Last updated: October 2026 · Reading time: about 12 minutes
What this guide covers
- Why "fintech vs banking" is the wrong comparison
- The three regulatory categories — and what each protects
- What happens if each one fails
- Open Banking: what it actually is
- APP fraud reimbursement: the change most people missed
- The four payment rails and how fast they really settle
- What fintech actually changed
- What didn't change
- How to check any fintech before you deposit money
- FAQ
Why "fintech vs banking" is the wrong comparison
The article you were probably expecting to read — "fintech is fast and digital, traditional banking is slow and branch-based" — was accurate around 2016. It has not been accurate for years.
Two things happened.
First, the banks adopted the fintech stack. Lloyds, NatWest, Barclays, HSBC and Santander all run mobile apps, instant payments, card controls, savings pots and Open Banking integrations. In some cases they built that infrastructure before the challengers that were supposed to disrupt them.
Second, most "fintechs" are not banks. The app on your phone might be from a full UK bank with FSCS protection, or it might be from an e-money institution that holds your money in a safeguarded account at a bank you have never heard of. The user experience is identical. The protection is not.
Which is why the comparison that matters isn't "fintech vs traditional." It's structural — the same question you should ask about any insurance brand, which we covered in our guide to InsurTech vs traditional insurance: who actually holds your money, and what happens if they fail?
For the parallel case in insurance — where the brand on the policy is often not the firm that carries the risk — that earlier article walks through the same structure. The categories are different; the logic is identical.
The three regulatory categories — and what each protects
Every UK financial firm that accepts deposits or holds customer money sits in one of three FCA-authorised categories. Which one determines what happens if they go bust.
| Category | What it can do | How your money is held | FSCS? |
|---|---|---|---|
| Full bank | Accept deposits, lend, hold customer money as a deposit, issue its own cards | As a bank deposit — the money is on the bank's balance sheet | Yes — £85,000 per person, per firm |
| E-money institution (EMI) | Issue electronic money, hold customer balances, provide cards and payments | "Safeguarded" — held in a separate account at a bank or invested in secure liquid assets | No — you are a creditor of the firm |
| Payment institution (PI) | Process payments, money remittance, account information services | Customer funds held under payment services safeguarding rules | No — same as EMI |
That table is the whole article compressed. The rest is the detail.
What "safeguarded" actually means. An e-money institution is required to hold your money in a separate account at a bank, or in secure liquid assets, ring-fenced from its own operating funds. In normal operation, this works: if the EMI goes bust, the safeguarded pool should be sufficient to return your money. In practice, it takes time, it depends on the pool being complete, and the FCA has taken enforcement action against EMIs whose safeguarding was not up to standard.
What safeguarded does not mean is that you get your money back in days. It means you have a claim on a ring-fenced pool, and the insolvency practitioner has to work out how much is in the pool, whether anything is missing, and how to distribute it. That has happened in practice — most visibly with the collapse of a UK EMI — and the customers waited months rather than days.
What a full bank licence actually buys you. If a UK bank fails, the FSCS pays out up to £85,000 per person per firm, typically within seven working days. No claim against a pool, no waiting for an insolvency practitioner. That is the difference between an e-money account and a bank account, and it's not reflected in how either one's app looks.
What happens if each one fails
| What fails | What happens to your money | How long it takes |
|---|---|---|
| Full UK bank | FSCS pays up to £85,000 per person per firm | Typically within 7 working days |
| E-money institution | Claim against safeguarded pool; distributed by insolvency practitioner | Months — depends on pool completeness |
| Payment institution | Same as EMI — claim on safeguarded assets | Months |
| Bank behind the EMI | The EMI's safeguarding arrangement should protect you; the FSCS payout to the EMI covers the firm's claim, not yours directly | Depends on the EMI's status and the pool |
The last row is the one that confuses people. If you have an e-money account and the bank holding the safeguarded pool fails, you are not directly FSCS-protected — because your relationship is with the EMI, not the bank. The EMI makes a claim on the FSCS for the safeguarded funds, and passes the recovery to you. In practice this has worked out, but it is a two-step process, and it is not the same as being a direct depositor at the bank.
Open Banking: what it actually is
Open Banking is one of the most misunderstood things in UK finance. It is not a product. It is a regulatory requirement — introduced under PSD2 (the second Payment Services Directive) and implemented in the UK in 2018 — that requires the nine largest UK banks to share account data with authorised third parties, at the customer's request, through standardised APIs.
Three things flow from that:
- Account information services (AIS). Apps like Emma, Snoop and many budgeting tools can read your bank transactions, at your request, through the bank's API. You authenticate directly with your bank; the third party never sees your password.
- Payment initiation services (PIS). Apps can initiate payments from your bank account without you going through your bank's own app. This is the rail that powers many "pay by bank" checkout buttons.
- 90-day reauthentication. Open Banking consent expires every 90 days and you have to re-authorise. This is by design — a security feature, not a bug — and it's the reason your budgeting app keeps asking you to reconnect.
What Open Banking does not do is give third parties the ability to hold your money. AIS and PIS providers access your account at your request and initiate transactions; they do not become the custodian of your balance. That distinction is why the account information and payment initiation firms are regulated under the payment institution category, not as banks.
If you use a "pay by bank" button at an online checkout, you are almost certainly using Open Banking payment initiation — the money moves from your bank account to the merchant's, without a card network in between. That's why it can be cheaper for merchants than card payments, and why the merchant is keen for you to use it.
APP fraud reimbursement: the change most people missed
Authorised Push Payment (APP) fraud is when you are tricked into sending money yourself — a fake invoice, a scammer impersonating your bank, a property purchase diverted to a fraudster's account. It's not unauthorised fraud (someone using your card without your consent); it's you authorising a payment under false pretences.
Until recently, victims of APP fraud had no automatic right to reimbursement. If your bank could say "you authorised the payment," the loss fell on you. This changed on 7 October 2024, when the Payment Systems Regulator's mandatory reimbursement rules came into force in the UK.
The rules, as originally introduced:
- Mandatory reimbursement by the sending bank for eligible APP fraud on Faster Payments
- Cap of £85,000 per claim — reduced from the £415,000 originally proposed after industry pushback
- £100 excess payable by the customer on each claim
- 50/50 split between the sending and receiving bank on the reimbursement cost
- Reimbursement within 5 working days of the claim being made, with some allowances for complex cases
This is a significant change for consumers, and it directly affects how much protection you actually have when you use different payment methods. A bank transfer that would previously have been a total loss is now — if eligible — reimbursed by the sending bank.
The practical consequence for the fintech/banking question: APP fraud rules apply regardless of whether you are sending money from a bank account or an e-money account, provided the sending firm is in scope of the regime. But the recovery process is different — a bank has clear reimbursement obligations and a defined timeline; an e-money institution may be in scope but the practical recovery is often slower.
The four payment rails and how fast they really settle
Almost everything marketed as "instant payment" sits on one of four rails. The rail determines the real settlement time, the cost, and the protection.
| Rail | Typical speed | Limit | Used for |
|---|---|---|---|
| Faster Payments | Seconds — usually under 30 | Firm-dependent; typically £1m+ per payment | Consumer and business bank transfers, APP fraud is on this rail |
| CHAPS | Same day if submitted before the cut-off (~4pm) | No formal limit | House purchases, high-value business payments |
| Bacs | 3 working days | £20,000 per payment | Direct Debits, salaries, supplier payments |
| Card networks (Visa / Mastercard) | Real-time authorisation, settlement in 1–3 days | Merchant-dependent | Retail purchases, subscriptions, most online checkout |
The gap between authorisation and settlement is where a lot of consumer confusion comes from. When you buy something by card, the merchant sees authorisation in real time but doesn't get the actual money until settlement — usually within 1–3 business days. When you use Open Banking payment initiation, the money moves on Faster Payments — you see it leave your account immediately, the merchant sees it arrive in seconds.
CHAPS is the one to know about if you're buying a house. It's the only rail guaranteed for same-day high-value transfer, and it costs — typically £20–£30 per payment, charged by the sending bank. Faster Payments is free but not guaranteed for same-day high-value — if you're sending a house deposit, the conveyancer will almost always insist on CHAPS.
What fintech actually changed
None of this means fintech changed nothing. It changed a lot — just not the structural question.
Speed of account opening. Opening a bank account used to take days and required a branch visit. It now takes minutes in an app. That change was driven by the digital-first entrants and has been adopted across the market.
Cost of sending money internationally. Sending £1,000 abroad used to cost £25–£40 in fees and hidden FX margin. Firms like Wise and Revolut brought that down to a few pounds and made the FX rate visible. That's a genuine structural change for consumers and small businesses.
Merchant card fees. Small businesses used to pay 2.5–3.5% on card transactions. SumUp, Zettle, Square and the rest brought that down to 1.5–1.75% for many merchants, and gave them hardware that plugs into a phone. That's a real business cost saved.
Financial visibility. Aggregation apps — enabled by Open Banking — let you see multiple accounts in one place. Some of these are genuinely useful; some are thin wrappers around the same API.
Lending speed. Personal loans, business loans and BNPL now approve in minutes rather than weeks. That's real, and it also created a consumer credit boom that the FCA has been stepping in to regulate.
What didn't change
These things are the same whether you bank with an app or a branch:
- Someone holds your money. The brand on the app tells you nothing. The entity that actually holds your balance — bank, EMI, or PI — tells you everything.
- FSCS protection depends on category. Banks are covered up to £85,000 per person per firm. EMIs and PIs are not FSCS-protected in the same way.
- Regulatory recourse is the same. The FCA regulates all of them. The Financial Ombudsman Service handles complaints about all of them. But the outcome if things go wrong is different.
- Fraud prevention is your obligation too. APP reimbursement exists, but it doesn't cover every loss. Confirmation of Payee, checking recipient details, and reading payment warnings are still on you.
- Nothing in fintech changes the Insurance Act 2015 or the Consumer Credit Act. Borrowing is still borrowing; the rules apply to the lender, not the app.
How to check any fintech before you deposit money
Five checks, in this order. Ten minutes total.
- Find the legal entity name. Not the brand — the legal entity. It's in the app's terms, the privacy notice, and the footer of the website. If you can't find it, that's a signal.
- Search that legal entity on the FCA Financial Services Register. It will tell you which permissions the firm holds — banking, e-money, payment services, consumer credit — and what activities are authorised.
- Check whether FSCS protection applies. Look on the FSCS website. Most fintech current accounts will be listed as "not protected" — that doesn't make them unsafe, but you should know it.
- Read the safeguarding statement. An EMI's terms will tell you how your money is safeguarded, and where. If it doesn't, ask.
- Only then decide whether the app's advantages outweigh the protection difference. For a small balance used for spending, an e-money account may be fine. For a savings balance, or money you need access to quickly, a bank is the safer home.
For the parallel structural guide in insurance — where the brand is often not the firm carrying the risk — see our article on InsurTech vs traditional insurance. The categories are different; the reasoning is the same.
If you're investing rather than banking, our guide to automated tax-loss harvesting in Canada covers the equivalent structural question for investment platforms — who holds the assets, and what happens if the platform fails.
Frequently asked questions
Is my Monzo or Starling account FSCS protected?
Yes. Both Monzo and Starling hold full UK banking licences, so balances up to £85,000 per person per firm are FSCS-protected. Revolut is now in a different position following its UK banking licence in 2024 — the licence has been granted with restrictions and the protection for different product types has changed; check the FSCS site for the current status of any specific product you hold.
What is an e-money institution?
An FCA-authorised firm that can issue electronic money and hold customer balances, but cannot take deposits or lend like a bank. Your balance is safeguarded in a separate account, but it is not FSCS-protected. If the firm fails, you have a claim against the safeguarded pool, distributed by an insolvency practitioner.
Why isn't my fintech account FSCS protected?
Because the firm is authorised as an e-money institution or payment institution rather than a bank. The FSCS protects bank deposits and certain insurance and investment products; it does not protect e-money balances. That does not make the firm unsafe — it means the protection mechanism is different, and slower.
What happens to my money if an e-money institution goes bust?
Your money should be held in a safeguarded pool, ring-fenced from the firm's operating funds. If the firm fails, an insolvency practitioner works out what is in the pool and distributes it to customers. In practice this has worked for customers of failed EMIs, but it takes months, not days.
Is Open Banking safe?
Yes, when used with an FCA-authorised third party. You authenticate directly with your bank; the third party never sees your password. Consents expire every 90 days and require re-authorisation. The main risk is authorising an unregulated firm — always check the FCA register before connecting an app.
What is APP fraud and does my bank have to reimburse me?
Authorised Push Payment fraud is when you are tricked into sending money yourself. Since 7 October 2024, UK sending banks have been required to reimburse eligible APP fraud claims up to £85,000, with a £100 customer excess and 5-working-day reimbursement. The regime has been reviewed since introduction — verify current terms on the PSR website.
Are fintech current accounts cheaper than banks?
Sometimes — lower account fees, better FX rates, no overdraft charges. But the comparison isn't like-for-like, because the protection is different. An e-money account with zero fees may still be worse value than a bank account with fees if you hold a meaningful balance.
Can I use a fintech account as my main account?
Yes, and many people do. The important thing is to know which category your account is in, and whether that protection is appropriate for the balance you keep. A bank account with £85,000 FSCS cover and an e-money account with zero fees are not the same product with different pricing — they are different levels of protection.
Lawyer, Academician, Public Policy Analyst, Human Rights Activist, Social Justice Advocate and Interfaith and Peaceful Coexistence Crusader.
Reviewers check factual accuracy and jurisdictional claims; they do not endorse specific products. Their review applies only to the legal claims in the article, not to product recommendations or pricing comparisons.
Related reading on Dedon Tech: InsurTech vs traditional insurance: who actually carries the risk · AI in insurance: what it actually does to your premium and claim · how to automate tax-loss harvesting in Canada · full site map
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