In our previous post, ” Opening a bank account in Estonia“, we discussed how to open a bank account in LHV in Estonia, and mentioned the possibility of using digital solutions such as Holvi or Transferwise. In this article, we want to highlight the best digital banks to operate with your company in Estonia.
This article deals exclusively with digital solutions for businesses. For your personal finances, there are solutions such as Revolut, N26 or Monzo, which we will talk about on another post.
What are digital banks?
Digital banks are online entities that either have a banking license or work with an entity that has one. They offer a bank account (some of them even one per currency, for example, an IBAN for your euro account, a US account number for a dollar account, etc.) and a debit or even credit card.
As a result, you can use them operate as you would with a traditional bank account: receive payments from your customers, pay your providers, and even use your card for justified expenses of the company.
It’s basically like having an account at a traditional bank, with some important differences:
- You can not apply for loans
- You may not, depending on the fintech, distribute capital either (eg for investors or stakeholders)
- You will not earn interest for the money you have accumulated
- Although you have a unique IBAN number, it may not be -depending on the fintech- a “real” bank account, but an address associated with an electronic wallet. However, you can receive payments, send transfers and operate normally.
- Although your money is safe, and these types of solutions are 100% reliable, some of them are not protected by the European Deposit Guarantee Scheme (DGS), as in a traditional bank account.
Currently, solutions such as Holvi or Transferwise don’t have a banking license adhering them to the DGS, while others such as Revolut do.
When is it advisable to open a traditional bank account?
There are traditional banking entities in Estonia that work without problem with e-Residents from all over the world. One of them is LHV. Despite having offices there like any traditional bank, they allow you to operate with them without being a tax resident in Estonia.
This is a great advantage when you compare it with other solutions to create a company like Ireland or the United Kingdom where, in most cases, you need to prove that you are a resident in the country.
However, to open an account there, you will need to visit Tallinn at least once and meet with the LHV staff. This is because of the KYC policy -Know your customers-. Basically, they need to guarantee that your business is legitimate, and you are not a terrorist or into money laundering.
Update: In addition, you must bear in mind that as of October 2018, LHV will charge € 20/month of bank account maintenance for e-Residents who are not physical residents in Estonia. This is a lot pricier than solutions like Holvi or Transferwise (though not as much as Revolut Business, which as of September 2018 applies an initial fee of € 25/month, but offers a lot more to be honest).
Having an account in a traditional bank can be advisable in two situations:
- You do not mind taking a trip to Estonia. This is probably the most important factor to consider. If you are a digital nomad, travel regularly, or you are attracted by the idea of visiting the Baltic country, do not forget to add the LHV offices to your itinerary.
- You do not mind paying 20€ a month in bank account maintenance fees.
- You may be after the solid image that a traditional bank account offers to your customers.
To be honest, if your activity is online and your services digital, the last reason loses a lot of relevance. Our recommendation is that you consider a traditional bank as LHV only if you have a good reason not to use a digital solution.
When is it advisable to operate with digital banks?
If traveling to Estonia is not a viable option, worry not! Luckily there are completely digital alternatives to your service. One of the most frequent prejudices we find against this type of solution is the false assumption that they are not “real bank accounts” or do not have a “real bank” behind them.
Maybe you think your money is safer if you can go to a physical office of BayernLB, BNP Paribas, or HSBC and force them to show you all your savings, all your money… But trust me, not only they won’t show it to you, but you can never guarantee 100% that your money is safe.
There are many examples, like the brutal devaluation of the Icelandic crown when their banks -and government- went bankrupt during the last decade’s crisis, or the more recent situation in Greece. It is true that solutions such as Revolut, Transferwise or Holvi do not have the governmental support of more traditional banks, but they are not going to disappear overnight. Millions of people use them every day.
In fact, many e-Residents with companies in Estonia operate exclusively with digital solutions.
If you are a digital nomad, a freelancer or small business owner, an account in a digital bank is the perfect solution for you. You can operate, receive payments from your customers, have your bank account with IBAN and Swift / BIC and your card.
You can even start with Holvi, for example, and later when you have some free time and your business is well established, take a trip to Estonia if you still think you need a traditional bank.
And the best of all? You can open your company in Estonia and operate it entirely online, without stepping on Estonia.
Digital banking solutions for e-Residents
So now that you know that a digital banking service may be a good solution for your business, let’s have a look at some of the best solutions currently available.
Holvi is a Finnish company that offers an online banking solution specifically designed for e-Residents. Its services include a European virtual bank account -in a Finnish bank- with its unique IBAN, Swift/BIC number, and a debit card.
They also offer a limited payment solution for small online shops, allowing you to register products so customers can pay for them directly, but this functionality is only useful for small e-Commerces, not for serious businesses. Still, it might be useful for you in some scenarios.
However, the real value of Holvi is the fact that their banking solution understands e-Residents and digital nomads. Holvi is completely ok with the fact that you are not resident in Estonia. You don’t need to rent a space there or have utility bills for your companies. This is great for e-Residents operating their businesses through a virtual office.
As an additional benefit, since 2019, you’ll have no problems declaring and registering the share capital of your company paid to your Holvi business account.
Advantages and Disadvantages of Holvi
The main disadvantage of Holvi is that it is focused on the SEPA (Single Euro Payments Area) zone and the European market. That means that if you have customers or suppliers outside of Europe -such as the United States, Japan or Argentina- your business won’t be able to use Holvi alone. In that situation, we recommend you using Holvi in combination with Transferwise or Transferwise alone (more on that below).
Another important disadvantage to keep in mind is that your business has to stick to very specific limits regarding its activity. Due to strict regulations in place for most fintechs, activities considered “risky” or “dangerous” are not allowed. This means that if your business activity relates to gambling, cryptocurrencies, selling gadgets, or even affiliate fees, you may have problems opening your account or it may be closed shortly after being opened. It is better to verify that your activity is allowed beforehand.
The basic plan’s fee is 9€ per month. What do you get for that? A bank account with your own IBAN number to operate with your company, pay your providers, charge your customers, and distribute salaries and dividends. In addition, you also get a MasterCard debit card with which to operate worldwide.
Undoubtedly, the service is well worth the monthly price.
In our opinion, it is the best option, without buts, for European e-Residents. As an interesting note, Holvi was recently acquired by BBVA. So it seems that traditional banks are beginning to be aware of the banking revolution.
Transferwise started as a small startup solving the problem of international money transfers. Its main selling point was reducing currency conversion and international transfer fees to a bare minimum. Soon, the digital nomads began to use it as an alternative to pay and receive payments. It was a perfect solution for them.
In those early days, they did not offer a complete digital banking solution: you did not have an IBAN or debit card. Ironically, being one of the pioneers in the new fintech revolution, it took them a long time to finally offer a full banking alternative similar to Holvi or Revolut.
Transferwise’s solution is called “borderless account” and, unlike Holvi, it allows you to open a virtual bank account for each currency, which you manage seamlessly from the same Transferwise account. Let’s say, for example, that you are a web designer working for clients from Europe and the United States. In that scenario, you would create two virtual accounts, one in euros and another one in dollars.
As a result, you would receive payments from your customers in France, Spain, and Denmark in your account in Euros, and from your North American customers in your account in dollars. In the end, all the funds would go to your Transferwise account. The account has no monthly fees, only a commission between 0.35-2% when changing currencies, and a small fee of € 0.60 each time you transfer money from a local account to your Transferwise account or vice-versa.
For small businesses and professionals working for international clients, it is an incredible solution. The Transferwise dashboard is simple to use, and the process of creating your account is super simple. However, there are a few problems that you have to consider if you consider using Transferwise.
We have an agreement with Transferwise to help you during the validation process of your bank account. In practice, it will mean less paperwork for you and being able to open the bank account without having a physical office in Estonia or needing utility bills.
Revolut is one of the leaders of the recent disruption of the banking industry. They were one of the very first to offer virtual bank accounts in multiple currencies. Without a doubt, its greatest asset is its App, so simple to use that operating with your money online becomes a real pleasure. If you’ve never used Revolut, the first time you install and start using it, you’ll understand what “the future of banking” means. The experience is just superior to any traditional bank.
Even their KYC -know your client- verification process is fun.
After the success of their personal online banking solution, they launched Revolut Business, aimed at businesses. This account works basically the same as the personal version, but for your business. It allows you to have a multi-currency account also, and also a business debit card of course. In this case, a Prepaid Mastercard card.
The only requirement to request such an account is that your company is established in a European country, like Estonia.
Some details to consider about Revolut Business
There are some details you should consider before opening a Revolut Business bank account for your company.
To begin with, as in the case of Transferwise, Revolut can issue a certificate stating that you have paid € 2,500 into your business account (necessary social capital for an OÜ company). Starting in 2019, this is enough to register the share capital of your company.
Its main disadvantage with respect to Holvi or Transferwise is the price. The basic plan from Revolut Business (valid for businesses up to £100k in yearly revenue) is 25€ per month. In return, you get the benefits of a multi-currency account for your business (allowing you to receive money and send money in a multitude of currencies), a MasterCard debit card, and its premium app experience.
LeoPay (initially LeuPay) has recently joined the list of providers offering digital banking solutions for e-Residents. They offer a multi-user, multi-currency account. They currently support Euros, US dollars, British pounds, Swiss francs, Romania, Croatia, Bulgaria, Poland, the Czech Republic currencies, and the Japanese Yen.
An interesting differential factor is that they offer two free VISA cards in their basic plan, without monthly fees. In addition, you can order one of them for one specific currency (say: Euros) and another for another currency (example: dollars). That is quite interesting for digital nomads.
To open an account with them, you must be a resident in one of the 60 countries listed here.
Please note: although there are no monthly fees (unlike services such as Holvi or Revolut Business), LeoPay applies quite steep fees for most banking operations you may perform on a daily basis. This includes transfers, receiving money from local accounts, or paying your providers. These fees can end up being higher than the monthly fee you would pay using Holvi or Revolut Business, if your company has many transfers per month.
For example, a transfer to a bank account in Europe (SEPA) has a fee of 3€. That means that if you make 10 transfers in Europe per month (which is a very modest number) you will end up paying € 30 that month. In comparison, Revolut charges only 25€ per month if your revenue is less than £100k, and Holvi is just 9€ per month.
So we recommend that, before considering LeoPay, you take a look at their fees, and do your math.
And the Oscar goes to…
LeoPay fees make it hard for us to recommend their services. It’s very easy to end up paying a lot if your company does a lot of business.
If you work mostly with European customers, our recommendation is to open an account with Holvi. It is the most affordable, simplest solution, and you get a real bank account at a Finnish bank and a MasterCard debit card. In addition, you will be working with an e-Resident friendly company.
On the contrary, if the majority of your customers and suppliers are outside Europe, Transferwise is a great solution for you. Optionally, you may want to consider using Revolut Business. It’s a bit more expensive, but having their multi-currency account, and their awesome app, is a great advantage, especially if your business wants to go global.
A good combination is Holvi to operate in Europe and Transferwise for international transfers and payments. Nothing prevents your company from having two or more bank accounts.
In this article, we compare some digital banking solutions for your Estonian company. As a customer of Your Company In Estonia, we will guide you through the process of opening your bank account and offer you the best alternatives for your business. Interested in launching your online European business with zero hassle? Contact us!
We want to help you get rid of paperwork, red tape, and obscure and unfair tax systems, and allow you to focus on growing your business.
How? Launching and running your business completely online in Estonia thanks to the e-Residency program. We'll take care of registering your company, bookkeeping, accountancy and taxes for you. Sounds good?
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