Settlement accounts for startups: the optimal solution for the Fintech era

A startup is not just an idea – even when that idea verges on genius – and a team of like-minded people who believe in the success of their project. When it comes to putting the idea into practice, it is above all a business enterprise that functions in the legal and financial realm, and must take into account the current realities of each area. One of the requirements for operating in a legal sense is opening a settlement account for the business. Unfortunately, problems can arise already at this stage. Today we decided to talk about some of these problems.

We begin with a quick reminder as to what a settlement account actually is. For those now entering the realm of business for the first, previously having dealt with banking services only as a private individual, it can be difficult at the very beginning to see the difference between a settlement business account and regular bank account.

Target client

For the purposes of a business, a settlement account is an account connected to a legal entity and meant to be used for all financial transactions related to its business activities. Settlement accounts are of the type that allows direct and unrestricted access to funds. In this respect, they are similar to a regular bank account belonging to a physical person. However, it should be noted that the main difference is its target client – it is tied to a certain business – and it is subject to more vigilant control by supervising bodies.

Settlement accounts for business are meant for:

  • Revenue inflow, including from acquiring operations.
  • It is convenient to pay for the services of suppliers or rental of premises from this account.
  • Employees’ salaries can be transferred to their bank card from this account.
  • Taxes are paid from this account.

The opening of a settlement account, in addition to official registration, is a prerequisite for the legal operation of a company. An individual entrepreneur can approach this issue at his own discretion, although for him opening an account like this also has a lot of advantages. For example, a settlement account:

  • Helps to optimize payment of taxes.
  • Raises the status of the entrepreneur and allows him to enter the market of larger partners.
  • Makes it possible to conclude contracts for larger sums of money.

However, for newborn companies, opening a settlement account with a bank, as we have already said, can bring with it a number of possible problems.

The market and oversight

After amendments to the law “On the prevention of laundering the proceeds from criminal activities (money laundering) and financing of terrorism” came into effect in Latvia on November 9, 2017, banking regulation tightened, especially in the area of work with non-residents. A crisis in the country’s banking sector, occurring at around the same time, also forced banks to act more cautiously.

The introduction of any new, especially innovative, idea often requires purchasing equipment or materials that local suppliers just don’t offer for sale. Secondly, a newborn project often has to look for clients wherever they can be found, and not just within a local, well-established market. Thirdly, in this time of a global economy, investors can also come from any country in the world.

At the same time, transactions stemming from these kinds of buisness relationships sometimes cause traditional banks concern. And, consequently, a new company may a priori come under suspicion. As a result, the founders and other stakeholders in a new company will most likely need to prove from time to time that they are neither a “one-day company,” nor a “laundromat” for laundering the proceeds of some foreign investor’s criminal activities, but rather a company working honestly and in accordance with the law.

Usually suspicion rises out of activities such as settlements with foreign counterparties via electronic wallets and virtual analogues of national currencies, “too large” withdrawals in cash or “non-core purchases.”

For example, a startup specializing in microelectronics purchases some expensive microscopes that officially belong to the “medical equipment” class. This can already be regarded as a suspicious, “non-core purchase.” This, in spite of the fact that this equipment is just essential for work with modern microelectronics as it is for the study of bacteria strains.

It must be admitted that banks, due to their relative stability, are interested, on the one hand, in working with large companies with high turnover, well-known on the market – and, on the other hand, in attracting individuals, even with comparatively little funds, but in high numbers. Such an enterprise might be extremely innovative, but in the bank’s classification system it falls into the category of high-risk clients. This is not out of ill intent, it merely reflects market trends integrated into institutional processes.

Therefore, traditional banks are reluctant to cooperate with startups. In short, they tend not to want to open settlement accounts for them. A new project has to prove quite meticulously that it exists in reality and isn’t operating just on paper; that all of its transactions are unrelated to laundering the proceeds of criminal activities or financing terrorism.

Finally, even if a startup succeeds in opening a settlement account with a bank, it can suddenly be blocked under the same suspicions at an inopportune moment. If, of course, there can be any “opportune” moment for such an unpleasant event at all…

It’s simpler than a bank

But there is a way out. To avoid the above-mentioned problems, the most optimal solution for a startup today would be to open a settlement account at one of the well-established Fintech platforms. For example, this kind of service is provided by Bilderlings, one of among the most dynamic growing European companies. What are the functionality and advantages of a settlement account working on the basis of modern Fintech solutions?

Here are the main benefits of this approach:

  • Our settlement account makes it possible for you to work both at the local and international level, by making payments in 32 currencies, including EUR and USD.
  • This opportunity demonstrates the appropriate trust in our company on the part of the EU controlling financial structures.
  • Of course, the IBAN number assigned to international accounts facilitates work on the international level. Additional IBAN accounts can be opened in two clicks.
  • We approach each client as an individual, taking into account the specifics of their business.
  • The account can be opened remotely, without in-person visits to the office, with a minimum of bureaucracy. Similarly, the identification of clients is accomplished remotely. That is why we never have queues.
  • Flexible system of payment limits. Depending on the documents provided, you can set different levels of limits.
  • Two-factor authentication.
  • As a result of advanced Fintech solutions, instant processing of transactions to any point on the planet.

And the main thing: we are ready to cooperate with startup projects, be it a company or an individual entrepreneur. In terms of its level of functionality, the Bilderlings settlement account stands at the level of a full-fledged digital bank.

None of the above should be taken to imply that we are not concerned with the legality of the origin of funds or the extent to which a startup is engaged in genuine creative activities. It’s just that we believe a new enterprise need not have to collect all of the numerous documents required to prove its legitimacy and solvency. We carry out all the necessary checks ourselves.

Finally, it should be noted that the Fintech platform Bilderlings has a license from the UK Financial Regulator (FCA), as well as a high level security certificate guaranteeing the protection of data card systems PCI DSS (the single security standard in the payment industry).

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