Do online “neobanks” protect our money like ordinary French banks?

Reader’s question: Are funds deposited in “neobanks” the same protection mechanisms as funds deposited in ordinary French bank accounts?

Neobanks, or internet-only banks, are financial services companies that operate exclusively online and do not have physical branches.

Although these companies, including Nickel, Aumax and Qonto, cannot necessarily be called “banks” in the traditional sense, customers’ money is normally always protected.

The French Prudential Control and Resolution Authority (ACPR) rejects the term “neobank” because it suggests that these companies are banking establishments (credit institutions) approved by it or another equivalent authority.

“It was the historic status of banks,” said Geoffroy Goffinet, head of authorizations at the ACPR, to Le Monde. “The authorization process conducted by the ACPR takes time – at least 12 months – and is demanding.”

Since these financial services are not subject to the same controls as traditional banks, it can often be much faster to open an account and transfer money.

How are customers protected by neobanks?

Some neobanks, such as Younited and Memo Bank, have obtained ACPR approval and their clients’ funds are protected by deposit insurance from the Deposit Guarantee and Resolution Fund (FGDR), which covers traditional banks. .

This means that if the bank fails, each of its depositors will be covered up to €100,000.

Payment and electronic money institutions

Other companies are incorporated under the name of payment or electronic money institutions, so they do not benefit from the protection of the FGDR, other measures exist to cover depositors’ money.

These payment services do not normally hold all of the money that their customers deposit themselves, but keep it in a deposit account with a traditional bank, which means that in the event of a business default , the funds in the physical bank account would be protected by the FGDR.

Agents and distributors

However, other companies such as Lydia, Pixpay and Kard are not payment service establishments but merely “agents” or “distributors” of payment service establishments.

These are not covered by the FGDR but “the payment service on which they depend will be and will carry out all the necessary checks”, specified Yves Eonnet, the president of the financial services technology company Skaleet.

The ACPR therefore encourages customers to check which payment service or electronic money company an agent is attached to via the Regafi register of the Banque de France before opening an account.

“If it is an agent, the register will allow you to make sure that it is indeed attached to a payment services company. However, this is not possible for distributors [such as Kard or Pixpay]which are not declared to the ACPR by electronic money institutions,” said Mr. Goffinet.

Cyril Chiche, the co-founder of Lydia, who is an agent, told Le Monde that: “We are constantly monitored by our partner electronic money institution, SFPMEI.”

“Our status ensures good security for the client because we work with quality partners in all our activities. But this multiplication becomes financially punitive. So we started the process to become a payment services institution.

“Fintechs need to get started quickly to test their model and control their costs. Their status as an agent or payment service provider directly addresses these concerns,” said Alain Clot, President of France Fintech.

“And it is possible to evolve later if necessary.”

“The granting of the title of credit institution is not a guarantee of security for the customer because the regulations will protect him in all cases”, declared Geoffroy Guigou, the general manager of Younited Credit. “But it’s a marker of success for fintech.”

What about other popular services like Revolut, Monzo, and Transferwise?

Revolut is a British company that uses an easy-to-use phone app where customers can manage their finances.

Although it has applied for a UK banking license, it is not yet protected by the UK’s Financial Services Compensation Scheme (FSCS). However, it holds customers’ money in a traditional “closed” bank account, which means it is covered in the same way as the payment services and e-money institutions detailed above.

In the EU, Revolut has a banking license in Lithuania and therefore the funds are protected by the Bank of Lithuania.

TransferWise is also a UK company that makes it easier for customers to manage their money wherever they are in the world.

It is fully authorized by the Financial Conduct Authority in the UK and the National Bank of Belgium in the EU, and so customers’ money is protected.

Monzo is a regulated bank and therefore depositors’ funds are covered by the FSCS.

Read more: Brexit and the British in France: consider a neobank account

German internet bank taken to court over confiscation of funds

German neobank N26 [with many clients in France] is being sued by former clients who accuse him of abruptly closing their accounts and confiscating their money.

“We have never seen a bank block money in such a totally random and unjustified way, money that belongs to people who need it for their daily life,” said Emma Léoty, the lawyer for Choose and Associates in charge of the file.

The ACPR also asked for explanations from N26, which specifies that the accounts are closed in the event of suspicion of fraud or money laundering, and that only 3% of the customers concerned have not yet recovered their money.

The case will be heard on April 12 in Nanterre.

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