In this interview, Craig James shared his views on the legislative landscape of the UK, EU and the US
PaySpace Magazine Global has reached out to Craig James, CEO of Neopay and financial services compliance expert with over 20 years of experience, to ask him about the current state of payments legislation, its drawbacks, and future trends.
What are the key opportunities and challenges you foresee in terms of Open Banking?
Absolutely anything that disrupts a bank is good. I think everything that forces banks to release their hold on customers and prevents them from blocking other companies is incredibly positive. About 4 years ago, I went to a presentation by the COO of one of the big UK banks, and most of those present worked in banking. In that presentation, they said: “Payment companies are eating our lunch. Success for them is not an option, and as banks, we need to leverage our position to ensure that they are not successful”. A bank saying that almost in public is like clearly saying “We’re gonna destroy you.” The only way to change that is to force through things like open banking. We have to write it into legislation because banks will never change on their own. But as a consumer, I have a much greater choice, and I get much better service, and I get much better value for money when the banks are forced to change. So, for me, I think open banking is amazing, it is completely changing how we bank and what it costs me as a customer or a business to the bank.
What legislation would you put in PSD3?
I think that PSD3 needs to address the competition side. Because the biggest problem at the moment for all of those payments and fintech companies is that it doesn’t matter what you do or how good you are, you still have to open a bank account, which is insane. You’re direct competition to the bank, and you can pass all of the tests at the regulator… And still, all the bank has to do to stop you going the market is to say: “I’m not gonna give you a bank account because I think you’re too high-risk.” And that’s it, your whole business model is just being killed. And the banks have done that to so many companies. And there have been some changes, like open banking, that are helping to get over that. I’d like to see something within the legislation that directly addresses the issue of banks acting in an anti-competitive way with other fintechs and financial players.
What’s your opinion on GDPR? Are there any loopholes, which can directly or indirectly affect organizations?
No, not that I’m aware of. The GDPR is actually a quite good piece of legislation. It was very well considered, and there was a lot of consultation. I think that’s probably one area where the legislation is good. In terms of what it does for customers, I think it’s amazing. In my view, it doesn’t go far enough to address some of the abuses that companies make with people’s data. I don’t think that penalties for abusing customers’ data are high enough. So it would be nice to see something like GDPR to be rolled out to somewhere like the United States. I think that would solve a lot of problems as well, because the abuse of data there is so high, and a lot of that bleeds across into Europe, because those companies are operating in the EU, while not necessarily being a subject to all of the rules.
How do you expect payment regulation in the UK and Europe will be developing in the coming years?
The problem of the mainland is that regulation is always trying to keep up. It reacts to what is happening in the market, so it’s a little bit behind. Right now, what regulators do is creating new rules and changing the old ones. And they never take a rule away, they just add more. I think that’s gonna carry on for a couple of years. But the pace of change in fintech and payments sphere is so rapid, the regulator just can’t keep up. When you got a rapidly evolving market and a regulator that is to slow, people will take advantage. They see they can be doing something that is highly profitable for them, very detrimental towards a customer, and they know they got a good 6 to 12 months to get as much money as they possibly can out of that before the regulators gonna catch up. And even then all they have to do is just stop doing it.
What kind of payment licensing is the most required among your clients and why?
It’s very straightforward. At the very top is a deposit-taking license, which is what a bank needs. That’s incredibly complicated. Takes several years, costs well in excess of 10 million pounds, and it’s a minimum. For most companies that’s just not an option. Then you have an e-money license, and just immediately below is a payments license. The requirements for e-money and payments are very similar. You get a little bit more flexibility with an e-money license than you do with payments license, but costs for an e-money license are higher. If all somebody is doing is processing payments and not holding customers’ funds, then payments license is just what they need, and it’s the cheapest to get. If you gonna be holding customers’ funds, then you need to go for the e-money license. That’s the simplification of it, but for most companies figuring out which license to get is probably the easiest part.
What regulatory and compliance issues are the most challenging for your clients?
The biggest problem for everyone is opening a bank account. Moreover, the bank can shut them down for no reason, so that’s always a big concern. To handle it, the first thing is to talk to whoever you got a relationship with at the bank. If we’re talking about setting up a new company, whoever you personally have your bank account with, talk to them first. At least, they know you. I would avoid any company that offers to get you a bank account and wants to charge you a fee. I’ve seen a lot of people paying a lot of money to consultancies, on average €5-6 thousand, to find them a bank account. But no one can guarantee it. My business is about helping companies to get authorized. The company can’t get authorized unless it can get a bank account. That’s why we’ve built relationships with banks all around Europe. We can introduce our potential customers to two or three different banks, who are likely to give them an account. That’s not something we charge them for, because we’re getting paid to do a real work, which is setting up their compliance function and getting them authorized. For us, it makes sense that we do everything we can to help somebody to get a bank account. At the same time, we’re lobbying the regulators to force the banks to stop manipulating with bank accounts.
Another issue where we get the most requests is customer onboarding processes, or how to take on new customers in a compliant way. The process can be very time-consuming and quite difficult for a consumer to get through. The longer it takes for a customer to go through an onboarding process, the more likely they are to drop out, and the cost of acquiring that customer gets higher and higher as well. We’re helping to streamline those processes in conformity with the law, so that our customers can take on their customers and generate revenue quicker and with lower costs. So that’s the biggest problem we deal with.
Comparing the US, the UK, and Europe, where the regulatory climate is the most friendly to payment companies?
Absolutely, the UK. The UK regulator made itself attractive to the payments industry immediately. The UK has issued more e-money and payment licenses then the whole of Europe together. It is clearly the friendliest jurisdiction. The rules are straightforward, the processes are very predictable, and the UK regulator is generally fair.
The legislation in the US is horribly complicated. It is 50 different countries. If you want to launch a payment company in Europe at the moment, you go and get a license in the UK, or France, or Spain, and that gives you access to the whole of Europe. If you want to do that in the US, you have to go to every single state and get a license. So you need 50 licenses, and it will take you about 3 years and around $4 million.
Of all the jurisdictions, the UK is absolutely the most friendly towards payments. The only potential problem right now is the Brexit thing, but I believe nothing’s gonna change radically for the industry.