Monday, May 20, 2019

Transferring Money Overseas - Part II

It seems the banks want a taste of the action whenever money is transferred from one point to another.  Is there a way around this?   Maybe.  Maybe not.

I noted before that if you want to transfer money overseas, you end up paying transaction fees. Whether it is a wire transfer, Western Union, or by Credit Card.  Even something as simple as sending a check will cost money - not only for postage, but for foreign check fees charged to the recipient when they try to cash a check in a foreign currency.  There is really no easy way to send money overseas, and there are very good reasons for this.

To begin with, there is labor involved.  My local bank takes about a half-hour for the teller to type in the necessary data to make a wire transfer.   This is an actual cost to the bank.   Then there is the conversion rate - which varies over time.   As I noted before, there is no such thing as an "official" conversion rate for currencies - you get whatever rate the bank or currency trader will give you. And since banks are not in the business of making change, they will factor in some percentage to make a profit on such transactions.   Ditto for those "currency exchange" booths you see at the border or at an airport.

When I had my practice, I had to pay overseas attorneys for Patent work in their countries, and they had to pay me.   The client, who was paying me for these overseas services (or my overseas partner's client who was paying him) would often pay on 30, 60, or 90 days, which is not atypical for legal billing.   Thus, there was a huge risk that swings in currency conversions would result in my actually losing money on a transaction.   An overseas attorney might charge thousands of dollars in legal fees and filing fees, and my reporting fee of $500 might be swallowed up by a change in market conditions between the time (a) the overseas attorney bills me, (b) the time I bill my client, (c) the time my client pays me, and (d) the time I wire money to my overseas attorney.   It is a messy business.  And I learned early on not to charge foreign fees to my clients at the Interbank rate, but the Interbank rate plus some percentage in order to have a safety margin, such as 5% or the "kiosk rate".

By the way, the link above, which was the currency conversion site I used to use to calculate conversion rates (before Google started doing this) is now offering a money transfer system as well, "coming soon" it says.  I am not endorsing their site by linking to it.

Wire transfers have been the main way most companies send or receive money from overseas.   There are bank service charges, of course ($25 to $50 or so) and the banks also might play with the currency conversion rates to eke out a percentage or two of profit from the deal.    But this has been the main way that most corporations transfer money, and if it was a lousy way to do business or there was an easier and less costly way to do this, you can bet they would figure it out.   Because when you are a large company, you are talking hundreds of thousands of dollars, if not millions, at stake.

Wire transfers domestically in the USA are not very much used, except for large transactions - buying and selling a house, for example, or maybe a car.   The fees involved make it less useful than even Bitcoin for domestic transfers.  My European friends tell me that this is not so over there.   They use wire transfers the way you and I use a credit card.  Give someone the SWIFT code and account number and bingo - you've transferred money.

But given all that, I am skeptical when someone comes along and tells me that there is some newfangled "disruption" in the marketplace that will make it possible to transfer money overseas with no fees at all - or reduced fees - and save you tons of money (with lots of EXCLAMATION POINTS!!!! IN ALL CAPS!!!).   If it sounds too good to be true, it probably is.

Because in addition to the fees involved is the fact of security and reliability.  Before you hand over tens of thousands of dollars to an organization on the promise they will send it overseas, you might want to check out how reliable this organization is, and what your recourse is, if they decide to keep the money, lose the money, or freeze your account.

Sadly, this seems to be a model of commerce in recent years.   Someone comes along and promises to "disrupt" traditional commerce by taking something being done using ordinary means, and putting it on the Internet or as a smartphone app.    Whether it is a taxi service or food delivery or some sort of banking function or music player, we are told that this is "new technology" - instead of just a new company doing the same things as done before, but without the regulation and oversight afforded to traditional industries.

Uber and Lyft are not "new technology" but rather an unregulated taxi service that is basically bulldozing government taxi regulations by getting so large so quickly that governments scramble to try to regulate them - often stepping back from outright bans due to pushback from consumers, who are also voters.

PayPal went through a similar process.  I recounted before how PayPal, in the early days, was a wild west operation.  They acted like a bank, looked like a bank, smelled like a bank, but claimed not to be a bank and thus not subject to banking regulations.  They set up accounts for users, offered credit cards, and even claimed (falsely) to be FDIC insured.   They also basically rented out their merchant account (a merchant account is an account you have that allows you to accept credit cards) to the thousands of PayPal users - in direct violation of credit card company rules.

PayPal got so big, so fast, that the credit card companies went along with this.  They threatened, early on, to terminate PayPal's merchant account, until they got wind of the numbers that were being generated.   Visa and MasterCard wanted their 3% commission, so they looked the other way.   And a lot of people looked the other way as well.  They made a lot of money, to the point where the guy who founded it is building spaceships today.  Nice work if you can get it.

But there were teething problems.   As I recounted before, I sold a car on eBay and the buyer tried to pay me in three installments on PayPal.  Instead of programming the system to deny this, PayPal flagged this as "suspicious activity!" and froze my account.   And it was a hassle to get it unfrozen, too.  I learned early on that PayPal is a neat way to pay for cheap Chinese crap you buy on eBay, but not something to be trusted for large transactions.    I did use it late in my career to accept credit card payments from clients (which were listed as "donations" for some reason - again, another end-run on regulations) but even that made me nervous.   Trust, when it comes to money, is a fragile thing.  You break that trust once, it is hard to get it back.

Anyway, I recently sent about thirty grand to Canada, in three installments, to pay for the new trailer, which I now have title to, even though at this point, it is just a steel frame and a VIN plate.  I sent three installments in part because if one went awry, at least I would not be out the entire amount.  Also, I was hedging risk in currency conversions.  While the exchange rate is favorable today, that can change in a hurry, so I paid early on to make sure that at least part of the payment took advantage of the favorable exchange rate between the American Dollar and Canadian Ruble.

For the last payment, I used Bank of America wire transfer service.  Unlike my local bank, rather than sit in the lobby for a half-hour while Becky types in the data, I could just go on the website and do this myself.   And this month, they offered to waive the transfer fee, so I went ahead and did it.  Of course, the trailer company's bank charged them a $17 fee to accept the wire transfer, so I will have to give them a handful of Loonies and Toonies when I get there, to pay the balance.

Of course, Bank of America, like my local bank, is skimming a percentage or two off the top, in currency conversion fees (which is why they want me to send in Canadian funds, so I use their conversion rates, not inter-bank rates).   It is pretty unavoidable these days not to pay something.

But like clockwork, when I mentioned this on an online forum, some "Dad" chimes in that anyone who pays by conventional means is a blithering idiot as the only way to pay is to use this newfangled online payment system - whose name I won't mention here, as I don't want to even inadvertently promote it.   You could save $1000 on your wire transfer, he claims, which seems like an obscene amount of money.   Needless to say, I was skeptical.  Some guy who claims to be an accountant, but of course, is using an anonymous name in an online forum, has the inside track to big savings, and everyone else in the world is just a clueless dweeb.

Like I said, I'm skeptical.  So I searched the name of the company plus the word "scam" and the results were interesting, to say the least.   The first thing that popped up were a litany of complaints on a number of "consumer complaint" sites that all mentioned the same pattern - that the system worked fine for them for a transaction or two, but then they were told their account was "frozen" and for days, weeks, or even months, they had to struggle with the company to get their money back.  Sounds like my experience with PayPal back in the wild west days.

Even the Better Business Bureau had a litany of complaints, which is saying something.  I noted before the BBB is pretty worthless, as they often gave invention broker companies (which are mostly outright crooks) good ratings, as the companies would claim the complaints were "resolved."  To get a low rating on the BBB takes some serious effort to piss people off.

The other items that popped up included an article in The Guardian, which I think is now owned by the Kremlin.   The article in that paper was disturbing - it was more of an advertisement of "this kicky new way to send money!!!" with lots of cheerleading, bullet points, and a stock photo of a lady sitting in a coffee shop looking at her laptop while smiling (apparently enjoying the experience of sending money).  Not much in critical analysis in it.   It appeared to be a paid advert, and I suspect it was.

There were also a number of hits, including one to the company website itself, which included language eerily similar to that of the person posting on the trailer forum.  For some reason, the person promoting this service online went on and on about Wells Fargo - the bank everyone loves to hate.  And for some reason, this money transfer company did so as well - trying to make it out that sending a wire transfer was some sort of "hassle" as you had to type in a SWIFT code and whatnot.  I think I was being shilled.

Some more research turned up a very carefully groomed Wikipedia page (again, all cheerleading) that described how the company worked. Two guys from a former Eastern Bloc country moved to London, and wanted to transfer money.  They established this new company and claim they can save money on overseas transfers, but it wasn't clear exactly how they make money at this, other than they are playing the float on currency conversion - hoping the exchange rates change in their favor.  I am not sure how this is different that a traditional bank scraping a percent or two by using favorable conversion rates.  And it may explain why they "freeze" people's accounts with no explanation - perhaps the conversion rates shifted against them, and if they can freeze an account until they shift back, it might work to their advantage.

One thing is for sure - these folks are not running a charity, converting and transferring money free of charge as a public service.

But all that being said, I wasn't about to send off thirty grand to Boris and Vladimir in their kicky new online money transfer system which is backed up by the Bank of Nowhere and insured by the Nowhere Deposit Insurance Company.  Of course, if I did run into problems, I could always sue them, in their home country, in the former Eastern Bloc.   That's easy to do!

Maybe, like PayPal, they are in the early stages of development, and once they get up and running (and get some serious funding) the whole thing will take off and they will become more reliable and trusted.   But like with Bitcoin (another service that promised to transfer money overseas cheaply and reliably) it doesn't seem like these promises are paying off yet, at least not for the legions of angry customers whose comments I am reading online.   One or two, I can see.   When you see dozens with the same pattern (and the obligatory two or three cheerleading reviews, natch) that is something else.

There is a lot of this nonsense going on, and everyone is trying to jump on the bandwagon.  They even have a trendy name for it, "FinTech" - as if everything that was done before at a bank becomes "technology" once you put it on the Internet or write an app for it (as if traditional banks aren't already doing this).   If you say things like "FinTech" and "Block Chain" enough in a powerpoint presentation, people might actually think you are smart and give you a few million in startup money.

Sadly, we've been through this before - time and time again.  Each "dot com" startup and consequential meltdown takes out a legion of investors.   Granted, some companies end up on top.  The aforementioned PayPal for example, or Amazon.   But for every Amazon, there is a  For every PayPal, there is a Groupon.   And this "FinTech" nonsense has seen its share of failures already.

"Disrupt" the marketplace, the mantra goes, "Get big quickly" before anyone can figure out what it is you are trying to pull off and stop you.   "Fake it until you make it" - and hope you can make it before the Venture Capital runs out.   Sadly, I suspect a lot of these startups will come grinding to a halt in the next few years, as the economy starts to slow down and we head to a long-predicted recession - and as a lot of these startups never end up making money.  Because somewhere along the line, you do have to make money, whether it is with unregulated taxis or unregulated banks.

There might also reach a point where governments and the people get wise to this "disruption" nonsense and remember why we regulated taxi companies and banks and currencies in the first place.  When that happens, a lot of "disruptors" will be disrupted.