Over the past year the global banking sector has been plagued with instability. Two major US banks – Silicon Valley Bank and Signature Bank – collapsed; a third US bank - First Republic Bank – was forced into a buyout amid fears of collapse; Credit Suisse, a Swiss bank that is one of the oldest in the world, was also forced into a buyout; and the cryptocurrency Silvergate Bank halted operations.
SVB, the largest bank in Silicon Valley, was sent into a tailspin when its bonds portfolios suffered massive losses, causing customers to lose faith in the bank and try to withdraw all their funds at once. That led to a harsh response from investors and to a snowball effect that resulted in the bank’s collapse in less than two days and raised serious fears among business people, who were left wondering about only one thing: had they lost their money, or would they yet see it returned to them?
In a similar fashion, Signature Bank, founded in New York in 2001, and one of the ten leading banks in Forbes’ rankings for a considerable period, collapsed shortly after SVB. These collapses, combined with the plummeting of share prices and the risk of immediate collapse of additional banks, aroused further fears regarding the stability of the banks, and prompted many business people to switch to using payment service companies as an alternative to the traditional banks.
The EMI / MSB payment service companies, also known as digital wallet companies, which mostly provide comprehensive cash flow management solutions without the need for additional bank service, are regulated differently than banks.
Payment service companies’ revenue model is also different than that of the banks. While the banks’ main revenues come from interest on loans, based on funds deposited by customers, the payment service companies do not offer loans at all and retain 100% of their customers’ funds in a liquid state.
Another way that the banks use their customers’ funds is to leverage investments in a variety of capital instruments, in order to generate more profits. This is effectively one of the main advantages of the MSB companies, which do not use their customers money for any purpose, thereby providing customers with the security that their funds are accessible at any time.
Yishay Trif, CEO of Moneynet, one of the leading global payment services companies in Israel and around the world, explains the difference between payment service companies and banks.
“Since payment service companies like us do not deal with loans or investments,” says Trif, “this means that the business people’s money is safer.”
The company’s low risk profile, explains Tariff, is one of the many reasons that payment service companies have become popular among business people.
“Moneynet has definitely seen a recent increase of hundreds of percent in the use of its services for the management of business funds,” continues Tariff, “and it is not difficult to understand why. Payment service companies currently offer a comprehensive solution for all business cash flow needs and are a safer alternative to the traditional banking services, with a range of advantages that are hard to ignore. Companies such as Moneynet have gained a reputation for making life easier for business people, and we are proud to be at the forefront of this exciting and growing industry.”
Tariff notes that the collapse of SVB and other banks caused business people to be more cautious and not put all their eggs in one basket.
SVB, which was established to provide financial services to startups and high-tech companies, was the preferred bank among many high-tech companies, including Israeli companies. Those companies put all their money in SVB, and the bank’s collapse had a colossal impact on them.
“Depositing all of a business’ money in one bank carries a very high risk and can have problematic ramifications, as we recently witnessed,” says Tariff.
While banks are usually connected to a single central international bank (correspondent) and have no representation or business connections with local suppliers, MSB companies have connections with local payment providers, who allow them to transact international transfers using local currency, rather than converting foreign currency. The collaboration with payment providers reduces the costs for the customer and makes transactions much faster and more worthwhile, with much less risk.
“In order to simplify the process,” explains Tariff, “we open a local bank account for our customers, in the destination country. This means that the payments are executed locally, shortening the execution time and lowering costs.”
The combination of advanced technology and global financial traffic lanes make it possible to execute transactions very quickly. This ability is particularly important for global business owners who need to pay suppliers on time, receive payments from clients in a manner that will be reflected in the business’ cash flow as quickly as possible, pay salaries in accordance with the law, etc.
Another important advantage of the payment service companies is that they offer an accessible, up-to-date user friendly and easy to navigate interface. These features make it easier for customers to access and manage their accounts, and to transfer funds with maximum simplicity. The payment service companies are also more accessible and more convenient, as they allow customers to execute transactions from anywhere and at any time.
Considering the significant number of advantages over traditional banks, including a lower risk profile, faster transaction times, and much greater accessibility and convenience, it is not surprising that more and more business people prefer the payment service companies over using the bank’s services.
In a challenging financial climate, there is a feeling that these companies offer a friendly, safer and more stable alternative to the traditional banking services, and considering the additional fact that payment service companies are obligated by their regulations to keep all of the customers’ funds as liquid cash, it is easy to understand why many business people view these companies as a source of peace of mind and confidence that their money is safe at any given moment.