You may not be aware that you are a high risk customer for traditional banks
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It may be surprising to see your business in the high risk category. Segments of the “new economy” like cryptocurrency trading, online content creation, the sale of legal cannabis or contemporary art, or even the creation of e-commerce platforms, can alert banks. You might encounter unexpected difficulties while trying to open a bank account for your business or even for yourself as an individual. How to approach this challenge?
Traditionally, high-risk gambling has been a narrow niche of gambling, anything aimed at adults, selling guns and other fringe activities in so-called gray areas of the law.
Technology has drastically changed the way people make money and create wealth, creating disruptive new industries almost every day. A few years ago, a professional Twitch streamer was treated as an isolated business case, but today creators have their own economy with a market size of $ 104 billion. The crypto market will reach $ 4.94 billion by 2030. Add $ 347 billion of the concert economy 30% growth every year, and you won’t be inclined to call it a niche.
It’s time to shed the negative connotation of the term “high risk” – that same high risk will most certainly drive the growth of fintech and traditional banking over the next decade.
Related: Here’s How Automation Changed the Face of Banking
Traditional banking is not ready to embrace the new economy
Most next-generation businesses are labeled as high risk, which limits their access to banking services, sometimes significantly. Traditional banks and payment processors find it too demanding and resource intensive to work with them. Recent media dramas with an adult entertainment platform Only fans and main cryptocurrency exchange Binance illustrate the trend: banking partners threaten to sever relationships with companies involved in what they perceive to be risky business. More and more often, they follow through on their threats by freezing transactions and deposits, closing existing bank accounts without notice, or simply denying any kind of service without explanation. The problem is, rejected businesses still need financial services, and they’re sometimes forced to look for less traditional alternatives.
This disconnection has already been recognized by a few fintech projects aimed at specific audiences. Karat announced he will develop tailor-made banking products for creators, and DayLight raised $ 20 million to build a bank for the LGBT + community. It may sound like a tangible solution, but it’s nothing more than a fix. Seriously, should every community wait until they have a bank tailored to them?
Related: 8 Ways Digital Banking Will Evolve Over The Next 5 Years
It’s all about compliance
A bank’s compliance team is the first to welcome you after receiving your request. Their job is to make sure that you are who you say you are, that you haven’t done anything illegal before, and that you won’t do anything suspicious on their platform.
If there is something complicated about your job, you may face a longer integration with round-trip emails or even get rejected when opening a bank account. Any of the following can make the onboarding process difficult:
Non-standard operations: unusual, new or unconventional approach to business.
Complex corporate and ownership structure: several legal entities with convoluted affiliation, non-resident owners.
Sophisticated Money Flows: Multi-tiered transactions across multiple jurisdictions and currencies.
Dealing with third party money: in other words, if your business is B2B2C.
Activity restricted in certain jurisdictions or requiring license or certification.
Heavy cash operations, in particular ATM networks and payment terminals of all kinds.
Basically, if your ambition is to serve global customers and modern audiences with changing consumer habits, you had better be prepared to prove that your business is compliant. What does this mean for the practical side of things?
You can help the bank’s compliance teams understand your business inside and out. In other words, you need to break down the risk to them by providing complete and verifiable answers to the following questions.
1. What are you doing?
Don’t limit your business description to one line. Unlike venture capitalists and startup accelerators who encourage founders to come up with three-word business descriptions, compliance teams won’t be impressed with a single line like “Collaborative Platform for Creators” or “Solution programmable money ”in your application. Be specific and elaborate on all aspects of your business. Don’t use industry jargon. Your goal is to explain your business in enough detail and clarity for a stranger to fully understand what you are doing.
2. Who owns your business?
If your business ownership is complicated, it’s your job to unravel it, layer by layer. Provide documents from relevant business registers on all beneficiaries, investors, shareholders and other affiliates and individuals. Include evidence of sources of funds, recent bank statements, and other documents that shed light on the origin of the money you are building your business with.
3. Who are your customers (and your customers’ customers)?
You need to explain who exactly you are dealing with and what the nature of your relationship is. It is not enough to describe the audience at a general level. Name your existing and potential customers, submit your supplier list, and share the details of your interaction with them.
If you are dealing with other people’s money, you need to persuade your banking partner that you meet KYC (Know Your Customer) standards and that you can extend KYCC (Know Your Customers’ Customers) as needed. It is not enough to have compliance policies in place. You need to prove that the policies are enforced in each case, that the identity of your global customers is verified, and that your business has the ability to detect and prevent fraudulent activity.
Your goal is to help your bank help you. If you take the time to align your application with regulatory requirements, you will increase your chances of being accepted by the bank of your choice. In turn, the bank will not spend days trying to make the connection and find important information on its own. You do this for your bank in the hope that ultimately the bank will be able to explain to regulators that the risk of serving your business is very manageable.
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