide their customers with an IBAN account. Most customers confuse such IBAN accounts with the well-known bank account by a supervised credit institution. Yet, there are several distinctions between banks and Electronic Money Institutions.
Traditionally, Fintech firms place their funds with supervised financial institutions and don’t have these under their own direct control. As a result the protection of deposits is governed by the financial institution holding the funds. Deposit insurance does not apply to the IBAN account holders and neither does the IBAN facility qualify as an official bank account. Many creditors of failed credit institutions have experienced difficulties when filing their Deposit Guarantee Claim with an IBAN facility of an Electronic Money Institution instead of a regular bank account.
Fintech firms with a license to operate as an Electronic Money Institution do not engage in traditional banking business. They are not allowed to provide credit facilities and lend out money to borrowers. As a result these firms have a different risk profile than traditional banks. The risk of a default is therefore largely based on conduct. Regulatory violations and extravagant internal spending sprees can place Fintech firms, and their customer money at risk. The failure of such a Fintech firm is exclusively handled by insolvency law and leaves most creditors in difficulties.
Most Fintech firms provide the services their clients need. They maintain a professional and efficient platform and consecutive business model. People in need of such services can choose from a large numbers of providers. It is possible to match their requirements with the offer and caution is recommended.