Banks and Payment Systems: Differences, Advantages, and Drawbacks

Struggling with a choice between a bank and a payment system? Keep in mind that both components of the financial system can be beneficial for solving certain problems or useless for a number of reasons. This is true not only for individuals who want to open an account abroad to manage or store personal assets but also for business structures that have different interests.

In which case is it better to open an account with a payment system? When should you prefer an account in a regular bank, including an offshore financial institution? Please read on to find out.

Payment System: What Is It?

Let’s make it clear: we are not talking here about Visa or Mastercard payment systems. We are going to take a look at licensed financial institutions that provide a certain range of instruments to store, transfer, and accumulate your funds. Their customers include individuals and legal entities, offshore companies, and high-risk businesses (such as cryptocurrency, gambling, trade, etc.).

Such payment systems (neobanks) include Wise (former TransferWise), Paypal, Revolut, Payoneer, and other similar institutions that provide financial services to residents and non-residents of the country that issues the business license. Payment systems are also divided into local and international ones, which helps choose the right service (especially for travelers and offshore business structures).

Advantages and Disadvantages of Payment Systems

Here are the peculiarities of neobanks that can be considered their advantages:

• Payment systems have no physical office: all operations are made using an app and a personal account with the system.
• The requirements for customers and restrictive measures, including sanctions, are applied in accordance with the laws of the country that issues the license and norms imposed by international regulators.
• Present-day payment systems provide a wide range of services, including currency exchange, plastic and virtual cards, multicurrency operations, processing of trading transactions, and many other things.
• You can register an account online (without visiting a physical office).
• Entrepreneurs can take advantage of automated payment processing channels and additional corporate instruments.
• High payment processing speed.
• Profitable currency conversion rates.
• More loyal attitude to high-risk businesses than in ordinary banks.

Foreigners can get access to their assets on the card account, deposit or withdraw money, keep, accumulate, or even increase them thanks to currency conversion or the access to crypto channels, and also dispose of finances in the majority of countries. As a rule, payment systems work with UnionPay, Visa, and Mastercard cards that are accepted in practically all states. 

The disadvantages of payment systems include:

• Product restrictions (there are no loans or savings accounts)
• No physical office

If you want to find the best payment system where you can open an account for yourself or for your business, please make a comparative analysis of services, requirements, and commissions.

Peculiarities of Banks

Banks are full-fledged financial institutions that provide a lot of services, have an office in one or several countries, and serve private or corporate customers. The bank’s internal policy is in line with international rules and locally adopted norms.

Advantages and Disadvantages of Banks

Here are several reasons why you will benefit a lot from opening accounts with serious banks located in Europe, Asia, and other parts of the globe:

• Large banks have a good reputation, which may be important for international companies that carry out their activities in different jurisdictions.
• A wide choice of banking products that include personal and corporate accounts, broker’s services, currency operations, interest savings, loans, and so on.
• A physical office which is an advantage for a certain circle of persons as it ensures connection between the customer and the bank employees, makes it possible to solve problems on-site, order and cash a large amount, and also make serious operations with finances, precious metals, and cryptocurrencies.

The disadvantages of practically any bank may include:

• Limited flexibility, which means strict rules on all products. It often prevents you from obtaining a loan.
• Risks related to fraud and sanctions. 

However, we cannot assess all foreign banks as a single financial system. The degree of the customer’s confidentiality and protection of its assets differs depending on the internal regulations and the legal framework of the country where the bank’s head office is located. The most reliable bank institutions today are not only popular Swiss banks but also the financial institutions of the USA, UK, China, and Europe.

Main Differences Between a Payment System (Neobank) and a Bank

If you want to see the main differences between a bank with a physical office and a payment system, please look at the following table that compares their main characteristics.

Best Place to Open a Foreign Account

Practice shows that opening an account with a payment system is common for international companies that have customers in different parts of the world and need to make operations in various currencies. The payment service is also used by entrepreneurs who run a high-risk business or private travelers to pay for the products and services abroad and have free access to their funds.

Banks retain their positions among priority institutions used to store and diversify assets when you need to manage investments, transfer substantial amounts, and have access to credit products and the whole range of banking services.
We cannot enumerate particular countries that would be best for opening a private or corporate account as the choice depends on the customer’s goal, the country of residence, and other criteria. If you want to choose your channel for financial operations in accordance with your objectives, please study the norms of each institution, engage experts to open an account, and establish ties with a good banking consultant.