Open banking and technological advances have resulted in the development of firms who provide impressive and innovative technologies that disrupt the payment market as we know it.
We have seen real developments in relation to buy now pay later, real time payments, debit cards that can link to multiple accounts/currencies, cryptocurrencies and non-fungible tokens, deposit aggregators and many more.
However, the players in the payment sector are subject to more significant challenges than ever before, which threatens to derail their growth or, at worst, result in corporate failure.
Funding and liquidity: This is more than just ensuring sufficient cash flows to meet the next milestones. Firms need to ensure they have the right investors who can support their growth aspirations and allow the appropriate level of autonomy. Unrealistic forecasts or funding limits can look impressive, but will ultimately hinder firms and result in them failing before they even get going. In addition, it can take many years for these innovative firms to become profitable, but firms need to be mindful that the FCA and PRA have said they will not allow losses to continue indefinitely.
Capital requirements: Firms need to plan for capital requirement increases, particularly when requirements are volume driven. These capital requirements are typically ring-fenced cash which is not usable for trading/growth.
Regulatory landscape: The regulatory landscape is constantly changing to keep up with the dynamism of payment firms. These regulations can provide significant administrative burden on firms, with notable examples being requirements in relation to recovery and solvent wind down plans and AML governance. The supervision from the FCA and PRA is expected to increase given high-profile failures and general concerns in relation to the market.
Client and e-money segregation: Other than contractual deductions, client and e-money balances must be protected and cannot be used for trading purposes (unlikely deposits). The protection of customers is of the highest priority to the regulator and firms cannot cut corners.
AML and Fraud: The payment sector is a constant target for fraudsters and therefore the requirements to prevent fraud and money laundering and protect customers is extensive. Firms can be prevented from trading if their control and prevention frameworks are insufficient, even without any confirmed cases of criminal activity.
Technology: The competitive landscape is fierce, with many firms claiming to have the best technology which is scalable, cost efficient, etc. This makes it hard for new players to stand out from the first movers, despite objectionably having a better offering. Once the technology is developed, it then needs to be invulnerable to attacks or downtime which may result in customers heading elsewhere.
The Firm is an FCA regulated e-money institution, which also offered access to cryptocurrencies.
As a result of concerns over its AML control framework, the Firm was subject to regulator investigation and restrictions.
We undertook a review of the Firm’s solvent wind down plan, including its medium-term cash flow forecasts, to understand whether the Firm could remediate its control framework or be wound up on a solvent basis.
We also supported the Firm in its discussions with the FCA.
Restructuring support
The Group is a worldwide Bureau de Change business, which was impacted significantly by the collapse of international travel during the pandemic.
We supported the Group in considering its options, including formal restructuring mechanisms and advised on a consensual rebasing of its rental obligations and exiting certain countries.
We also supported the search for new investment and planning for a downside case involving the closure (via insolvency) of the majority of it its global business.
Bank & EMI Wind Down
The bank’s parent company wished to exit the market. After an unsuccessful share sale alternative options will be investigated.
Business comprised of personal unsecured lending, automotive lending, e-money cards and deposits.
We led the assessment of the exit options under a range of scenarios including the sale of parts of the business and the wind down or share sale of the remainder. We also advised on the retention payments, supported the wind down and identified the stress test parameters for modelling the liquidity and regulatory capital.
There were several international e-money books with some AML issues and blocked accounts which needed specific management through liquidation.
We were appointed to advise the Board and provide assistance as and when required through the implementation and are now liquidators of the residual entity.
