At Modulr, we work hard to ensure that all our customer communications are clear and we’re committed to playing our part in increasing standards across the industry. So, we welcomed the chance to offer further clarity around the differences in protections between our services and traditional banking and answer some frequently asked questions.
What is Modulr?
Modulr is the Payments as a Service API platform for digital businesses that need a faster, easier and more reliable way to move money. We provide the digital infrastructure that enables businesses to automate their payment flows, maximise efficiency and put payments at the heart of their platforms, workflows and customer experiences.
Is Modulr a bank?
Modulr is not a bank, we’re an E-money Institution (EMI).
An EMI is an organisation that has been authorised by the regulator to issue electronic money and eMoney accounts. In the UK, we're authorised and regulated by the Financial Conduct Authority (FCA) and in the EU we're regulated by the Central Bank of Ireland.
Through our authorised EMI status, we offer payments as a service as an alternative to traditional wholesale and commercial transaction banking infrastructure. They come with sort codes or Euro IBANs, access to payment schemes and everything you’d expect, but they’re faster, easier and more reliable.
How does Modulr protect customer funds?
Because we’re not a bank, and we don’t put our customers’ money at risk by lending it out, protection schemes like the Financial Services Compensation Scheme (FSCS), which offers consumer protection up to £85,000 (or £170,000 for a join account) in the event of a bank failure, do not apply to our business model.
Instead, we use safeguarding to protect customer money.
How is Modulr different from a bank?
The main difference between Modulr, an EMI, and a bank is that banks lend money, whereas EMIs are prohibited from lending money. Our payments service is regulated by the same payments regulations as a bank’s payment service but we don’t lend or offer interest.
Banks take deposits from customers to lend money out and make money on the difference (the Net Interest Margin) whereas an EMI holds 100% of clients’ funds at all times and makes its money on the volume of payments and accounts. This means we’re built to optimise and encourage payments and accounts growth, making it our job to scale your business with you.
What is safeguarding and how is it different to FSCS?
We ensure that 100% of the funds we receive in exchange for electronic money are safeguarded on receipt, meaning that these are segregated from all other funds that we hold and they cannot be used for any other purposes. This is completely separate from the additional capital resources that Modulr holds to meet its corporate obligations.
Furthermore, as an EMI, we must also hold an additional 2% of the total value of safeguarded client funds in our own funds, which are held separately to those client funds. The purpose of the funds is to ensure that, in the case of any business issues, there are enough funds to support an orderly business wind-down and the process of returning of client funds held back to clients. Combining this ‘own funds’ requirement with the safeguarding means that customer funds are 100% available to a customer, and there is a protection mechanism to help ensure an orderly wind down, if required and this is detailed below.
So, while the FSCS is not applicable, the regulatory regime outlined above can be relied upon instead and protects the balance of customer funds, as opposed to only compensating up to a limit.
What would happen in the unlikely event of Modulr’s insolvency?
In addition to the safeguarding and further ‘own fund’ requirements we’re also required to prepare orderly wind down planning. These plans include the early identification of a potential insolvency event and the return of your funds before an insolvency process. We have to provide these plans to the FCA and they are subject to external audit review. This further reduces the unlikely event of your funds having to be returned during our insolvency. In the unlikely event that Modulr becomes insolvent, your funds are separate from the funds of Modulr and therefore the creditors of Modulr (other third parties that are owed money from Modulr) are not able to make a claim or have any effect on your funds.
An independent insolvency professional (referred to as an ‘insolvency practitioner’) will be appointed to return your funds to you. However, where an insolvency practitioner is unable to take their costs of sending the funds to you from elsewhere (for example, the general pot of Modulr funds remaining or from the additional 2% own funds described above) they are entitled to take their costs from your funds. In this unlikely circumstance, while you’ll likely receive most of your funds you may not receive the total value if costs are deducted. The process of returning your funds by an insolvency practitioner is likely to take longer than if you were making a claim in the FSCS.
Where is my money stored?
Modulr uses a range of clearing banks for different services but, with our direct access to Faster Payments and Bacs, Modulr is one of a few non-bank Payment Service Providers to hold funds associated with GBP domestic flows directly at the Bank of England. Our safeguarding processes are subject to independent external audit, providing confidence that we adhere to the regulations.
Who regulates Modulr in the UK?
Modulr FS Limited (FRN 900573) is an Authorised Electronic Money Institution (AEMI), regulated by the Financial Conduct Authority. This allows Modulr FS Limited to issue electronic money (e-money) to clients, holding client funds in safeguarded accounts, and provide related payment services to customers. Modulr Finance Limited (FRN: 900699) is registered with the Financial Conduct Authority as an EMD Agent of Modulr FS Limited.
Payment services within the UK are subject to the Payment Services Regulations (PSR). This is the common regulation which applies to all payment services, meaning there is no material difference between how a payment service at Modulr or a bank is regulated.
Who regulates Modulr in the EU?
Modulr FS Europe Limited is a company registered in Ireland with company number 638002, authorised and regulated by the Central Bank of Ireland as an Electronic Money Institution (Institution Code C191242).