Iris ten Teije October 24, 2020 1:59 pm

5 reasons why it’s difficult to open a corporate bank account in Hong Kong

Are you a startup founder that has tried to open a corporate bank account in Hong Kong?

Then you’re probably aware of the many challenges you will get into when you start the process.

Some entrepreneurs are lucky and get their bank accounts in a few days, many others have had to wait for months. We will go through the most common reasons for why opening a bank account is difficult and where Neat comes in.

1). You’re not profitable for a bank

First and foremost a bank looks for profit. Sounds logical, but it’s an often overlooked factor in the discussion on opening bank accounts. While many people think – that the reason it’s difficult to open bank account is because of strict risk management policies, this is only part of the story. Even the Hong Kong Monetary Authority does not deny that lack of profitability is the real reason for rejection.

Banks will be reluctant to go through their expensive due diligence process for a new business. The uncertainty of whether that business will become successful and profitable also plays into it. It is often a commercial decision not to onboard a startup, rather than a decision that is related to risk. Neat has the advantage of operating completely online and having a digital onboarding process which reduces our cost of signing up customers immensely.

2). You’re not physically in Hong Kong

Hong Kong banks are still behind on the technology front. There are many entrepreneurs and digital nomads that have incorporated an (offshore) company in Hong Kong, but they may not be based in Hong Kong. E-commerce businesses can be run from anywhere around the world.

While some banks may allow you to appoint a legal representatives in Hong Kong or video conference from your local branch, this is not a guarantee and more often than not this is not possible. Neat allows you to open a Neat account online, which means you can do it from anywhere in the world.

3). You’re a non-(permanent) resident or the ‘wrong’ nationality

Hong Kong is a cosmopolitan and international city in many ways, until it comes to opening a corporate bank account. If you’re a (permanent) resident, it may be easier for you to open a corporate bank account than if you are not living here or have a certain nationality.

This SCMP article discusses some examples of certain nationalities having difficulties opening bank accounts. While there are some nationalities that banks and related services (including Neat) are legally restricted from opening accounts for (see here), there are no restrictions for many other nationalities, but some banks are reluctant to help customers from these countries.

4). You have a complicated ownership structure

To open a bank account, a bank performs a so-called ‘Know-your-customer’ process (KYC). During this process, the bank needs to verify different elements. For example it needs to understand what the business does and conduct checks on the shareholders and directors.

If you own a business together with one business partner and both of you own 50% of the company, the structure is simple and conducting all necessary checks will be straightforward. Some companies, however, may have multiple companies as their shareholders and the bank will need to check who the owners of those companies are (which may be other companies etc.) and therefore the process is more complicated.

Neat follows stringent due diligence processes. So for companies with more complicated structures, it will take longer to perform all necessary checks. We do, however, aim to onboard any customer with legitimate businesses, which have passed our compliance review.

5). You have a new business model or high-tech products

For new businesses without a financial history, a bank will want more information on the nature of the business. This is to make sure the business is not engaged in for example money laundering or criminal activities.

This is understandable, but regrettably, many traditional banks do not understand new business models very well. Due to this anti-risk mentality and the uncertainty about whether the company will be profitable for the bank, they would rather automatically reject an application than spend time investigating and better understanding it.

What about Neat?

‍At Neat we need to understand what your business is doing in order to open a Neat account. Neat is a fintech based in Hong Kong and caters to startups and SMEs, so getting a Neat account approved typically only takes a week. We are a startup ourselves so we understand the pain points and challenges that an SME will face.

 

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