Payments: ACPR warns of over-ambitious fintech business plans

In a recent report, the Autorité de contrôle prudentiel et de résolution (ACPR), responsible for the licensing and supervision of banks and insurance companies, criticizes the over-ambitious business plans of fintechs specializing in payments or electronic money, when they apply for licensing. The gap between the business plans and results of some fintechs is often very wide.

High costs and low profitability

To succeed in a highly competitive market, fintechs specializing in payment or electronic money must invest substantial sums in promotion and innovation. As a result, as noted by the ACPR in a report published on March 15, entitled "Panorama des nouveaux acteurs de paiement" (Panorama of new payment players), some fintechs face high costs, which often translate into low or non-existent profitability.

" For electronic money and payment institutions that have not yet reached break-even point, the weight of these expenses represented an average of 373% of operating income ", the report details.

There are currently 62 licensed payment and e-money institutions operating in France, offering a range of payment-related services. The number of approvals issued has increased in recent years, due to the European PSD2 directive onopen banking, in force since 2018, but also to the boom in online commerce. Of the 62 approved establishments, 32 were approved after 2018.


Fintechs focus too much on fundraising

According to the ACPR, the business plans of many of these establishments, submitted when applying for approval, are far too optimistic in relation to actual results.

The authority is therefore reminding the fintechs concerned that it requires " a business plan including financial projections over at least three years and also reflecting a downgraded scenario ". Furthermore, " the capital requirements adopted take into account the downgraded forecast scenario" .

These various hypotheses, which must be described before approval is granted, enable the ACPR "to ensure that the company has sufficient financial resources to cover the losses incurred in launching the business, while at the same time covering the risks it faces".

And that's where the problem lies, according to the ACPR report, which points to a flaw in the startup business model. They believe that profitability can be offset by fund-raising. Yet there is a real need to " secure long-term sources of financing for the business, even in the face of unfavorable economic conditions that limit the possibilities of raising funds from venture capitalists ".

The ACPR is also critical of the banking sector. Indeed, in accordance with regulations, payment and e-money institutions "are required to protect funds received from their customers ".

There are two ways to do this: the hive-off and investment method, in which funds are deposited in a dedicated bank account, and/or the hedging method, in which funds are covered by insurance.

However, as the ACPR explains, " new players are finding it increasingly difficult to find banks or insurers willing to provide them with the guarantees required by the regulations ".

The Autorité de contrôle prudentiel et de résolution reminds the banks concerned that they are obliged to " inform it of the reasons for any refusal to open hive-off accounts, in accordance with article L.312-23 of the French Monetary and Financial Code ".