How Global bank accounts are different to traditional bank accounts?
When one fathoms a bank account, he/she envisions a savings or current account in a physical bank and a bank vault that stores the funds. However, there are many types of bank accounts other than savings or current accounts. One such account is called a global bank account, also known as a foreign currency account or global account, and synonymously used with a multi-currency account, a slightly different variation of an international account.
What is a Global Account, in general?
A global Bank account is a genuine bank account that holds a certain denomination, for instance, a global account in the US holds US dollars and enables you to receive payments or deposits via Inter-banking payments network like SWIFT(Society for Worldwide Interbank Financial Telecommunication), ACH (Automated Clearing House), and FEDWIRE(Federal Reserve Wire Network), LOCAL payment systems. Global Bank Account’s primary purpose is to accept deposits and enable payout to other denominations using Foreign Exchange, and a Global Account creation is one of the offerings from neobank.
Now, before a deep dive into what a global account purports, let us see certain statistics about the booming neobanking and global banking industry to ensure the adoption and confidence of the global population with the innovations of neobanks.
However, although traditional banks have started to roll out digital banking apps, why the a need for neobanks and global accounts? The quest of this blog is to answer this very question and create a clear demarcation between a conventional bank account and a global bank account offered by a neobank, the limitations for both and distinct use cases.
Global Accounts vs Traditional Accounts Critical Review
Firstly, the foremost benefit of Global Accounts is that they allow you to transact in foreign denominations, accumulate deposits, and accept international transfer payments which can be utilised in various ways, for instance, if someone travels offshore, has clients residing in another nation, and hedge against foreign exchange rate these global accounts can be used seamlessly. However, for day-to-day transactions within a country and local payments traditional accounts could be deemed appropriate; however, in this case, too, neobanks are encroaching on this space by enabling all the facilities that traditional banking provided digitally without even stepping foot on the bank premises.
Secondly, global accounts provided by many neobanks support multiple-currency creation within minutes with automated or prompt KYB(Know Your Business) verification and can start receiving deposits, currency conversions, and transact funds that transcend border- all with a single dashboard or a mobile app. On the other hand, traditional bank accounts usually do not support creating an account in a different currency other than the home country’s currency. While some banks do provide the option to create foreign currency accounts, these often come with many limitations. To name a few, these accounts typically cannot accept deposits directly in foreign currency; instead, they require users to manually load funds into the account; additionally, these accounts often have restrictions on global transactions, limiting their usability for international business or travel. The cost of transactions in foreign currency accounts is also comparatively high, with banks imposing hefty fees for currency conversion, international transfers, and maintenance. Furthermore, the exchange rates offered by traditional banks are usually less favourable compared to other financial services, resulting in higher overall costs for users.
Thirdly, multi-currency global accounts accept payments via multiple payment networks and do not resort to using the SWIFT network, they also can accept payment via other wire payment networks; therefore, funds collection is simplified. Conversely, traditional banks for more than 2 decades have been dependent on SWIFT payment systems to transact funds and initiation of the payment is manually done by the bank employees further slowing down the transaction process.
Next, the turnaround time after the initiation of the payment lifecycle for neobank global accounts is comparatively better because they avoid the slow intermediary processes that traditional bank accounts typically encounter. Moreover, the payment transfer ceiling is lower with traditional bank accounts. This limitation is a major hurdle for companies that operate in multiple nations to make mass payments, and each transaction in a traditional bank is checked by a banker which is a slow and manual process.
Notably, the security paradigm of modern global bank accounts adheres to state-of-the-art security frameworks like the Health Insurance Portability and Accountability Act (HIPAA), the General Data Protection Regulation (GDPR), the Payment Card Industry Data Security Standard (PCI DSS), and ISO/IEC 27001:2022, with real-time monitoring of transactions, advanced encryption protocols like Hypertext Transfer Protocol Secure (HTTPS), Secure Sockets Layer/Transport Layer Security (SSL/TLS), and Mutual Transport Layer Security (MTLS), and a highly available, highly scalable, and fault-tolerant design. However, most traditional banks are dependent on legacy banking systems, and a few have tediously transitioned to cloud-backed systems. Nonetheless, legacy systems are hard to change or adapt and usually require extensive changes or revamping of the whole system, incurring massive development and deployment costs.
Also, the regulations surrounding conventional banking are slightly loose and regulating such banks has been a hurdle for regulatory bodies. However, since each digital transaction commenced from global accounts can be monitored, logged, and followed from initiation to completion of the transfer, they can be analysed and smart machine-learning models can predict the authenticity of the payment. This allows neobanks to quickly detect unusual or suspicious transactions and respond promptly. This technological prowess proves to be more effective than traditional banking methods used by legacy banks.
Moreover, the cost structures of global accounts are comparatively lower because neobanks offering them have a digital footprint only, with digital processes and automated verification wherever required. This significantly reduces the operational costs of the company. These savings are usually reflected positively for customers through affordable onboarding costs, low maintenance fees, zero-fee bank account opening, no or low FX markups, and cheaper flat payout fees. On the other hand, operating a brick-and-mortar bank is comparatively expensive, requiring a large number of bank employees, incurring depreciation, higher loan interest rates, and expensive real estate rents (as they require prime locations to operate), along with other overhead costs.
In the case of flexible operations, neobanks are comparatively more flexible with bank account openings. Teenagers, ex-pats, tourists, and businesses can easily create global bank accounts using minimal documentation requirements. Some might question how the eligibility criteria are defined. It is done via limitations on transacting funds, requiring compulsory submission of incorporation documents, past financial histories, and credit score ratings. Additionally, neobanks often employ advanced algorithms and automated systems to assess risk and verify identities, making the process both efficient and secure, as described before. This approach not only streamlines account creation flexibility but also assures compliance with regulatory norms, thereby enhancing accessibility while retaining robust security measures.
Business efficacies with global accounts
Conclusive Remarks
In essence, global bank accounts offered by neobanks present a paradigm shift from traditional banking, and they provide exceptional flexibility and efficiency, for instance, allowing seamless transactions transcending borders and in multiple denominations, unlike conventional accounts.
Further, global accounts empower users to conduct international business effortlessly, eliminating the hassles of slow transactions and high fees associated with traditional banking.
With advanced security measures and automated processes, neobanks ensure not only convenience but also robust protection against fraudulent activities, improving trust and reliability for users.
Moreover, the agility of neobanks in account creation and management, coupled with their cost-effective structures, makes them a preferred choice for individuals and businesses seeking to expand globally and optimize cash flow management.
In summary, global bank accounts redefine the banking experience, offering a new era of convenience, security, and accessibility for a rapidly evolving global economy.
Sources
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By - Dr Adhikari B | CEO/Co-Founder for Walcy