Overseas money transfers

Vincent Turner
Vincent Turner
The following is a guest post by Vincent Turner.

Vincent is an Aussie Founder now residing in Silicon Valley making waves. Click here to learn more about Vincent.

Vincent also blogs on innovation, design, technology, music & travel on his personal blog at www.vinae.com.au

Nightmare, has any one else had this nightmare? It sounds simple enough, doesn’t it?

The nightmare

I have a bank account here in the US and one in my country of origin, in my case Australia. I need to get some money into the US so I can pay for things in the local currency and avoid $4.00 and 2.5% every time I withdraw money or some exchange rate that I can’t even really see when I pay for things on debit/credit. So you think what anyone would think, I’ll just do one big transfer – that must be cheaper, that must avoid some cost. Try again.

Your options:

  1. Draw out one big amount – bank charges you flat fee + 2.5% > 3.0% of the amount withdrawn – this is huge, this is like paying about $200 a month in bank fees on withdrawals alone for the average person living on say $6,000 after tax.. and that before even looking at the exchange rate.
  2. Wire transfer once a month or once off to US bank account – no % fee, a flat fee of ~$30 but then you get murdered on the exchange rate, and I mean murdered. When I went to do a transfer of $10,000 recently you could buy $1.02 US for every $1.00 Australian .. so I should be expecting about $10,200, minus say a bit for the exchange rate and the wire fee, let’s call it an even $10,100. My bank, who shall remain nameless, came back with $9,800, before the wire fee! .. hold on, that looks remarkably like the 3% again!

Pile of money - overseas money transfer

It’s just business

So, why do they do this? Well, this is likely to protect their foreign exchange risk, i.e. the time between when they accept my request and process it most likely sees some fluctuation in the exchange rates. Forget that in the long-term this is probably just as likely to move up or down (for or against them or me) over the long-term and across all their customer flows in and out of the country. Banks are in the game of risk management, making money isn’t an issue, so long as you never lose money. So this exchange rate is their buffer against swings against them, to help mitigate any chance that they might lose any money in providing the service. Makes perfect business sense, but anyone who has spent even half a day looking at the forex markets knows that they could easily take the opposite position to your transfer the instant you place your order and thus hedge any currency risk they might have in providing the service. They can provide the service for the fee and close out their hedge once the transfer is complete. But most major banks (at least in Australia) systems probably aren’t this sophisticated.

The solution

Fortunately like a good efficient market people have seen this opportunity and created more intelligent transfer solutions where the risk is hedged as the order is placed and they can then complete the transfer in the next few days. And guess who benefits? you do. As you don’t have to pay for the inability of a major bank to provide this service So here is how it works, there is a number of providers but I signed up for xe.com so will talk about them.

  1. You sign up online tick
  2. You send supporting documents, typically PDFs of recent bank statements and a copy of your passport tick
  3. You take (or return) a verifying phone call tick
  4. You wait for final approval which comes via email tick

Note, none of the set up process involves printing or signing anything and as the forex markets are open from Monday morning in Australia to friday evening in the US 24 HOURS A DAY.. the call centre is also open these hours. Then the process is super simple – you simply login and register your sending and receiving bank accounts, request a quote for your transfer and hit confirm. Once you have got confirmation you have a few days to get them the money, this simply means a local transfer to their local account in your sending currency. I.e. I sent money from my Australian company to their Australian bank account. In fact, xe.com enables you to send the money via bpay! you have to request that bit (1 more email/call only – and on the virtually on the spot). A day later, an email arrives from xe.com – the funds are sitting in my US bank account.

The results

Net result? Well – in my case here this was a decent sized transfer of ~$100k. I saved over $2,000 for doing about an hours work. In my exchange rate example above my bank would have given me 0.9800 for every dollar, xe.com gave me 1.0040 – plus by using bpay for the local transfer I saved another $35 bank wire fee too! Now, that I’ve saved $2,000 I might go buy some kiting equipment – I promise to think of you bank every time I’m out there. Banks really do help you save for the things you want, just not always how you expect them to. Vincent

Links mentioned in this post

Choice of Banks in America

The following is a short list of Major Banks you can use in America. Last in this list I included a Credit Union which is not a major bank since those guys look after new engineers (with no credit history) in the bay area.

Wells Fargo

About: Wells Fargo is the fourth largest bank in the US by assets and the second largest bank by market capitalization. In 2007 it was the only bank in the United States to be rated AAA by S&P, though its rating has since been lowered to AA- in light of the financial crisis of 2007–2010. Wells Fargo is the fourth largest bank in the US by assets and the second largest bank by market capitalization.In 2007 it was the only bank in the United States to be rated AAA by S&P, though its rating has since been lowered to AA- in light of the financial crisis of 2007–2010.

Experience: This is the 1st bank I established my accounts with. As soon as I walked in I was greeted by one of their representatives and asked what help I needed. Once this is established, they directed me to the right bank associate. All Wells Fargo banks share this personal service. The atmosphere inside the bank feels warm and comforting eliminating any anxiety you may face regarding finances. Everyone is smiling.

In comparison to CitiBank and Bank of America branches (which I also visited), they both were very corporate, high booth everywhere, felt cold with no Wells Fargo like personal touch – just a line where to line up. Felt like a processing plant.

URL: https://www.wellsfargo.com/

Bank of America

About: Bank of America Corporation is a financial services company, the largest bank holding company in the United States, by assets, and the second largest bank by market capitalization. Also known as BOA – short for Bank of America.

Experience: Very corporate, high booth everywhere, felt cold with no Wells Fargo like personal touch – just a line where to line up. Felt like a processing plant.

URL: https://www.bankofamerica.com/

CitiBank

About: Citibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York. As of March 2010, Citigroup is the third largest bank holding company in the United States by domestic deposits, after Bank of America and JP Morgan Chase.

Experience: Very corporate, high booth everywhere, felt cold with no Wells Fargo like personal touch – just a line where to line up. Felt like a processing plant. BOA must be their idol. I setup an account with CitiBank because I have a Credit Card in Australia with Citi. However as soon as I did I realized that their service is just as poor as the one in Australia – I’m surprised that for a bank this size the low understanding of what a good consumer experience is like both offline and online.

URL: http://www.citibank.com/

Technology Credit Union

About: Tech CU is now among the top 1% of the nation’s largest credit unions with ten full service branches in the Silicon Valley. Now with more than $1.3 billion in assets and still growing. Also know as TechCU – short for Technology Credit Union.

Experience: Best way to describe this is a very small-scale of Wells Fargo. There is the personal touch component and also the booths for fast service. They only work with folks in the technology space like software engineers / entrepreneurs. TechCU also takes risks and will give you a loan for a car so that you can start building credit history. This is the bank which I approached after Wells Fargo said no for a car loan.

URL: http://www.techcu.com

If you have any specific questions about these banks please use the comments section below. I typically respond within 48 hours to all questions. If you have other banks which you’ve had experience with or want to add to my experience above please feel free to do so by commenting below.

Happy Banking!

~ Ernest