Where to Open a Company Account: Bank vs Neobank

24.12.2022
4 minutes to read

Previously, when opening an account for a company, there was no choice: accounts were opened only in traditional banks. Over time, technologies have been improved, and banks have strengthened their control due to stricter anti-money laundering and counter-terrorism financing legislation. It has become much more difficult to open traditional accounts, now it is not the client who chooses the bank, but the bank who chooses the client. With this in mind, other institutions have appeared and are rapidly developing: neobanks with simple account opening procedures. Let us explain the difference and identify the pros and cons of different options for companies.

Significant differences

Traditional banks and neobanks can conduct transactions and be a good option for a company, but their activities are different.

License. The set of services that a financial institution is able to provide depends thereon. Regardless of the license type, all financial institutions report to the same financial regulator of the country. Therefore, there are no differences in the matter of an account security, it is just the matter of the number of possibilities.

  • A banking license allows an institution to open deposits and grant loans at the expense of the clients’ funds. There will be no restrictions on the amount of money on the accounts for the company here, and the opportunity to take out a loan will arise. In order not to waste time and money on obtaining a banking license, neobanks can cooperate with traditional banks that already have this license. Then they act as a provider of payment services.
  • License to issue electronic money (EMI). It allows institutions to provide financial services, but with restrictions: it is prohibited to grant loans, manage clients’ money, there is a turnover limit for one account, not all transactions are possible.

Procedure for opening an account. At traditional banks, it takes from 1 to 4 months. This is due to compliance with the aforementioned anti-money laundering and counter-terrorism financing legislation (AML/CTF). To assess the risk, the bank learns in detail about the company’s beneficiaries, its activities and source of income, and asks for confirmation of its actual economic substance. As a result, a meeting should be scheduled, and all documents and bank forms should be provided as originals.

At neobanks, this procedure is easier and faster: it takes just a few days. Everything can be arranged online: meeting, submission of documents, electronic signing.

Types of accounts. With a traditional bank, the company will have its own account with all the details: account number, IBAN, SWIFT. A neobank will assign IBAN — an international bank account number, which is no different from the usual details, but provides only for non-cash payments, and SWIFT.

An account maintenance fee will also be different. As a rule, it is lower at a neobank than at a traditional one.

Brick-and-mortar offices. You can come to the office of a traditional bank to solve any issue. Appearance in person is often a mandatory procedure for signing documents in the presence of a bank employee. Neobanks have no offices in the traditional meaning, and all issues are solved online.

Traditional bank account

It is needed if it is important to raise investors’ money or for reputation purposes — it is a confirmation of the company’s reliability. If a company has opened a bank account, it means that it can be trusted, since it has passed the strict compliance of the bank.

  • License. Banking.
  • Opening an account. At least one month and with original documents.
  • Speed of transfers. Several days.
  • Convenience. There is always an opportunity to come to a bank office and resolve a matter in person without wasting time negotiating with online support.

Neobank

This is a bank that only works online. Despite the apparent simplicity of opening an account, neobanks do not work with everyone. Like banks, they report to the financial regulator and may lose their license if they violate the client identification procedure. It is just that the requirements are a bit lower than those of traditional banks, because the range of services and volume of transactions are smaller, which means fewer risks.

This option is not quite suitable if you need to raise investments, but it is convenient and good for operational activities. Modern neobanks are increasingly similar to full-fledged digital banks.

  • License. EMI
  • Opening an account. Online at least two days.
  • Speed of transfers. A few minutes.
  • Convenience. Neobanks are flexible, they are developing rapidly, they are constantly looking for new formats and offer more convenient services than traditional banks. A neobank has its own bank account opened. So the company has an opportunity to make payments through a bank in which it might not be able to open an account on its own. It is often possible to conduct transaction with cryptocurrencies at neobanks.
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