These days you can choose from dozens of payment institutions for your digital banking needs. All have flashy websites, beautiful cards, fancy logos and slogans and promise you the blue sky. But the truth is that only a handful of those digital banks are actually good in banking.
According to electronic money regulation, EMIs and payment companies must keep client funds with EU based bank overnight – also called safeguarding. This means that one EMI can not keep money with another EMI more than 24 hours. This is important to understand as a lot of EMI’s out there are using other, better banked, EMI’s for their payment routes. This eventually leads to keeping clients money at other EMI, not a bank.
Why client funds safeguarding matters?
As EMI is not a bank, there is no insurance on your funds kept with that institution. Moreover, if the payments provider is keeping money with some unknown private banks or bad reputation banks it’s virtually you keeping your own funds with such banks.
Would you like your money being kept in Romania or Serbia? Thus it is important to ask your payments provider where do they safeguard your funds.
Market And Credit Risk
Using a digital bank that safeguards clients money with top tier bank such as Barclays, JP Morgan, Goldman Sachs, Citi, Lloyds, ING, ABN Amro, BNP Paribas or similar virtually keeping your money with these banks.
In case of big market disruption or a bank run (good example is SVB collapse), these banks have the least amount of default risk or are simply too big to fail. While smaller banks from higher risk jurisdictions could potentially put your money and all client funds from that digital bank at risk in case of collapse.
As additional precaution step, you can always check the credit rating from the safeguarding bank of your digital bank or payments provider. It will give you a good clue.
Epico Finance has several partners that are digital banks. We are well aware what are their main correspondent sand where they do keep client funds overnight. Our partners mainly work with Citi, Barclays, JP Morgan, Goldman Sachs, BNP Paribas, Lloyds and other top tier banks in the world.
In case you are looking for a banking provider, reach out to us to get free of charge consultation or introduction to best banking provider based on your business.
All in all, it is extremely important where digital bank and payment providers keep client funds overnight. Having top tier banks as banking partners is a good sign and will reduce risks significantly.