Understanding European banking services

If you are a business based in the UK aiming to set up a business elsewhere in Europe, you need to know how commercial banks operate in Europe. You also need to know how business banking services differ from those offered by the majority of UK commercial banks.

Since many major European banks have an international network, you may find that you can operate a business account and exchange currencies without changing banks. However, each national banking system is different, and, therefore, the conditions and charges that are associated with certain services also differ from country to country.

This guide explains what you need to set up a business bank account in Europe, and the banking services available. Please note the term ‘Europe’ covers countries in the European Union and European Economic Area.

You will also find details of euro accounts with a UK-based bank, and information about the Single European Payment Area initiative. Finally, the guide provides information on writing a business plan and alternative funding for small to medium enterprises.

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Business banking services offered by European banks

The type of bank account you will need to run your business in Europe will depend on how your business is structured. Banks may offer different services depending on whether you are setting up as a sole trader, limited liability company, partnership, subsidiary office or not-for-profit company.

Many countries in Europe offer a similar range of services to those available in the UK, including internet banking, electronic payment services, ATMs, credit and debit cards, and business advice services.

When choosing a bank, you should consider:

• location – is it close to your business?
• fees – are you charged by the bank for the services you use most?
• level of customer service
• whether the bank insures the money you deposit

Services and fees

What you pay to operate a business bank account depends on the services you select. For example, you may reduce the fees charged if you choose to run your bank account only by telephone or internet. However, if you prefer your account to be managed by a branch manager or business adviser, and to receive regular printed statements, you are likely to be charged for these services.

Cheques and overdrafts

In many countries in Europe, cheques are rarely used, except for some business payments. In some European countries, it is illegal to make cheque payments unless there are sufficient funds in your account to cover the transaction. This is because banks tend to be less lenient than UK banks with regard to unauthorised overdrafts. In France, for example, it is illegal to be overdrawn without authorisation and you can be barred from holding a bank account if you do not stay in credit.

The cheque guarantee system (using a cheque card, for example) does not exist in most countries in Europe, so you may be asked for proof of identity if you make a payment by cheque.

Non eurozone banks

The eurozone – or ‘euro area’ – covers European Union (EU) member states which have adopted the euro currency as their sole legal tender.

Business banking in non-eurozone countries – eg the Baltic countries Latvia and Lithuania – is dominated by Scandinavian banks. However, domestic banks in these countries are developing rapidly and taking market share. The Baltic currencies are pegged to the euro, so it is possible to hold euro-denominated bank accounts or to exchange between euros and local currency for a relatively small charge. Estonia adopted the euro in January 2011.

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What you will need to set up your business account in Europe

If you are a business based in the UK and want to set up a business account in Europe, there are different requirements depending on the type of business you run and the country in which you want to open the account.

Limited liability companies

If you are setting up a limited liability company in Europe, most banks will require you to deposit a proportion of your company’s paid-up capital – share capital that your company has issued and received payment for – in a business account in that country in order for you to register your business as a legal entity there.

In some countries the standard proportion of capital is 25 per cent, but in others – eg Latvia – the full amount of authorised capital – ie the amount of share capital that the company is authorised by its articles of association to issue to shareholders – must be deposited with the bank.

The account in which that money is held is usually blocked until the company is formally registered by the relevant authorities. In some countries the banks make a commission charge to accept the deposit and issue a certificate to state that the funds have been placed with them.

To register your company formally, you need to obtain an official identification number from the relevant company registration authority.

You will use the company registration number in most of the company’s correspondence with official authorities – eg taxation services, enterprise agencies, employment authorities. To obtain it you will need proof of identity, your company’s statutory documents (or articles of association) and name and information on the company’s activity.

You can find details of where to register your company in different European countries on the Official Company Registers website- Opens in a new window.

Opening a business account

You can open a bank account in any member state of the EU according to that country’s rules. Banking rules in the EU are not harmonised and requirements vary from country to country.

As with UK banks, a bank’s terms and conditions can also vary according to the type of account opened. You should check that the bank and account offer the services you require and that you understand the terms, conditions and charges.

To open a business bank account in an EU member state, you are commonly required to provide a number of documents, such as:

• proof of identification
• proof of residence

However, different countries will require different documents. Some banks may even require references and credit checks.

As an example, to open a business bank account in France, you will need:

• proof of identity and residence
• a copy of your company articles
• a copy of the company’s Extrait K-bis – the certificate provided when you registered with the Registre du commerce et des sociétés

In France, a transaction fee and quarterly account fee is charged on business accounts.

View a list of overseas banks that can accept deposits in this country on the Financial Services Authority (FSA) website- Opens in a new window.

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Accessibility of European banks

If you are a business based in the UK seeking banking services in Europe, most banks in Europe offer remote telephone, online banking services and ATM cash withdrawals. Standing orders, direct debits and electronic transfers are also available.

Bank branches

In many countries the branch network and contact with customers at branch level is still important in business banking. It is important to maintain a good relationship with your customer manager. They are there to deal with all your queries about the day-to-day running of your business account. If you keep them up to date with your activities, they will be able to respond more swiftly when you require help from your bank.

For example, if you need a business loan in France, the chargé de clientèle – who manages your account at a local branch – will make an initial assessment of your request for finance. The final decision on whether to lend the money is taken by a lending committee on the advice of your chargé de clientèle.

Debit and credit cards

The use of debit and credit cards is common in many countries and debit cards are provided by many national banks. Facilities such as Cirrus and Maestro are also widely available.

In Europe, credit cards are dominated by the major American providers and most banks offer them as part of their service. But with Europe quickly adopting Chip and PIN to help prevent fraud and the European Payments Council announcing a potential ban on magnetic stripe cards, any credit card with a magnetic stripe could soon be worthless.

Opening hours

Bank opening hours vary from country to country. Most are open between 09.00 and 17.00 from Monday to Friday, though some open as early as 08.00 and close at 15.00. Often the size of a town will determine the opening times of a bank branch.

In some countries and especially outside large cities, banks may close over lunch time. In some countries banks do not open at all at weekends, while in others you will find that some banks open on Saturday morning.

As an example, in Germany banks open from 08.30 or 09.00 until 16.00. On Wednesdays smaller branches are often closed, and larger banks may close at 13.00. In Germany, banks frequently stay open until 18.30 on Thursdays.

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UK bank business accounts for Europe

For a simple approach to doing business in Europe, you could always consider a euro or other foreign currency business account with a UK bank. The major UK high street banks often have a network of partners in foreign countries who can offer local legal and tax knowledge and expertise. By using the appropriate currency in a business account you can simplify business dealings in Europe.

Euro business accounts

A euro business account can help increase the speed and reliability of business banking within Europe. It will enable you to:

• have easy access to funds
• simplify payment and collection – matching invoices and receipts
• reduce exposure to exchange rate changes
• reduce administration and cost

Your UK bank will establish specific details that are compulsory for making and receiving payments in Europe, eg:

• Bank Identifier Code (BIC)
• International Bank Account Number (IBAN)

The BIC and IBAN are essential for business banking in Europe. These are secure details which should be kept confidential.

To enable your business to work within every European country, accounts can be in other foreign currencies as well as the euro.

Euro account services and charges

Euro accounts are available that offer the usual banking services – such as internet banking, a debit card and cheque book. However, ongoing account fees or service-specific charges may apply. The services offered and charges for using them vary. Often a quarterly fee will be standard, as well as charges for services like:

• sending and receiving money
• bills and cheques
• letters of credit
• status enquiries

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Writing a business plan for a European bank

If you are a business based in the UK and are writing a business plan in order to apply for financing from a European bank, you should ideally write the plan in the language of the country in which you are applying. It may be simplest to first write it in English, or your first language, and then have it translated.

It may help to seek local professional advice before completing your plan. This would help you set out the document in the best way and ensure that the translation is adequate for the bank’s needs.

There are fundamental elements that every business plan requires to improve the chances of success, such as:

• executive and company summary
• detailed breakdown of start-up costs
• marketing and sales strategy
• financial plan

Alternative funding for business in Europe

The European Investment Fund (EIF) has been established to improve the financial environment for small to medium enterprises (SMEs). To achieve this, the EIF works with a wide range of financial bodies who can offer direct funding for business development.

The EIF has two main areas of activity:

• venture capital – equity investments that support SMEs
• providing guarantees to financial institutions that cover credits to SMEs – including banks that invest in SMEs

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Credit checks in Europe

Europe does not currently have as extensive a credit checking system as the UK. Credit applications are reviewed and decisions are commonly based on:

• salary
• current debts
• family situation

However, if you or a director of your company holds an account and runs up bad credit, then a bank will put you in a special file which is shared by all lending institutions. For example, in France you become interdit bancaire (forbidden to bank) and will not be able to get a loan anywhere else.

In the Netherlands, a bank will often check the credit history of individual applicants or company directors and may register new foreign clients with the Central Credit Registration office or ‘Bureau Kredietregistratie’ (BKR). If a person has a bad debt record they will be registered with BKR.

Recent developments

There have been recent developments to create a common credit market across Europe and maintain high levels of consumer protection.

The Consumer Credit Directive Directive (CCD) came into force as law on 1 February 2011 and any credit agreement signed after this date must comply with the regulations.

The CCD will affect your business if it involves lending money, or making credit available to consumers, or acting on behalf of consumers or lenders in relation to prospective credit agreements. You can download a guide to CCD regulations from the Business, Innovation & Skills website (PDF, 67K)- Opens in a new window.

In June 2009, the European Commission published a report by the Expert Group on Credit Histories (EGCH), identifying solutions to improve the access to, and exchange of, consumers’ credit data within the European Union (EU).

The EGCH rejected the proposal for the creation of a single pan-European credit register, which would align the credit histories of all EU member states within one central register as an unrealistic and ineffective option.

Instead, the EGCH proposed that:

• credit checks be accessible throughout the credit lifecycle, even after the credit agreement has expired
• the CCD be used to ensure foreign creditors get the same level of access to credit data as local creditors
• national data protection authorities work towards more harmonisation to facilitate the process of cross-border credit data exchange
• the use of data across borders should comply with the national rules of the country from where it is accessed

You can read the EGCH report on the European Commission’s website- Opens in a new window.

At present, there are national central credit registers (CCRs) in 14 EU countries: Austria, Belgium, Bulgaria, Czech Republic, France, Germany, Italy, Latvia, Lithuania, Portugal, Romania, Slovenia, Slovakia and Spain.

These CCRs are operated by central banks and their role is to collect information on debt from reporting institutions. This information allows credit risk to be accurately assessed, especially when it is supported by additional information from other national CCRs.

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Single European Payment Area

The Single European Payment Area (SEPA) initiative is part of the move towards European integration, made possible by the introduction of the single currency.

SEPA allows private individuals and business customers to make non-cash payments in euros – eg by credit or debit card, bank transfer or direct debit – to any beneficiary in the eurozone. Another aim of SEPA is to harmonise technical standards used for plastic cards throughout Europe, simplifying the process for retailers.

SEPA Credit Transfer (SCT) means there is no longer any difference between domestic and international payments. For sums of up to €50,000 paid into a bank account within the European Union (EU), no bank commission should be payable as long as the bank subscribes to the SEPA initiative. An SCT will be made within a maximum of three days, and without any deductions from the principal amount.

SEPA can offer businesses many facilities, such as:

• accepting payment cards from all SEPA countries
• simplified financial processing
• a single bank account to cover all of Europe
• faster settlement – standardised
• improved cash flow
• reduced costs

A number of UK-based banks have committed to joining the SCT scheme and account for about 85 per cent of the UK payments market. By October 2010, 9.6 per cent of all credits transfers in the euro area were processed in the SCT format.

Banking costs under SEPA

The development of SEPA will mean lower banking costs due to:

• increased efficiency
• open market competition
• lower operational costs

Even though some banks may face increased costs to implement the initiative, the competitive market under SEPA will prevent them from passing this cost on to customers.

All UK residents – private individuals and businesses – will still benefit from SEPA even though there may be a delay in payment due to the need for currency conversion.

SEPA was devised by the European Central Bank and introduced under the European Commission Payment Services Directive.

The future of SEPA

The SEPA initiative began in 2006 and currently comprises the 27 EU Member States, Iceland, Liechtenstein, Norway, Switzerland and Monaco. Most major banks in the EU are involved. Banks have been able to use SEPA payment instruments since January 2008.

Because of the variety of national cashless payment systems, there is still a lot of work to be done to transfer all existing national systems to SEPA. At this moment, SEPA is mainly limited to cross-border transactions.

Every country has established a national forum to deal with their individual needs for dealing with SEPA. Plans have also been drafted by each nation to outline the measures necessary to transfer to SEPA. Download an overview of national SEPA strategies from the European Central Bank website (PDF, 151.8K)

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