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How do you buy and sell into new territories to grow your business? It’s a simple question, but there are enough books written about it to fill a good-sized library, and more videos and course available than you could complete in two lifetimes.
If you ever dive into it, the technical process of setting up a financial footprint in new territories has multiple considerations and moving parts, a reason historically banks have dedicated entire departments to cash management and transaction banking.
In the past businesses often had to judge the pros and cons of managing multiple currencies in a single offshore location vs multiple onshore accounts in different locations with different banks. Opening financial hubs in new territories used to be a complex and time-consuming process, and still can be if you go down the wrong path. Options to do this ever more efficiently are growing though.
Why open a commercial bank account in a foreign country?
Another straightforward question with a less than straightforward answer. What are the benefits for a business to start building a multi-currency, multi-jurisdiction bank account network?
Multi-currency capabilities
On a basic level, an international bank account network allows you to hold and transact in multiple currencies. Optimising cross border cash management can be summarized as having funds in the right place, at the right time, and in the right currency. This flexibility helps you manage risks associated with foreign exchange fluctuations; storing and moving money when rates are favorable, as well as improve liquidity management in the business.
FX and fees cost savings
If you have two bank accounts in different countries, but within a single platform built by one entity, when you transfer money across borders you can avoid particularly costly currency conversions and transfer fees that come from traditional cross border payments involving a long chain of banks.
Tax efficiency
Depending on the country where your account is held, you may benefit from potential tax savings compared to using your domestic account overseas.
Regulatory compliance and market conventions
Many countries either require you to have a local banking presence before you can do business there or expectations from customers to suppliers to pay and receive locally (or at least local currency). It’s simply a must-have.
The challenges of opening bank accounts in new territories
The correspondent banking system – that banking system we think of first – is a vast network of disconnections. When broken down to its fundamentals, it’s a bunch of regional, national and international banks that talk to each other through complicated contracts and agreements. While sophisticated in many respects, it’s also patchwork in others.
Utilizing traditional correspondent banks, the process of opening a bank account in a foreign country will usually involve some, or all, of the following steps.
- Contact your current commercial bank, whether it has a regional, national or international footprint, and research their capabilities in the country you want to trade in.
- Allow time for them to prepare a solution for you.
- Prepare documentation required to open a bank account in the chosen country. This can often involve working with another banking entity and team.
- Get the proper legalization and notarization of documents, depending on local laws and regulations. External legal opinions may be required.
- Ensure you meet local banking regulations and requirements. This may include minimum balance requirements, residency requirements, and other restrictions on foreign businesses.
- Complete application forms provided by the foreign bank.
- Complete the due diligence and verification processes required by the foreign bank, including background checks and screening for compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations.
- Often you will need to make an initial deposit into the account before you can begin trading.
- Ensure ongoing compliance with the bank's requirements.
As you can see, it’s not a simple process that can lead to delays at every step. A lot of the burden falls on the individual business to complete the process, from simply being proactive in pushing the process along to the administration requirements. It is also not unusual for pricing for the account service to be highly variable between countries.
How businesses can open a foreign bank account, easily
There is a better and more efficient way for businesses to open a foreign bank account, and all it requires is using a different (but still regulated) provider. Fintech’s have spent more than a decade acquiring individual banking licenses to operate within countries and then combining then into a global network.
For businesses, this means that one entity can supply them with the capability to easily open multiple international bank accounts in multiple currencies across the world and manage it all on a single platform.
Once KYC and anti-money laundering checks are completed (and fintech’s are generally much quicker completing these than traditional banks) businesses can open accounts in multiple currencies with the ‘click of a button’. This means that if a business wants to open an international bank account in a foreign country and currency on a Monday, they can be trading with local suppliers there on the Tuesday or Wednesday.
Considerations when picking a fintech provider to open an international bank account
There are subtle differences and restrictions in the offerings out there for you to consider, however, so let’s look at them now.
Provider reach
Depending on the infrastructure the fintech has built, they will be able to offer more or less currencies. It is not quick or easy to become a regulated financial service provider in new countries, so some fintech’s will be more advanced along that path than others.
Omnibus accounts vs segregated accounts
Some fintech’s offer the ability to pay, collect and store in multiple currencies using one single, ‘omnibus’ account, or have single omnibus accounts for individual currencies. Essentially, all your money flows in and out of one account or, for example, all your euro transactions will flow through one account, while your USD transactions will go through another, single account.
Depending on the service, your money can also be mixed in with funds from other businesses. This can carry more risks if the provider goes bust. Even with deposit protection laws, it can be hard sorting out whose money is who’s when it’s all mixed into one account.
Other providers will offer you the ability to create segregated accounts, where your money is not mixed with others. This carries less risk, and more control. It also meets requirements in many countries that require segregated accounts for certain activities, such as payroll.
Currencies offered vs local accounts
Just because a fintech provider offers Australian Dollar bank accounts, it doesn’t mean they can offer the ability to open a local bank account in Australia This extends to other currencies as well.
Their euro accounts may, for instance, be domiciled in one European country. In the main, and particularly with the euro, this won’t matter as payment rails are regional like the currency, but is a useful fact to know.
Platform capabilities
Some fintech’s will facilitate and support you to open commercial bank accounts in certain countries and currencies but won’t have an easy-to-use platform that allows you to manage them all in a single location or your chosen channel e.g. web portal vs API integration.
A benefit of building and controlling your own network of international bank accounts is the ability to see all your cash in one place, and have flexibility to move it when you need to and when rates are favorable, so the platform itself is an important element to research.
Regulation level
When choosing a provider, ask for their regulatory status. This goes beyond the fundamental aspect of keeping your money safe; different regulatory statuses gives greater capabilities in what you can do with your funds.
For example, a broader E-Money or stored value license allows businesses to store certain currencies indefinitely, whereas if a business is not designated as an Electronic Money Institution (EMI) you’ll have to move funds out of certain currencies within a certain period.
Building your own international network of bank accounts
There is now a quicker, more cost-efficient and safe way to build and control your own international network of multi-currency bank accounts. By leveraging the regulated infrastructure built by fintech’s, businesses can now meet that goal of ‘buying and selling in new countries’ without having to read an entire library to figure out how.
Global Accounts by TransferMate allows you to open bank accounts with addressable BICs and IBANs in 30+ currencies, with the ability to combine with our global payment’s network covering 200+ countries and territories. To book a demo, click here. To sign-up, click here.
