US Bank Accounts with Cato Pastoll | E090
The easy way to setup US based bank accounts from Canada.
On today’s episode of Financial Planning For Canadian Business Owners we have brought back Cato Pastoll from Loop. This time he has got a new product that he is basically working with that solves a very simple problem - Opening of bank accounts for Canadian businesses in the US. This sounds like it should be easy, but we are going to get into what the problems are, how he managed to solve them, and how he can make your life easier.
Episode Highlights:
1.08: Cato says that they had started way back in 2015 as a lender, and over the years, we kind of developed a product offering new products and services to help small business owners with their overall finances.
1.19: Cato says that early this year, they launched Loop card which is a multicurrency card that allows users to spend in different currencies. Then more recently they launched the loop accounts product which allows users to open accounts in different currencies so a user can do business more seamlessly around the world.
4.01: There is a lot of friction associated with being able to get the US account. One another way to do is you can set up the US legal entities to set up like the USA LLP and open an account but with lot of taxes packed, says Cato.
4.22: Cato explains that they wanted to easily solve this problem for companies by making it super simple for them to access an account, get access to details online without go into the bank branch. You can do that all digitally through our platform.
5.48: If you get paid in the US dollars with bank account in Canada, bank will convert the money at that point, and they will often add markup as much as 3% on every dollar that you earn.
6.33: We do a digital onboarding process like many other Fintech products. We collect information on the company, fill online application forms, and have business names and address. We collect information on any directors of the business as well, explains Cato.
7.12: When you fill some information on the form, and we say you are approved and then once you are approved and once you have the ability to access an account with us you can then go and click on a button and get access to international account details all through platform, says Cato.
7.35: Loop card is a multicurrency card that allows you to spend money in different currencies, and one of those currencies is the US dollar.
8.10: We allow you collect your money in the US dollars that you can keep as US dollar revenue in USD and then you can use your loop cards to go and spend those US dollars for your expenses in USD, says Cato.
9.32: When people encounter the problem, they can go to go to your website, set up an account, get a card and deal with all their American currency build business needs on one end of the border and then bring it back over whatever is left over.
11.38: The four products we have are multicurrency accounts product, multicurrency card product, our payments product and then we also have capital product, says Cato.
3 Key Points:
In the pandemic companies were thinking to go into local bank branch to get them to open a US account but bank told them, we have a branch in the US however, to open up this account, you are going to need to drive to our nearest branch in the US, says Cato.
Cato talks about a multicurrency card. He explains how that works and how it ties into your account.
We call ourselves kind of a bundle banking platform and the reason we use that terminology is we kind of try to do everything in one place. We try to make all the different products and services that a company needs available to them through Loop, says Cato.
Tweetable Quotes:
“You can go to bank in Canada and get the US dollar account in Canada meaning that you can store US dollars in Canada, but if somebody needs to pay you, you are going to have an account number and the transit number.” – Cato
“Canadian companies do not set up to get their domestic branches to basically be foreign branches of American banks.” – Jason
“We allow you to collect through US dollar revenue and if you need to make $50,000 wire payment, we can convert the money to RMB for you and allow you to wire that money to anywhere in the world.” - Cato
Resources Mentioned:
Transcript;
Producer: Welcome to the Financial Planning for Canadian Business Owners podcast. You will hear about industry insights with award-winning financial planner and entrepreneur, Jason Pereira. Through the interviews with different experts with their stories and advice, you will learn how you can navigate the challenges of being an entrepreneur, plan for success, and make the most of your business and life. And now your host, Jason Pereira.
Jason Pereira: Hello and welcome. Thank you for joining. Today on the show, I brought back Cato Pastoll of Loop. This time he's got a product [inaudible 00:00:40] new product that he is basically working with that solves a very simple problem: opening up bank accounts for Canadian businesses, but in the US. Yes, I know this sounds like it should be easy, but we're going to get into what the problems are and how he's managed to solve it, and how he can make your life easy. With that, here's [inaudible 00:00:53] Cato. Cato, thanks
for coming back in.
Cato Pastoll: Thanks for having me, Jason. Great to be back.
Jason Pereira: So Cato Pastoll of Loop, tell us about Loop and what it is you're working on.
Cato Pastoll: Yeah, for sure. I'll start with a little bit of backstory. We've been in the lending industry for a while. We actually started way back in 2015 as a lender. Over the years we've kind of developed our product offering to build new products and services to help small business owners with their overall finances. Earlier this year we launched Loop Card, which is a multicurrency card that allows you to spend in different currencies. Then more recently, we now launched our Loop Accounts product, which essentially allows you to open up accounts in different currencies, so you can do business more seamlessly around the world. As you were just saying, let's say you're a Canadian business and you need a US account with a US account number and a US routing number, using Loop you can easily, within a few clicks, get access to that account. So anyone who needs to pay you in the US, in US dollars, let's say you're selling to a US customer, you can get access to that within a few clicks.
Jason Pereira: Okay. We'll come back to the multicurrency card in a minute. We're going to talk about opening up a business bank account in the US. I'm going to play dumb for a second and pretend that I don't know what happens here, but I don't understand Cato. Don't all the Canadian banks have US branches? Can't I just go to my local branch and set up an account in the US?
Cato Pastoll: Good segue into story time. You would think so. However, I first learned about how big of an issue this was during the pandemic. During the pandemic, I actually had several calls with customers of ours, many of which were kind of going into the online e-commerce space, so they were starting to basically start building their businesses online and starting as a result of selling into the US. As part of selling into the US, they needed access to a US bank account because if you're using amazon.com, for example, you need Amazon to pay you in US dollars. So companies going there thinking, "Okay, I'm just going to go into my local bank branch. I'll get them to open up a US account," so they go to the bank and the bank basically tells them, "Look, we have a branch in the US. However, in order to open up this account, you're actually going to need to drive down to Buffalo or our nearest branch in the US in order to go and open this account."
Jason Pereira: And that's when every reasonable human being looks at them very confused, saying, "I don't understand. You're the same company," but really they're not. But continue.
Cato Pastoll: Well, not only are they not the same brand or company or whatever, but we were also in a global pandemic where the border was actually shut and you weren't allowed to drive across the border, so they basically said, "We don't care about your problem. Thank you very much for coming in, but we're not going to help you." So even today in a world where you
Jason Pereira: That sounds like classic Canadian bank style, but continue.
Cato Pastoll: Even today in a world where it's totally possible to drive across the border, it's incredibly... there's a lot of friction associated with actually getting a US account. So you can go to a bank in Canada and get what's called a US dollar account in Canada, meaning you can store US dollars in Canada, but if somebody needs to pay you, you're going to have an account number and a transit number. If you go to a US business and say, "Hey, please pay my transit number," they're not going to know what you're talking about because they're used to having what's called an ABA routing number, which is what the Americans do. So basically there's a lot of friction associated with being able to actually get a bank account in the US.
Cato Pastoll: The only ways to do it are one, jumps through a million hoops, go down to the US, fight and argue with someone down there, or number two, you can actually set up a US legal entity, so set up a US LLC, for example, and open an account. But once you do that, you're into a whole world of accounting, tax, and other legal headaches with regards to having multiple entities and that type of thing. So we wanted to easily solve this problem for companies by basically making it super simple for them to access an account, get access to details all online without needing to call someone over the phone, go into a bank branch, do any of that type of stuff. You can do that all digitally through our platform.
Jason Pereira: Excellent, so bottom line is no need to set up a corporation in the US just to get a bank account. No need to drive across the border and then have a confused bank teller say, "But you're not American," and get that done. Quite the challenge. This is the thing. People are probably wondering, "What the heck? Why do we need to go through this?" I mean, if you're a business owner who's never gone through this, one day you're going to run into this hopefully. And it's simple because at the end of the day, they are two different countries. They are two different banking codes. They are two different banking systems. And surprise, surprise. Canadian companies do not set up their domestic branches to basically be foreign branches of American banks. That's not how it works.
Jason Pereira: At the end of the day, people like us who may ever need that kind of service, we're an edge case that there's just not enough demand for, so this is where FinTech will step in. Good move. Your process is simple, straightforward. Tell me about... I need a bank account, I discover Loop because I'm listen to this podcast. How long, how fast, how does it work?
Cato Pastoll: Yeah. I'll very quickly just jump back a second and be a little bit more cynical than you in terms of why they don't allow you to do this. I think [inaudible 00:05:39].
Jason Pereira: Oh dear god. That is... being more cynical to me about Canadian banking is a feat. Continue.
Cato Pastoll: They actually make a huge amount of money in foreign exchange charges, so if you get paid in US dollars and [inaudible 00:05:50] account in Canada, they basically will convert the money at that point and they'll often add a markup as much as 3% on every dollar that you earn. So [inaudible 00:05:58]
Jason Pereira: ... say that because a couple weeks before this episode, we had a discussion on FX and 3.5% is the baseline margin from the midpoint. So yeah, absolutely.
Cato Pastoll: Right. So if they went and made it easy for you to get your foreign currency dollars, they would be cannibalizing that revenue line for themselves. Not to harp too much on banks, but there's a lot of reasons underlying the reality that you're not able to basically access or create foreign currency bank accounts easily from within Canada. What we've done, going onto your question there in terms of how we make the signup process easy, is we do a digital onboarding process that's similar to a digital onboarding process from many other FinTech products that you might have used. We collect information on the company through an online application form, so things like your business name, business address. We collect information on any directors of the business as well as what are referred to as beneficial owners, being anyone who owns 25% or more of the company.
Cato Pastoll: Once we collect that information on the directors and the beneficial owners of the business, we can do what we call KYC, which is basically verifying the individuals as well as the business entity that's trying to open an account with us. We do that all digitally and in a fully automated fashion. From [inaudible 00:07:10] perspective as a business, it kind of looks like magic. You fill out some information on a form and we say, "Hey, you're approved." And then once you're approved and once you have the ability to access an account with us, you can then go and click on a button and basically go and get access to international account details all through our platform.
Jason Pereira: Excellent. So that's set up. Now let's talk about the use of it. You mentioned a multicurrency card. Talk to me about how that works and how it ties into your account.
Cato Pastoll: Yeah, for sure. One of our other products is called Loop Card. What it allows you to do is spend money in different currencies, one of those currencies being US dollars. Normally, let's say you use a Canadian credit card. Let's say you have a bank and it's a Canadian dollar card. If you go and spend that money to, let's just say, pay for advertising on Facebook in the US, because you've got customers there and you're advertising on Facebook ads, you're going to actually pay 3.5% as an average for an exchange fee on that. So not only would you have paid three and a half percent to convert your US dollars to Canadian dollars, you've now paid another 3.5% to convert your Canadian dollars back into US dollars to pay your expenses.
Cato Pastoll: Between our account and card products, what we allow you to do is basically collect your money in US dollars, so you can keep your US dollar revenue in USD, and then you can use your Loop Card to go and spend those US dollars so you keep that expense in US dollars. You've completely mitigated and eliminated the FX cost of basically moving money from US to Canadian and Canadian to US by keeping your money in one account, which we call our multicurrency account, and using our multicurrency card product to pay your expenses.
Jason Pereira: Yeah. Far better than paying 3.5% in one direction and then 3.5% the other direction, losing about 7% of your principal. Wow. That even hurt for me to say out loud. Oh my god. Losing about close to 7%. So business owners, where you have business expenses in USD, do not pay two conversions. That is utterly painful. Frankly, what we're talking about, and this was discussed in the FX episode, is basically the fact that there... we've discussed hedging there, but there's a very simple way to do this and that is if you are both simultaneously earning revenue in said foreign currency as well as basically having expenses in said foreign currency, you only ever exchange back the difference, the profit of what's left over. Therefore there's no friction cost there as opposed to, deep breath, 7%. Geez. 7%. Wow.
Jason Pereira: Yes. As I said in that episode, there's few areas more obfuscated or few poorly understood than the amount of money that banks make off of this stuff, so right to be cynical. Excellent. Bottom line is this problem, when people encounter it, they can either go bang their head against the wall and drive to Buffalo, or they can go to your website, set up an account, get a card, basically deal with all their American currency business needs on one end of the border, and then bring it back over, whatever is left over. Fair enough. So why wouldn't people use you?
Cato Pastoll: I'll just add a little bit more. We call ourselves kind of a bundled banking platform and the reason we use that terminology is we actually kind of try to do everything in one place. We try to make all of the different products and services that a company needs available to them through Loop. What I mean by that is you can earn your US dollar revenue through us, you can make your US dollar expenses with us, you can convert your US dollars back into Canadian dollars at favorable exchange rates. We're very close to the mid-market rate in terms of the actual rate that we offer to companies if they do need to convert. What's more is we actually have international supplier payment capabilities too. This is another common example of a double conversion that happens.
Cato Pastoll: Let's say you've earned US dollars, you've sold on Amazon, and let's say you're buying some inventory in China, so you need to send a $50,000 wire to China. Maybe you need to convert that into RMB. What I see a lot of companies do is convert the US dollars back into Canadian dollars and then convert the Canadian dollars into RMB and then send it China. Another example of an unnecessary double conversion. What we can do is basically allow you to collect your US dollar revenue and then if you need to make that $50,000 wire payment, we can convert the money to RMB for you and allow you to wire that money into China directly, or really to anywhere else in the world. We support over 37 different currencies for you to be able to pay in. When I say all in one place, what we really want to do is make it really easy for you to receive money in any currency, in any market in the world, and we want to make it easy for you to make your payments whether it's through cards, wire payments, local payments, all through one platform.
Jason Pereira: Absolutely. Again, better option than the current constant frictions of switching between stuff. Wow. All right. Cato, very much appreciate this. Where can people find you?
Cato Pastoll: Just check us out at our site. It's getloop.ca, like G-E-T Loop dot C-A. You'll see all the information on the different products that we offer. The four things that we have are kind of multicurrency accounts products, our multicurrency card products, so you have cards and accounts. We have our payments products, and then we also have capital products, as I was mentioned at the beginning. We also have financing solutions for companies that need access to working capital and that's obviously, as the company is growing, something that companies usually have some type of need for. We kind of try to [inaudible 00:11:58] the gamut in terms of everything from getting your deposit to making your payments to getting access to capital.
Jason Pereira: Excellent. Perfect. Well, I encourage anyone who's got this need to not do it the hard way and take a look at what you guys are up to. Appreciate it.
Cato Pastoll: Awesome. Yeah. Thanks so much for having us on. It was a good little catch up. Look forward to more exciting updates in the near future.
Jason Pereira: Pleasure as always. Little known fact, I think you have actually been the most repeated guest across all my podcasts [inaudible 00:12:24] conversation.
Cato Pastoll:Is that podcast and TV shows, or just podcasts?
Jason Pereira: What was the TV show? [inaudible 00:12:29]. I think you're at a total of five visits. No, six. I think you were on a panel, weren't you? So there we go. Anyway, as always, a pleasure.
Cato Pastoll: Yeah. Thanks. Thanks for having me.
Jason Pereira: So that was today's episode of Financial Planning for Canadian Business Owners. As you heard both in this episode and the previous one on currency hedging, foreign exchange transactions, oh my god, do they take a bite out of you. 7%. Think about that. Every time you need to move money in two directions, 7%. There are better ways and there's better ways to open up banks than drive across the border. Bank accounts [inaudible 00:13:00] across the border. As always, if you enjoyed this podcast, please leave a review on Apple Podcast, SoundCloud, Stitcher, or Spotify and until next time, take care.
Producer: This podcast was brought to you by Woodgate Financial, an award-winning financial planning firm catering to high net worth individuals, business owners, and their families. To learn more, go to woodgate.com. You can subscribe to this podcast on Apple Podcast, Stitcher, Google Play, and Spotify, or find more episodes at jasonpereira.ca. You can even ask Siri, Alexa, or Google Home to subscribe for you.