You are an investor that is considering investing into an online bank and you are wondering what would be the best jurisdiction to establish your online bank and where to get started? In this post, we will discuss how and where to set up an online bank. Do not hesitate to contact me at [email protected] to discuss this matter
Offshore VS Onshore jurisdiction
A year back I would have said offshore for reasons as follows:
Low capital requirement from 1,000,000 to 3,000,000 USD depending the jurisdictions, quick application treatment (3 to 6 months) bank secrecy, lower operating costs.
Today I would be less incline to recommend a client an offshore bank license because there are options in Europe that permit to incorporate “quasi bank” that is to say E Money Institution that requires a 350,000 Euros capital or “light bank” for example Lithuanian Specialized Bank License that requires 1,000,000 Euros of capital. In addition, there is no bank secrecy anymore offshore as all offshore jurisdictions have agreed to sign international agreements on automatic tax exchange of information.
Besides in Europe there are countries where office building rental are still very low and qualified employees’ salaries are competitive with the salaries that would be paid to local employees in an offshore jurisdiction (salaries in offshore jurisdictions are not cheap because the labour market is small and qualified salaries to work as bank officer are rare)
Finally setting up an EMI or a Light Bank in Europe open you the possibility of passporting meaning that you can legally offer financial or banking services in all Europe and have access to a 500,000,000 inhabitants market
Therefore, we recommend you to get started in Europe there is no benefits in an offshore set up for this kind of business. Especially due to the difficulty of opening bank accounts or corresponding bank accounts for offshore EMI or offshore bank
EMI Institution VS Specialized Bank Licensed
There are two way to get in the online banking business.
You may want to test the market first and get started with a EMI instead of doing a bank license but you must understand that your business will be limited to Payment Services that is to say
- Services enabling cash placement on a payment account
- Services enabling cash withdrawals from a payment account
- Execution of payment transactions (not covered by a credit line)
- Execution of payment transactions (covered by a credit line)
- Issuing payment instruments or acquiring payment transactions
- Money remittance
- Execution of payment transactions via telecoms, IT system or network operator
- Issuing Electronic Money
While it is a start it is not a bank. There are many banking services you will not be able to provide, of course you will not be able to use the word “bank” in your name and finally the deposit of your clients will not be insured
Of course, the capital requirement is lower at 350,000 Euros and number of employees and fit test for directors will be lower.
Lithuania Special Bank License Solution
This is the best solution in my opinion if you want to get started in the Online Bank Business
- It requires only 1,000,000 Euros of paid up capital
- It can be done in 6 months from the time your documents are complete
- Deposit of the bank clients are insured up to 100,000 Euros
- Bank can be passported in 30 countries and access to a market of 500,000,000 clients
- Rental rate and employees’ salaries are lower than in other European countries and corporate income tax is among the 5 lowest in Europe
- all documents filling are in english
For all this reason Lithuania is in my opinion the place to go to start an online bank business
SCOPE OF SERVICES OF A SPECIALIZED BANK LICENSE
As you can see from the list below, a bank with a Lithuanian specialized license can provide all the services which are needed by an Online Bank with all the benefits mentioned above
In terms of legal fees our fees are the same for a specialized bank license than to set up an offshore bank license.
|EUROPEAN BANK LICENSE
|SPECIALIZED BANK LICENSE||FULL BANK LICENSE|
SCOPE OF SERVICES THAT CAN BE PROVIDED BY THE BANK
|2. Payment services;||YES||YES|
|3. Receipt of deposits;||YES||YES|
|4. Currency exchange;||YES||YES|
|5. Issuing of e-money;||YES||YES|
|6. Issuing guarantees;||YES||YES|
|7. Fund administration;||YES||YES|
|8. Financial leasing;||YES||YES|
|9. Financial intermediation;||YES||YES|
|10. Creditworthiness assessment services; –||YES||YES|
|11. Safe-deposit box rental;||YES||YES|
|12. Investment services, clearing, services related to securities emissions. or manage investment, pension funds or be active by providing other services related to security emissions||
Do not hesitate to contact me at [email protected] to discuss this matter or if you want help getting started with your business.