In our previous blog, we addressed different kinds of licensing regimes allowing you to operate financial services across several jurisdictions as well as how to choose the right license for your new digital bank. Despite the fact, that choosing the most suitable license is a major step in your journey to establish the business, it’s only the beginning. In order to be an eligible candidate for such licenses, the new initiative has to undergo a rigorous application process and in some instances enter into fierce competition with several contenders. All hoping to be lucky enough to receive one of the prestigious licenses that allow them to officially head into their digital banking journey. In addition to the uncertainty of the outcome of an application, it usually takes from about 6 months to more than 2 years to fully acquire a license depending on the company’s services, jurisdiction under process, and license applied to.
Applying for a financial license marks a significant time and monetary investment with a certain risk factor not to be successful. However, by being well prepared and following a structured and targeted process, you can drastically improve the chances and efficiency of a successful license application independent of which type of banking or fintech license you are applying for.
Hence, we present 5 essential steps and key success factors to take in mind when applying for a digital banking license.
Phase 0: Review the Business Case
Before starting the real preparation for your license application, you jointly need to determine the most appropriate license for your business venture. The goal is to make a well-informed decision that will most benefit your bank. Which license is the right way to go, will ultimately depend on each individual case and requires a holistic few on the value proposition, business model as well as timing, and appropriate scale. For a more comprehensive guide, read into our blog on how to choose the right license for your bank.
Phase 1: Preparation
Next up in the process, we typically advise clients to prepare an initial scan to determine the as-is situation and highlight any adressable gaps. This includes to make an inventory of already existing documents about the business that could be re-used and submitted for the relevant license application. Re-purposing existing documents can save up significant time and cost in your application process. If you are wondering which documents you should look for, this will be covered right in step number 3.
Phase 2: Planning
Applying for a financial services license in any form is a tedious and long ongoing process that even in the shortest instances will consume a couple of months. Therefore, a piece of good advice is to always create a detailed project plan with timelines and responsibilities for the whole team and consequently commit to it during the full duration of the application. Being well organized will go a long way when applying for a license and will evidently impact the quality of your application.
Phase 3: Execution & Review
Now we are getting to the critical step, the actual crafting of the application. This includes both writing and review of required documents. Requirements differ from one jurisdiction to another and are related to the company’s legal form and place of incorporation. Yet, regardless of the market applied to, standard elements are invariably subject to control. In most cases, the application dossier entails the company’s official license demand including application and screening forms by the issuing body together with other fundamental aspects of the business such as the ownership structure and policies.
Besides the standard documentation, the success of each license application is most often than not defined by its business plan. The Business plan should include the bank’s overall strategy, the proposed scope of activities, a list of all products and services, target market segment, expected customer base, and its financial forecasts among other points. Depending on the licensing regime, often the business plan needs to reflect a multi-year period projection and even include a viable exit plan to be able to unwind operations in an orderly manner if necessary.
Lastly, regulators usually require a description and overview of your IT Strategy and System Architecture including but not limited to the technology stack, data and security policies, and planned IT Governance.
Under some regulatory regimes, the company is sometimes offered a pre-application assessment allowing it to prepare the suitable requirements and material to best fit the application standards before the official submission. Within this phase, the regulatory body may assist in proofreading and feedback submission free of charge.
Phase 4: Submission & Follow-up
Finally, the application can be submitted and the institution in charge will subsequently develop a case study on the applicant through a proper and structured assessment. During the assessment, the regulator will hold follow-up conversations and potentially provide additional questions to the applicant. Most often, a first draft is then prepared, demonstrating the results of the evaluation, and is usually made in partnerships with other governmental/non-governmental relevant bodies. The first draft will include comments and eventually demand additional material to be submitted for further appraisal. Once all the necessary documents are in place, the institution in charge could either conduct a one-step decision formally granting the license to the player or like in the UK, first grant an informal approval which usually consists of a mobilization period restricting certain operations until the bank reaches full operational readiness.
Key Success Factors to win a License
Being granted a banking or fintech license relies on several circumstances. Apart from the general requisites such as being able to fulfill pre-defined minimum capital paid in and regulatory requirements, we have identified four indispensable factors that will determine the success of your application.
To stand out in the application process, the applicant should demonstrate a rigorous ability to illustrate its drive for providing customer value and serving the local economy in its strategic ambition both internally and externally. The bank should be focused on improving the provisioning of financial services without engaging in any kind of value-destructive competition in order to gain market share
Consequently, it should show efficiency in running its set of businesses and commitment to being successful. Ideally, this starts already with the application by providing high-quality input from the start for an increased chance of a swift approval. Both qualitative and quantitative means should be put up-front with regular communication with the regulatory institution in charge and the ability to clearly communicate questions or rectifications when needed about the regulatory scheme. All of the latter will achieve a solid understanding of the framework while at the same time being prepared and ready to launch its operations when succeeding to obtain its desired license.
In the eye of regulators, a bank or digital bank must be able to present a credible and viable business plan which strikes an appropriate balance between the desire to build market share and the need to attain reasonable and sustainable financial results. The company should prove the ability to operate in a sustainable manner without being subject to any kind of performance volatility.
On top of the previous characteristics, the company is also evaluated based on its effectiveness in protecting its client's privacy and overall transparency within the market while continuously being adaptive to any regulatory changes. Furthermore, the applicant should demonstrate effective governance, monitoring, and risk management together with robust frameworks and policies both from a business perspective as well as an IT perspective.
How Fincog can help
Whichever type of license you are applying for, from traditional banking licenses up until European EMI and Payment license, we make sure that you first make the right choices under which license to set up your new venture, but also guide you on your way to successfully obtain your license in the timeliest manner. Our regulatory licensing experts have extensive experience working on licensing applications and many also bring a strong background in compliance and risk management. Additionally, our team of global consultants and subject matter experts exhibits vast experience across financial services and IT, combining strategic thinking with business acumen to support you end-to-end in designing, building , and scaling your digital bank. This will allow you to provide high-quality documentation to the regulator and manage the application process in the quickest and most cost-efficient way.
Fincog is a leading strategy consultancy specialized in fintech and banking. We enable our clients with end-to-end consulting services in designing, building, and scaling digital banks as well as transforming legacy organizations.