How do stereotypes deprive banks of customers and what is an alternative to a bank account? Marfa Shishkina provides the answers.
Why do you need to look for an alternative to a bank account?
A company trying to open an account with a European bank may encounter great difficulties – banks will either open an account for a very long time or will not open one at all.
This is due, firstly, to the tightening of legislation designed to combat money laundering and terrorist financing (Anti-Money Laundering and Counter-Terrorism Financing, AML/CTF). Instances of large international credit organizations being charged huge fines for violation of AML/CTF procedures have been known.
Therefore, banks limit their risks by tightening internal procedures and their approaches to the client. To open an account, the client needs to explain where the money to create a company comes from, and even confirm it with documentation. Sometimes this involves a very long chain of connections, and not everyone wants to understand how this works.
The second factor is “political”. Working with people from the sanctions list is a huge risk for a bank and any payment provider. Personal stereotyping by bank employees themselves are mixed in with this: if the beneficiary of the company is from Russia, many employees have an automatic trigger – which is the risk of sanctions – and the bank refuses to work with the business, even if it is obvious that the person might not be under sanctions. For this unofficial reason, Cypriot banks began sending notices to close down the accounts of companies whose roots go back to the CIS. This led the settlement industry to search for alternatives, such as the PSD2 directive, which allows payments to be made not only to banks but also to payment providers (payment Institutions, PI).
So, if the bank refused me, can I come to you?
Like banks, PI are licenced by a financial regulator – in our case, it is the Central Bank of Cyprus. Banks are bound by the same laws, and the requirements for AML/CTF are exactly the same for us as it is for them. Therefore, if a bank refuses you, this does not automatically mean a PI will open an account for you. We will also carefully analyse your business but will do it much faster (on average, the process of opening an account takes 5-7 days, whereas for banks it takes two to three months). And if you have a legitimate business, we will not refuse to work with you for subjective or “unofficial” reasons. We, of course, will not open an account for a company that engages in prohibited activities if its owner is under sanctions connected with money laundering or terrorist financing. But if we simply see at the heart of the company someone from Russia or another country, we do not immediately close the dossier, but instead, evaluate the possibilities and prospects of mutually beneficial cooperation. Unfortunately, customers sometimes have the unfounded feeling that banks are not interested in them. Indeed, credit organizations often refuse small companies simply because they are not interested in this area. We do not set volume limits.
What are the differences between a PI account and a bank account?
Firstly, not all PIs open current accounts. It all depends on the type of licence and the business model of a particular institution. Most PIs in Cyprus work with money transfers whereby the sender brings cash to a service point and the recipient receives cash at another point without opening accounts.
Our PI does not work with cash and instead, we specialize specifically in cashless payments. The current account is replenished by transfer from another account, including upon receipt of funds from counterparties. The PI account is for settlement purposes only.
Unlike banks, PIs do not open savings or deposit accounts and do not charge interest on balances. Banks invest the funds received from the client in assets, including high-risk ones – loans, investment instruments. PIs cannot do this. Instead, we must open a separate client account in a correspondent bank and keep client funds separate from our own, and under no circumstances should they be touched until the client gives an order.
How is this money protected if a PI or correspondent bank goes bankrupt?
In the case of PIs, the clear separation of client and proprietary funds is a legislative tool to protect the interests of clients. In the event of bankruptcy, this money will not enter the bankruptcy estate, and recovery of funds by lenders cannot be applied to client funds, which means that the client is reliably protected.
This is fundamentally different to banks, which, in accordance with their licence, invest client funds in assets on their own behalf. If something happens to the correspondent bank, this is the bank’s responsibility to us and does not affect our obligations to the client.
Our PI exclusively stores client funds in banks of the European Union. We conduct an analysis of our counterparty before the start of cooperation and closely monitor their financial health. The common European legislative field, high requirements for capital adequacy, a close interaction of regulators – all this significantly increases the overall level of security.
What are the limitations of PIs?
In general, PIs only provide payment and related services. Restrictions on the types of operations of a PI are defined by its licence. We carry out only non-cash transfers from account to account (including on standing orders) and account direct debit services. Settlement using cards is not yet part of our business focus, but we are considering various options for expanding the licence in the future.
Accounts can be opened in Euros, Russian rubles, and US dollars. Dollar accounts opening is one of the most significant recent news. It is known that it is quite difficult to open a dollar account and make payments in this currency in Europe. In early May, WWPI implemented this feature for its customers.
At the same time, settlements can be made in different currencies by converting euros, dollars, and Russian rubles into the payment currency. We are constantly working to expand our currency range and plan to expand the range of major currencies for our clients in the future.
We have successfully completed European “passportization” procedures, and can now work with residents of the entire European Union, plus Iceland, Liechtenstein and Norway. We also have the opportunity to work with the United Kingdom, given Brexit. As for other countries, the possibility of cooperation with a particular jurisdiction can be discussed should such interest arises from the client. The provision of services in certain jurisdictions can impose a lot of restrictions, up to the creation of a branch, so we are considering various options. For example, we cannot open an account for a Russian resident, but we will offer to create a company for them in Cyprus or in another European jurisdiction that will become our client.
What is the difference between PI Wise Wolves and other similar companies?
We do not store client money in Cyprus. This position is largely dictated by the concerns of our customers. As a result of the 2013 crisis in the Cyprus banking market, customers were faced with an unprecedented “haircut” of deposits, which undermined confidence in Cypriot banks. Now our correspondents are the banks of Austria, Malta and Germany, and our network of European Union partners is expanding.
Unlike many companies similar to us, we work with the corporate sector and not with retail. Our target customer is a company with a constant stream of settlements. Not all of our competitors can provide services involving such a volume of payments due to their capital requirements. However, we do not shut ourselves off from private clients and are always happy to provide individuals with an opportunity for settlements.
Our new direction in settlements is in the settlement of transactions of investment companies, for which we open clients’ accounts (CIF). This is an interesting stage in the development of payment providers, and also offers huge potential in developing the synergy of investment and payment services.
We also recently started offering Escrow services, through which our company opens an escrow account for an agent in an escrow transaction.
Our main advantage and uniqueness in the market, taking into account the licenced and professional capabilities of the entire Wise Wolves Group of companies, is our ability to offer clients a much wider range of services than just settlements. We are a kind of business hub for corporate clients – our group has all the services to support and grow your business.
Our principles and approach are reflected in the business model we use, which takes the form of a circle and symbolises a steering wheel with which our clients can direct and manage their business affairs.