Do you remember when Wirecard fell apart and many startups had to find a new banking provider in a very short timeframe? Well, this story might not be too different.
Railsr, or as many, including myself, still call it, Railsbank, has had a terrible downfall over the past few months. In this newsletter, I covered their troubles, which ended with some of their investors and customers taking over the remains, keeping in mind that the company was valued at almost one billion dollars less than two years ago.
Railsr was operating a Banking-as-a-Service offering in the UK and EU, and for their EU activities, it relied on an e-money license from Lithuania, which was held by their subsidiary Payrnet. The Lithuanian regulator announced that they revoked Payrnet’s license license and started insolvency proceedings for Payrnet as their liabilities exceeded their assets. The regulator published the full details of its findings (see link above), but let me show you how it starts:
The business model of UAB PAYRNET was exclusively focused on activities through intermediaries. During the inspection period, the institution provided financial services through 90 intermediaries, distributors or other legal entities distributing the institution’s financial services. In most cases, the institution would establish a business relationship with them without due diligence and without assessing their suitability, reputation and risk; in cases where the assessment was conducted, it was inadequate. The institution did not control how and to whom intermediaries provided the services of the institution, how they performed the money laundering and terrorist financing functions delegated to them (…).
When you realise that Railsbank was able to obtain and keep a license for that long even though they did not follow many of the requirements that come with a license, you might understand why Lithuania was so attractive for Fintech companies that were looking for a rather easy application process. The findings are very serious, and the drastic step taken by the regulator to revoke the license is the only option. The question remains: how will this case impact the work of the Lithuanian regulator, and will Lithuania lose its popular status for license applications? And will other countries and their regulators (e.g. Malta) in a similar position react as well? Only time will tell.
Hopefully, the 90 customers (Fintech and embedded finance players) of Railsbank in the EU are not caught by surprise like many Wirecard customers were and have started to identify or even integrate another banking provider already.
