Banking of the Future: Banks vs Merchant Service Providers
September 28, 2016
Recently banking, the disclosure of information on bank accounts and activities of analogues of banks are popular topics of discussion in media and blogs.
Primarily this is due to the activities of the OECD: in continuation of the successful campaign for the introduction of FATCA, OECD fights against offshore companies. This Organization is developing international cooperation against tax evasion, and, consequently, in favor of disclosure of banking secrecy. This approach has a strong impact on the banking system and the offshore world, because maintaining confidentiality is becoming increasingly difficult and expensive!
It is known that until recently a bank account in Switzerland or Liechtenstein ensured absolute protection of client’s information from the requirements of the domestic state’s judicial decisions. However, the OECD and EU has been cooperating even with Switzerland, which has signed the Convention on Mutual Administrative Assistance in tax matters, and today the concept of “banking secrecy” has transformed beyond recognition.
Since 2014, about a hundred jurisdictions have announced their intention to implement the requirements for disclosure of information on bank accounts of overseas customers upon request of law enforcement agencies in a simplified manner. For instance, a client who is not a citizen of Switzerland and opens a bank account in this country must understand that if law enforcement authorities of his country need information about him or his accounts, the bank will give it.
It should be noted that there are states which refused to implement the OECD requirements. The United States, Vanuatu, Nauru and Bahrain are among them. While banks in Cyprus and Latvia have tightened their requirements for opening accounts for offshore companies and strengthened policy «Know your client» or “Know Your Customer” in 2014. Thus, clients’ activity (especially in IT, marketing and consulting) is now subject to greater scrutiny by the bank.
“We need banking, but not the banks,” – Bill Gates
At the same time, banks are not the only financial institutions that can implement business services. Among the financial institutions other than banks are Merchant services/account providers (MSP/MAP).
This is an umbrella term to banks and other financial companies that provide businesses and individuals with products and services necessary for the operation with credit and debit cards, as well as other forms of electronic payments.
However, the concept of Financial service provider (FSP) often occurs. This is similar umbrella term relating to financial institutions in New Zealand, where the Banking Act has been canceled in 1995, and is not replaced by any particular legislative act so far. Examples here are such famous payment systems like PayPal or Pioneer.
That is, bank services are not unique, and are included into a number of financial services. Also, not all banking services can be considered as financial. Thus, according to the definition of the International Monetary Fund financial service can best be described as the process of obtaining financial products by customers. For example, the payment system provides financial services, if it is able to receive and transfer funds from the payer to the recipient. This process includes an operation with the accounts of credit or debit cards, checks or electronic payments.
Practice shows that, the majority of offshore companies prefer to use the services of MSP’s/FSP’s, rather than banks, because they believe such services are more reliable and confidential. According to the reviews of Offshore Express Company’s customers, here are some benefits:
- Using credit and debit cards in real-time: providers instantly process transactions with credit and debit cards.
- Automatic payment service: customers can operate merchant accounts, remotely and at any time.
- High level of security using the SSL (Secure Sockets Layers) and 3D Secure (checked by Visa & MasterCard SecureCode) and fraud detection tools, such as AVS (Address Verification Service), CVV2, Advanced Fraud Screening.
- Easy to use, fast account opening: the application process usually takes less than 10 minutes and is carried out online, the account opening process takes just a few working days.
- Customer support: managers are providing remote customer support from the date of filing the application till opening an account and until it is closed.
- Possible tax benefits: offshore business prefers such accounts in connection with the minimization of tax restrictions in different countries.
Although the experts of Offshore Express Company recommend not to forget about some of the “red flags”:
- Offers that seem too good to be true. For example, you should be careful, if you are offered an incredibly low price or promised the possibility of uncontrolled payments.
- Immediate account opening. Undoubtedly, all the customers want to have their accounts opened momentarily. But when it comes to offshore operations, verification of documents for opening accounts takes a few business days.
- Statement on low or zero fraud. Providers in good standing recognize that there is always a risk of fraudulent activities, and indicate measures they use in order to minimize such actions by third parties.
- Customer support. What do you think, is this possible to wait for a good product, if there is no customer support service or such service is purely nominal? We think that this is impossible. That is why you should always check the functionality of customer support service.
Furthermore, Bitcoins are gaining popularity in recent years. Developers predict them the ability to replace the offshore business industry. But that is another story…