E-Money and Payments Systems vs Foreign Banks

You must have been searching for the most beneficial options for opening an offshore corporate bank account. 

Are you making ambitious plans to go international in your business? Would you like wider horizons for managing your wealth across several countries? 

If so, you most likely already have paid your attention to various offers from international payment platforms (also referred to as EMIs, PSPs, e-money and payment institutions, systems, providers, platforms, hubs, FinTech companies). 

We know that such advanced solutions are often not quite familiar to corporate clients and individuals. 

This article discusses the new types of nonbank institutions that have emerged over the last 5 years in the payments landscape of Europe and are covered by the EU financial legislation.

Types of European Electronic Payment Institutions

There are two main types of licensed payment providers at the moment:

• PSP (Payment Service Provider) 
• EMI (Electronic Money Institution).

These types of e-money and payments systems are alternatives to conventional international banks. Most of these payment platforms are based in London, the financial center of many financial technology start-ups (Fintech startups).

Some people use EMIs and PSPs as interchangeable terms. However, this is a mistake as there are several important differences between these two types of payment providers. 

In this article, we will analyze what their key distinctions are and give recommendations on how to benefit from them. We will share insights on what you can expect from EMIs and PSPs. And we will consider whether they are a good alternative to a conventional foreign payment bank account.

The New European Landscape for Payment Processing

First of all, let us remark that PSP and EMI are European terms. In other countries, there are other terms such as MSB (Money Service Business). MSBs are more similar to PSPs than to EMIs. 

These new payment providers in the European landscape appeared not long ago but have successfully filled the niche, are extending their services, as the demand for their services is growing.   

Since the beginning of 2020, the InternationalWealth.info consultants have received many questions about the best opportunities for incorporating companies abroad, as well as requests for professional services of opening offshore bank accounts. 

Most of our readers have confessed that it has become extremely difficult to set up a bank account without the assistance of an experienced consultant. If your goals of a foreign account are not very straightforward and clear, it is worth paying for the services of a professional expert, who will not only help you choose the country where it would be more reasonable for you to open an account or register a company, but also recommend a specific financial institution, and take you, step by step, through the process. 

Quite often our experts recommend and help to open an account with some EMI – an increasingly popular option.

In the field of Fintech, Europe is the world leader as an e-money and payments hub. Therefore, customers from all continents are attracted by European banking and EMI services.

The terms EMI and PSP refer to different types of licenses granted under European legislation. Both types of payment systems have the right allowing to open accounts for foreign persons. Moreover, they can give you a direct IBAN (International Bank Account Number), but there are important differences to consider.

PSPs – Payment Service Providers

A good example of a PSP is the currency exchange department of a bank. You can transfer to it your euros or another currency, they will instantly convert them into U.S. dollars and forward them on your order to the seller (supplier) in Japan, China, Taiwan, and other countries.

Thus, PSP is a supplier of bulk payments, sometimes called a “paymentmaster” or “paymaster”.  QIWI fast payment system is an example of the PSP. The convenience of the international application of PSP is obvious in case of payment of wages to hired employees all over the world. You can send 100 000 USD to a PSP and ask it to send 100 transfers of 1000 USD each to 10 countries (or more) and they will do it, with quick conversion,  to the recipients wherever they are. This way, you will save time and costs of multiple conversions and transfer.

In both cases, the PSP is licensed and subject to legislation referring to payment processing. 

However, the main difference between this type of offshore nonbank payment institutions and a conventional bank is that PSPs cannot keep your money with them.

Another important difference is that PSPs are not allowed to hold your money for longer than it would be necessary to complete the transactions you have ordered. Generally, the period of ownership of your PSP funds is limited to 24-48 hours. Therefore, you cannot have a regular current bank account with a PSP.

EMIs – Electronic Money Institutions

Electronic Money Institutions are fully authorized to manage your current account. This means that you can keep your money in EMI, just like in a regular bank account.

 Moreover, an EMI will provide you with your IBAN and Internet Banking login. Therefore, this payment system type allows you to conduct and develop your own business, while in the case of your use of a PSP you can enjoy only payment services.

Although EMI accounts most often operate in the Euro, there are no currency restrictions in Europe, so there are no restrictions on opening one multi-currency or multiple accounts in different currencies in EMI. 

There are also no legal restrictions on opening customer accounts from anywhere in the world (except for a few countries that are subject to EU sanctions). Sometimes restrictions imposed by compliance teams, which both types of e-money and payments systems are obliged to have, may refuse to open accounts for some offshore companies, trusts, and other non-standard forms of ownership. However, an experienced professional consultant will always be able to advise on how to resolve these issues.

That is why EMI is a simple and truly reliable alternative to a foreign bank account for foreign companies that need an account only to send and receive bank transfers worldwide. 

Nowadays EMIs have direct access to the largest payment zones and conventional systems. For example, EMI accounts almost always have access to SEPA (the single euro payments area) and less often to S.W.I.F.T. (the worldwide network that enables financial institutions to exchange information about financial transactions).

Distinctions of EMIs and PSPs from conventional offshore banks

A conventional offshore bank is a specific financial institution category. Let us consider the differences between an offshore bank and an EMI or PSP, and the advantages of offshore payment processing.  

The main difference between a bank and an EMI is that a conventional bank’s business is to lend, while EMI and PSP are utterly forbidden to be engaged in lending. In other words, all kinds of credit products – mortgage loans, overdrafts, business loans, factoring, letters of credit, bank guarantees, etc.  – can only be offered by banks and are completely beyond the EMI and PSP scope according to their licenses. That is why banks can offer credit cards with real monthly credit limits, while EMIs and PSPs can only issue prepaid or debit cards.

Some clients are not sure if the EMIs guarantee the security and safety of assets and data as much as conventional banks. 

The answer to such concerns may be the recognition of the fact that the security does not depend on the features of this or that sector, but rather on the performance of every particular institution, be it a bank or another payment provider. 

After all, you should always keep in mind the principle of Caveat emptor, which is a disclaimer of warranties arising from the fact that buyers should be aware of the features of the good or service they are purchasing, and therefore always be responsible for accepting what they choose to pay for.  

If you are in a high-risk business, or if you are managing a foreign company from a country with high banking risks, it makes sense to select offshore banks, EMIs, and PSPs that are more flexible in their approaches to accepting risks and clients. 

Otherwise, you may simply not be able to work internationally, because more conservative players will most likely be more cautious and reject your application.

It is important to remember that while a bank or an EMI will conduct due diligence on you as a potential customer, so you, for your part, must also conduct due diligence on a foreign financial institution with which you are going to associate. You should always maintain the safety of your personal financial hub while keeping to your goals and managing your risks. 
It would be a mistake to claim that EMI is less secure than banks. In many cases, on the contrary, EMIs are safer than foreign banks (especially investment banks). Why? Just because they are not engaged in borrowing money or gambling in stock and credit markets, which can be extremely risky business and lead to bankruptcy even of such old giants as Lehman Brothers (founded in 1850 and bankrupt in 2008). Huge banks may be damaged by single fraudulent traders, but this could never happen to EMIs.

For example, in Lithuania, which specifically decided to become a financial hub, EMIs usually keep the funds of all its customers in the National Bank (!), which is part of the state financial Eurosystem. This means that if the National Bank of Lithuania becomes insolvent, it will have to be taken over by the European Central Bank. In the UK EMIs often keep their funds in commercial banks which are usually considered too big to fail, such as Barclays and HSBC.

Can an EMI suspend your account without prior notice?? 

It is not possible. Some EMIs in the retail market (TransferWise is a good example) have a policy of opening accounts to anyone, with a minimum KYC scrutiny, but chances are that accounts of customers who perform large transactions will be subject to suspension or closure. 

This policy works well for the entire retail market, rejecting fraudsters and money launderers. But, even as you are not this client type, you can still suffer in case you have concluded a big transaction and have a time-critical bank transfer. It is highly probable that your account will be suddenly frozen. 

What’s even worse in this situation, no one usually wants to take responsibility for such a suspension. 

Such stories are the worst nightmare of any entrepreneur! And yet, it happens every day, in different countries. Moreover, it does not matter whether they are clients of EMIs or traditional banks. 

And what about accounts for offshore companies that tend to perform relatively sophisticated and complex international transactions not fitting within the average standard? 

There is one important advice that the InternationalWealth experts give to our clients: you should be able to quickly contact your account manager who knows who you are and understands your business. And it is very important to do this before making such transactions, not after. 

Our partners deal only with international banks and EMIs, where such direct relationships are possible. It is like private banking in the good old style, and in our opinion, it is very important. 

Unfortunately, such a customized selection of financial solutions is somewhat more expensive than simple solutions (considering the transaction fees, opening fees, minimum balances, etc.). But, most importantly, you will feel more confident about your operations and safer – with the funds in your secure accounts. 

Thus, a dialogue with your bank or financial manager is key to preventing such issues as a frozen account. 

Remember that such communication is a two-way process, and the account manager also needs to know that he or she can contact you promptly if they have any questions about your account or similar issues with the correspondent bank regarding your transactions. If they are sure that you are a serious business person who will provide supporting documents immediately upon request, then in the future, the Compliance team is more likely to pass your ambiguous transaction, and only later, in a quiet mode, will they request documents from you, rather than bluntly block your account until all the reasons for such transfers are explained and clear.

Thus, while PSPs can be beneficial for specific and faster tasks, this is what you can draw from this article:

• Most international transactions between individuals can be done with a PSP
• Most companies need either an EMI account or a bank account, but it is more reliable to have at least 2 accounts because if one is suspended, you can use the funds on the other 
• An EMI account is likely to work successfully as long as you do not need credit products 
• An EMI account will usually open much faster than a bank account 
• You should consult experienced professionals about which EMI or overseas bank is more suitable for your business and corporate structure 
• Reservation and diversification are of paramount importance: never make the mistake of trusting only one bank or EMI, no matter how reliable it may seem to you
• The choice of country and specific EMI depends on the purpose of your account. If we are talking about small amounts and frequent payments, it is faster and more profitable to open an account with one of our e-money and payments systems. If we are talking about saving funds and placing them on deposit, then the preference should be given to conventional banks.

The experts at Internationalwealth.info have accumulated almost ten years of experience in assisting international entrepreneurs and displaced persons living and working in many countries of the world and on all continents. We can help you with individual solutions as well as with turnkey, out-of-the-box packages. 

For example, you can simply start with a free EMI or foreign bank selection consultation.

The differences between the two main types of nonbank payment institutions –

PSP (Payment Service Provider) and EMI (Electronic Money Institute).

• PSP (Payment Service Provider) is a fast payment service that cannot keep your funds for long. The storage time of your funds is usually limited to 24-48 hours.
• EMI (Electronic Money Institute) can not only provide payment services but also store your money in your account. Besides, EMI may issue debit (prepaid) cards.

Both types of payment systems offer a faster and easier procedure for opening accounts, but may not engage in credit transactions.

Contact us today by email given at the top of this page and discuss your needs.

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