Discover how payment systems work and their advantages. Learn about account types, criteria for selection, application requirements, and payment system tariffs. Explore why payment systems are a flexible alternative to traditional banks.
In simple words, a payment system is a company that holds a license for making money transactions for other people. The client – a natural person or a legal entity – can use the payment system to transfer money to the electronic wallet and dispose of it the way he/ she likes. You can also accept payments to your electronic wallet and then transfer the money to your bank account or to your plastic card account. Thus, you can cover your everyday costs with the help of the payment system.
Payment systems are different from traditional banks: their tariffs are usually smaller and the speed of transactions is higher. At the same time, payment systems are rather reliable.
Even though payment systems have been in existence since 2022, they began to become popular only in 2018 when traditional banks started declining applications for services from offshore companies and non-resident companies. If you dig deep into the issue, you will find out that around 10 thousand licenses have been issued to payment systems but it does not mean that 10 thousand payment systems are functional. A payment system may have a license but no website, which makes it useless. As far as the jurisdictions licensing payment systems are concerned, the most popular ones are Great Britain, Cyprus, Hong Kong, and Lithuania.
Criteria for choosing a payment system
When choosing a payment system, you need to have a clear understanding of the following issues:
- How exactly you are going to use your account with the payment system.
- What type of account you need: a corporate, a personal, or a merchant account. The first two types of accounts are similar to bank accounts and the last one can be used to make and receive payments via the Internet. It is often the case that a particular payment system specializes in only one type of account and you need several payment systems if you want to have different types of accounts.
- You have to find out if you can set up and account with an IBAN: not all payment systems provide for such an opportunity. If the payment system does not assign IBANs to the accounts, then the payments go to its account with a traditional bank or another payment system.
- You have to bear in mind the fact that extremely few payment systems make US dollar transactions. Hong Kong payment systems do make dollar transactions but they are Hong Kong dollar transactions.
- You have to find out about the tariffs applied by the payment system. How much does it charge for incoming and outgoing transactions? Normally, payment systems charge less than banks do but this is not always the case.
- You have to find out if the payment system is ready to provide services to high-risk businesses such as crypto and gambling companies as well as forex traders. Banks often refuse to take high-risk clients onboard while payment systems often do not.
If you visit the https://internationalwealth.info/en/ website, you can request professional assistance in assessing the payment system (or payments systems) that you are considering.
Advantages of payment systems
The main advantages that payment systems offer include the following ones:
- High speed of account opening: most payment systems will set up an account for you within 1 to 10 days.
- You can open an account with a personal IBAN. Your account details will look exactly the same as they look when you have an account with a traditional bank. This will allow avoiding unnecessary questions.
- You can open a multicurrency account with a payment system. Those payment systems that do not open multicurrency accounts will usually allow opening several accounts in different national currencies.
- You can obtain a pay card from a payment system, sometimes even an anonymous one.
- High speed of international money transfers. Sometimes transactions take sheer minutes to go through.
- Lower cost of money transfers. If the money is transferred within the payment system, it may cost you nothing at all.
- You can open and manage your account remotely. In most cases, your personal presence is not required in the process of account opening. Client verification is performed online and/ or via messengers.
- Currency exchange rates are favorable.
- Opening an account takes less time and costs less money in comparison to setting up a bank account.
Disadvantages of payment systems
Payment systems are not perfect: some disadvantages are associated with them. The main of them include the following ones:
- Payment systems often do not offer the full spectrum of banking services. For example, few systems issue loans.
- Not all payment systems open IBAN accounts and you should bear this fact in mind.
- Not all payment systems allow using multiple currencies.
- Not all payment systems will transfer money to any country or accept payments from any country. Even if they do, they will charge high commissions in some cases.
- Similarly to banks, payment systems are regulated and the Compliance Department may request some additional documents from you.
- Payment systems are not perfect for keeping money with them for a long time. Technically, this is possible but certain risks are involved.
Application documents required for setting up an account with a payment system
Even though the requirements to the application documents are usually more or less the same whichever payment system you choose, you have to clarify this issue with the particular payment system that you are planning to use. Below we describe the standard procedure of opening an account with a payment system.
The stages of opening an account with a payment system:
- Choose the payment system that suits your goals;
- Prepare the application documents;
- Supply additional documents if the payment system requests them.
Please note that the payment system Compliance Department will have nothing else to assess but your application documents. If you want an account opened for you, you have to submit the full package of the documents and complete them all in a neat way.
Standard requirements to the application documents:
- The application documents shall contain no errors.
- You have to supply digital copies of your personal identification documents.
- If your application document package contains scanned pages, they have to be in color and readable. Highlights, shadows, glare and blurring are unacceptable.
- Scanned pages shall contain no elements that the original paper documents do not contain.
- The following formats are acceptable: jpg, jpeg, png, pdf, and bmp.
Payment system tariffs
Different payment systems will have different tariffs so you have to dwell on this issue in detail in each particular case. If you are looking at a payment system that performs acquiring operations, you should treat the matter with special care. The commissions can be between 2.5% and 5% of the transaction amount. The commissions will also depend on the country of the client’s origin and the type of the corporate client’s activities. High-risk companies have to pay higher commissions. Normally, if the account turnover is high, the commissions are lower.
There are many reasons why you may want to set up an account with a payment system. Probably one of the largest advantages that payment systems boast is the fact that they are much less choosy and much more loyal to customers than traditional banks are.