Payment systems that provide financial services are rapidly gaining popularity. The COVID-19 pandemic has greatly contributed to that.
Consumers of banking products began to look for an alternative that would allow them to make payments remotely. And that alternative was found easily: online payment systems linked directly into the traditional banking networks like SWIFT and SEPA. They were present in the market before, but now they have grown and improved their positions. Let’s consider the possible risks, advantages and disadvantages of payment systems such as EMIs.
What Payment Systems Are Available?
One can find many different international payment systems in the market. SWIFT and SEPA are intended for financial institutions only. The latter use them for international transactions. There are also payment systems used for receiving payments in online stores (for example, PayPal, Skrill or Alipay).
However, our article will speak about the payment systems that businesses and individuals can use for opening accounts and making international transactions (for example, Monese, Revolut). Such payment systems in Europe are called EMIs (electronic money institutions). They have the right not only to open accounts, but also to issue electronic currency (but please do not confuse it with crypto currency) and open electronic wallets.
And nowadays they are often referred to as neobanks. This is partly true. It all depends on the license used by the latter. If it is a bank license, then neobanks can provide loans, accept money for deposits without limits. As a rule, such neobanks represent a separate subdivision of a conventional bank, i.e. they are actual banks.
If a company has a financial license only then its services are limited and it is a payment system. However, it may position itself in the market as a neobank.
In addition to the above, payment systems are divided into categories:
- by territory of service delivery, i.e. international (operating in different countries), regional (e.g., operating only within the EU or Latin America) and national (operating in a single country only);
- by type of customer service, i.e. specializing in working with individuals or legal entities or both;
- by number of currencies, i.e. single-currency and multi-currency systems.
It should be also noted that certain payment systems serve high-risk businesses, and others work in the conventional fields only.
Please do not hesitate to contact us right now for a free consultation on selecting a payment system for high-risk businesses.
What Makes Payment Systems Attractive?
Payment systems may be of use to businesses and individuals for the opportunities and prospects that become available:
- fast account opening;
- fast international transactions;
- the opportunity to receive and make payments in foreign currencies;
- no more need for unprofitable conversions;
- payment options get extended;
- cash flows get diversified.
What Services Do Payment Systems Offer to Customers?
Most payment systems provide the following services:
- opening of single and multi-currency accounts;
- international transfers within SWIFT, SEPA and other systems;
- issuance of international payment cards in different currencies;
- granting of loans (this service is available within a limited number of payment systems);
- Internet acquiring.
The target audience of customers interested in the services of payment systems is freelancers and business persons working with foreign partners and suppliers. Keeping a currency account with the local banks is not interesting to them for the following reasons: tough currency controls, sale of currency at an unfavorable rate, multiple bureaucratic procedures.
What Are the Advantages of International Payment Systems?
Today, payment systems represent a real alternative to banking services. And with the development of FinTech, the interest in their services will only increase. Here are the main advantages of foreign payment systems:
- they are fast (account opening, transfers);
- they provide remote service, so there is no need to leave your country in order to use their services;
- favorable rates;
- access to different currencies;
- favorable attitude to non-residents;
- broad possibilities to manage your cash flows, e.g. withdrawal to other payment systems and/or banks;
- high level of security and protection of funds;
- simplified customer identification procedure.
Why do business persons and freelancers from the countries outside the EU find using the services of payment systems so convenient? Opening an account is simple and fast, the receipt of payments for their services and/or goods is fast. It is also possible to keep and use money in foreign currency without changing it at an unfavorable rate.
Possible Risks and Disadvantages of International Payment Systems
Apart from the positive sides, payment systems may have certain disadvantages:
- Lack of trust from potential clients. Payment systems have not yet gained as much popularity as banks did;
- Limited range of services. Payment systems are not yet able to compete with banks in the number of services delivered. They mainly specialize in settlements;
- Increased supervisory requirements. Payment systems are increasingly strictly regulated by the competent authorities, they are gradually raising their capital requirements and are required to comply with the AML laws;
- Existing limits. Supervisory authorities set certain limits on payments and deposit amounts for payment systems;
- There is a risk of account blocking and freezing of funds. Increased AML requirements bind payment systems to monitor customer transactions on an ongoing basis. If a compliance officer suspects an AML violation, there is a high risk of restricted access to the service. However, their compliance departments are still more lenient than that of the banks.
The disadvantages of payment systems should also include limited access to services for certain categories of customers. For example, some EMIs do not send payment cards to certain countries (although this is more related to card association rules). Another important disadvantage is the higher cost of services for non-residents.
That is why when searching for foreign payment systems to open an account, you should benefit from using the expert services. Left on your own, you may just lose time and resources. Turning to us will provide you with access to the experience and knowledge we have accumulated for over a decade of working in this field. Our experts will help you select the payment systems that are best suited to your needs and prepare your documents to ensure a 99% of successful acceptance.
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