Majority of PSPs face bank account closures by lenders

A recent report from fintech company Neo reveals that 95% of Payment Service Providers (PSPs) have experienced their bank accounts being closed or restricted.

The report, titled 'Beyond Banks: The Rise of Fintech Solutions in the Payment Service Provider Industry', details findings from a survey conducted among 100 C-suite executives at PSPs across Europe. Of particular concern is the lack of transparency reported, with 71% of these closures or restrictions occurring without an explanation from the banks.

PSPs remain significantly dependent on traditional banks, with 55% maintaining relationships with two or three banking partners. This heavy reliance often results in slow processes, unclear fee structures, and ongoing account issues that hinder the operational efficiency of these service providers.

When it comes to opening new accounts, the research highlights significant delays. A mere 2% of PSPs have managed to open an account with a traditional bank in under six months, with the average time extending to nearly a year. Such delays can impede PSPs from scaling efficiently and maintaining their competitive edge in international markets.

The report indicates a growing shift towards alternative partners, as 75% of the surveyed PSPs are actively exploring fintech solutions. A notable 39% of PSPs have also formed partnerships with one to three Electronic Money Institutions (EMIs) or PSPs, while 48% work with four to five such institutions, suggesting a preference for diversified fintech collaborations.

Laurent Descout, Co-Founder and CEO of Neo, commented on the findings: "PSPs have evolved from card processors to become critical intermediaries in the financial ecosystem, facilitating electronic transactions between merchants, consumers, and financial institutions. Despite this, the vast majority have faced poor treatment from their banks, including account closures and restrictions with little transparency from their bank. This lack of transparency not only hampers immediate operations but also complicates future planning and risk management. They also represent a potential breach of regulatory obligation if the PSP is left with no other bank to safeguard clients' funds."

Descout further stated, "For those that have faced account closures, it takes a ridiculously long time to get another one set up with traditional banks. These significant delays impede PSPs' ability to scale and operate efficiently in international markets, affecting their competitive edge and growth potential. The complexity of opening an account could be why so many PSPs rely on such a small pool of banks, leaving them at risk if their partner should fail."

Among the primary difficulties faced by PSPs in cross-border payments, the report identifies limited banking platform capabilities such as real-time payment processing and multi-currency handling, which are critical for efficient operations. Thirty-one percent of respondents indicated these platform limitations as a challenge, highlighting the need for advanced features to support international transactions.

The research also points out the importance of specific qualities when selecting fintech partners, with security of funds (31%), transparent and low fees (26%), and quick onboarding (26%) cited as essential criteria by the respondents.

Descout concluded, "The good news is that PSPs now have alternative options to traditional banks, and many are exploring them. The ongoing shift toward fintech is reshaping the market, driving competition, and setting new benchmarks for efficiency and service. As this continues, fintech providers who truly understand the diverse needs of PSPs across regions will be best positioned to capture market share and form lasting partnerships."