Where is better to open an account: banks versus payment systems

When registering a company in a foreign jurisdiction, the question arises where it is better to open a corporate account. The choice is between electronic payment systems and traditional banks. Of course, each of these options has its advantages and disadvantages. That is why it is necessary to focus on the needs of your business, because quality service of the company’s finances is the key to its success.

Accounts in international payment systems

Payment systems use banking approaches in their work, and therefore they can be compared as a separate and a whole. The system of electronic payments, working on the basis of the acquiring bank, forms a single system gateway with it, through which customer transactions are carried out. Payment systems send funds through ordinary (traditional) banks in which the account of the payment system is opened, respectively, transactions are carried out through a bank with a good business reputation. Opening a direct account in bank is usually more problematic than in a payment system, however, the client of the system receives all the advantages of a traditional bank.

As for legal regulation, payment systems as the traditional banks also have to obtain a license, in the case of payments, it is a so-called EMI (Electronic Money Institution) or PSP (Payment Service Provider) license. Payment systems are also subject to financial monitoring and are accountable to the state regulator of the country in which they are registered, just like regular banking institutions, and are required to undergo an audit for compliance with legal requirements. Thus, choosing a payment system that has the appropriate license, your funds will be safe, just like in a traditional bank. It is worth noting that the EMI license does not give the payment system the right to dispose of the funds of third parties, only to conduct transactions.

Regarding transactions, as mentioned above, payment systems open accounts in banks through which payments of customers of such systems pass. Also, systems licensed in the countries of the European Union, as a rule, have access to the single Euro SEPA payment area, which essentially gives access to the entire banking space of the European Union, including Norway and Sweden, and allows for international payments in euros faster and with a reduced fee.

An important advantage of the payment system over the bank is the easier compliance and KYC procedure. When opening an account in the payment system, a personal meeting with a banker is not required, and the documents can be submitted online. The check is always faster and not as strict as in a bank, but a potential client should not underestimate the requirements and compliance procedure of payment systems. It is worth remembering that payment institutions, that value their reputation and license, work with companies only on legal grounds.

After the client is verified, the payment system can issue a physical key card to the personal account. Such a card provides the same range of possibilities as a regular debit card. It is important to emphasize that if the system issues Visa or Mastercard, this is a special plus for its reliability.

Opening accounts in foreign banks

In turn, comparing payment systems and traditional banks, the last one still have a number of significant advantages. First, opening a foreign bank account with the company means that you, as its client, have gone through all the necessary procedures and confirmed your “trustworthiness”, which adds trust to your clients and counterparties. For their clients, traditional banks provide a personal manager with whom you can resolve issues related to activities.

With the expansion of your business activities, the bank may be interest to you as a complete platform that provides not only payment services, but can also provide a credit line, overdraft, deposit placement service and other financial products that payment systems cannot provide due to the lack of a suitable license

If your activity scales, you will face the issue of reliability not only of making payments, but also of preserving existing assets. In this case, banks have an important advantage, because the assets of their clients are protected by deposit guarantee funds in those countries where they are registered (coverage up to 100,000 euros for Eurozone countries). Payment systems are not members of such funds, and in the event that the acquiring bank of the payment system has problems with non-payments, the clients of such a system fall into a vulnerable position, which in the worst case may lead to the loss of funds. In this case, a useful advice for an entrepreneur would be to have both a traditional bank account, to obtain additional opportunities and to store funds, and an account in the payment system, to conduct quick transactions.

In some cases, a regular bank will be useful and more convenient due to the presence of branches to which you can turn for help in case of problems related to payments and conducting activities.

In summary, if you are just planning to start work, or your business is just gaining momentum, and the only thing you need is to conduct transactions, then the payment system is the best option, because opening an account in it is much easier and faster. As a client, you will receive all the advantages of a traditional bank in terms of payment processing and the service fee will be lower. If you understand that the business has reached the level where you are “crowded” within the limits of the payment system, you should think about opening an account in a foreign bank. After all, currently only a bank account can provide a wide range of services, including keeping the client’s assets, placing funds on deposit, personal meetings with the banker, etc. Thus, when registering an international company, at the initial stage it will be more appropriate to open an account in a reliable payment system, and after scaling the business and the need for additional financial services – to think about a bank account abroad.