It’s widely known in the entrepreneur community in Europe that opening a bank account in Europe (and elsewhere) these days can be very difficult. Due to several money laundry cases which have surfaced in recent years banks have been heavily scrutinised by the authorities. It’s completely understandable, as the amount of money that has been allegedly laundered has been huge. The result is that everybody suffers – not just a few crooks here and there, but all people. This has paved the way to the new banking solutions (FinTechs) and subsequently the surge of the KYC industry, which we’ll shortly discuss in this blog post. We do hope that the peak state paranoia has been reached, and now we slowly regress to normality – a state where you can withdraw cash from your bank account without having to explain to the bank employee that you’re not going to buy guns with it.
The problem with bank accounts is as relevant to American citizens. As the dollar is the reserve currency of the world, Uncle Sam has a strong influence over the banks which they haven’t been shy to use when necessary. As a result banks everywhere in the world find it easier to reject American citizens than to risk dealing with the US authorities.
The issue with the bank accounts goes against the otherwise general wave of doing borderless business and internationalisation. As a business, it’s generally a good idea to enter different markets and expand your business, but if you can’t open a bank account, the company by itself is useless (unless you only transact with cryptos without the need to use fiat-money at all). The issue isn’t only with businesses trying to enter new markets, or entrepreneurs running businesses in different countries – it’s also companies operating in industries which are seen as high-risk. Unless you have a known name in the market, it’s likely the bank account will be the main problem for you. How does it affect the innovation and economy is not clear, but likely the negative effects eventually add up. There’s an opportunity for countries who are looking to attract foreign investments and entrepreneurs by making it possible for the banks to open accounts for foreign entrepreneurs and investors. This doesn’t mean that proper due diligence shouldn’t be done. It’s a question of the general attitude towards businesses and investors. Banks can be perhaps accused of many and much bigger problems we have as a society, but it’s the authorities, politicians and especially the supervisory bodies who are setting the tone. If you don’t want to be sanctioned, you better obey.
Of course, the authorities are simply reacting to the fact that banks already screwed up, but we’ve reached to a point where we’re missing a rational balance as it’s hurting new investments, innovation and entrepreneurship in general. Let me give you one example – if you’re going to register a public limited company which requires shares to be registered at the local CSD, then to register the company you need a local securities account. However, if the bank refuses to open the securities account then you can’t register the company at all. It’s not just theoretical, we have seen this happen as we have helped many companies with incorporation and bank accounts in the last 7 years.
These difficulties also open up possibilities for FinTechs (Electronic Money Institutions – EMIs) and services like BankApply, which simplify the bank account opening process in Europe. BankApply is a startup which matches client profiles with suitable banks and makes the account opening applications on the behalf of the client, potentially saving hours for the entrepreneurs. These types of innovations are a warm welcome to the market.
EMIs have been filling the void in the market and as a reward, are growing exponentially. For most occasions, you don’t need a conventional bank. These so-called online banks (Revolut, TransferWise, Monese, N26, etc) are sufficient for transacting, accepting payments, making payments, taking care of salaries etc. They don’t have a full banking license and deposits aren’t protected by the guarantee fund (covers up to 100 000€ per account), but they usually don’t have high-risk loan portfolios either as they don’t give out loans at all (they might if they have an additional license for that). EMIs more convenient to use, don’t require in-person identification and have built out excellent internet banking facilities. We often recommend online banks to our clients, as they’re also more willing to onboard clients who are non-residents or are operating in a high-risk business.
There are positive signs as well from some European Member States where politicians have publicly talked about the bank account issues and demanding a more balanced approach from the banks and authorities alike. This is a good thing.
As a conclusion, any difficult market brings opportunities and forces to innovate and find solutions. We do believe that through better technology entrepreneurs can solve many problems in any industry, but we also can’t forget that as market participants we must voice our concerns and make ourselves heard to the politicians and authorities.
Comistar provides business, legal and tax support for e-residency companies. Our core focus is on Fintech licensing, e-commerce companies, blockchain industry and affiliate marketers. We’ve been operating for over 5 years and have helped more than 300 companies to get started in Estonia.