Understanding Regulatory Structures

A bank holds a full banking license, allowing it to accept deposits, make loans, and offer a wide range of financial services. Banks are typically regulated by central banks or dedicated banking regulators (such as the FCA and PRA in the UK, or BaFin in Germany).

An E-Money Institution (EMI) is a type of license that allows a company to issue electronic money and provide payment services. EMIs cannot make loans or offer certain banking products. Customer funds held by an EMI are safeguarded but may not be covered by the same deposit insurance schemes that apply to banks.

In practice, many neobanks and fintechs operate under EMI licenses rather than full banking licenses. Some have since obtained banking licenses as they grew (e.g., Revolut obtained a banking license in Lithuania).

A sponsor bank (also called a partner bank) is a licensed bank that provides banking infrastructure to fintech companies. The fintech handles the customer-facing product and technology, while the sponsor bank holds the actual deposits and provides regulatory compliance.

This model is common in the United States, where obtaining a bank charter is complex and expensive. Fintechs like Chime, Mercury, and many others use sponsor banks to offer accounts that are FDIC-insured through the partner bank.

When you deposit money with a fintech that uses a sponsor bank, your funds are technically held at the sponsor bank, not the fintech itself.

Banking-as-a-Service (BaaS) refers to a model where licensed banks or financial institutions provide their banking infrastructure via APIs to other companies. This allows non-bank companies to offer banking products without obtaining their own banking licenses.

BaaS providers handle the regulatory compliance, ledger management, and connection to payment networks, while the fintech builds the customer experience on top.

Examples of BaaS providers include Synapse (US), Railsr (EU/UK), and Column (US). Many modern fintechs are built on BaaS infrastructure.

A Money Services Business (MSB) is a regulatory classification used primarily in the United States. MSBs are registered with FinCEN (Financial Crimes Enforcement Network) and include companies that provide:

• Money transmission
• Currency exchange
• Check cashing
• Money orders or traveler's checks
• Prepaid access

Many fintechs and payment companies register as MSBs. Being an MSB does not mean a company can hold customer deposits in the same way a bank can—MSBs typically partner with licensed banks for deposit holding.

A Virtual Asset Service Provider (VASP) is a regulatory term used to describe companies that provide services related to virtual assets (cryptocurrencies). VASPs may offer:

• Exchange between virtual and fiat currencies
• Exchange between virtual assets
• Transfer of virtual assets
• Custody of virtual assets

VASP registration requirements vary by jurisdiction. In the EU, the Markets in Crypto-Assets (MiCA) regulation provides a framework for crypto-asset service providers. In the US, cryptocurrency exchanges typically register as MSBs with FinCEN and may need state-level licenses.

A card program is a debit or prepaid card offering that is managed by a program manager but issued through a licensed bank. The program manager handles the customer relationship and product design, while the issuing bank provides the actual card issuance and connection to card networks (Visa, Mastercard, etc.).

Many fintech debit cards are issued this way. The card itself is technically issued by the partner bank, even though the customer interacts primarily with the fintech company.

In many cases, yes—but it depends on the specific arrangement and jurisdiction.

In the United States, if your funds are held at an FDIC-insured sponsor bank, they may be covered by FDIC insurance (up to $250,000 per depositor, per bank). Some fintechs use multiple partner banks and "sweep" arrangements to provide higher coverage limits.

In the EU/UK, deposit protection depends on whether the provider holds a banking license. EMI funds are safeguarded but not covered by deposit guarantee schemes like FSCS (UK) or national deposit guarantee schemes (EU). If the provider has a banking license, deposits may be protected up to €100,000 (EU) or £85,000 (UK).

Always check the specific provider's disclosures about how your funds are held and what protections apply.

Understanding the regulatory structure matters for several reasons:

• Deposit protection: Knowing where your money is actually held helps you understand what insurance or protection schemes apply.
• Regulatory oversight: Different license types come with different regulatory requirements and oversight levels.
• Stability: If a fintech faces financial difficulties, understanding the structure helps you know what happens to your funds.
• Service limitations: Different license types enable different services. An EMI cannot offer loans, for example.

WalletIndex provides this information to help you make informed decisions about which providers to use. This is factual information, not a recommendation—you should evaluate providers based on your own needs and risk tolerance.