New International Banking Solution for Small Business and Digital Nomads

One of the significant hassles of a the new digital economy is that national borders are largely irrelevant to digital businesses but the banking infrastructure is still stuck in the past. Dealing with international payments is a hassle and can be expensive.

Transferwise has been providing good service for years in helping people move money between currencies at transparent and reasonable rates and with good service. They have a very interesting new service: Borderless banking. They allow you to create an account based on many countries in Europe as well as in the USA (about 30 states so far).

This is a great service, as I have written: finding an international business bank as a digital nomad is challenging.

You may hold funds in your Borderless account in 15 different currencies at the this time. You may send money to someone else using 50 different currencies via Transferwise. With a Borderless account you will be able to accept payments as a local company from Europe, UK and the USA – those paying you can send electronic payments as they normally do using their bank (the process is seamless to them, they treat your bank account just like any other they make payments to).

image showing the currencies Transferwise allows

Transferwise allows you to hold Borderless balances in these 15 currencies.

The fees are mainly a fee to change currencies (often between .5 and 1%) which is very reasonable. So if you hold money in USD and want to pay someone in Mexican Pesos you pay 1% (reduced to .7% over $10,000). USD to Indian Rupee is .9% (reduced .7% over $10,000).

Importantly currency conversion takes place at the real mid-market rate for the currencies (many banks hide fees by giving you bad conversion rates).

In checking costs on their site I have noticed changing from USD to another currency is often higher than from another currency to USD. For example, Euro to USD is 1%, USD to Euro is .5%. USD to Singapore dollar is 1% (reduced to .5% at $5,000) while the reverse is .5%.

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Should I Sell or Keep My House When I Become a Nomad?

My friend Andrew published a post: So You Want to Travel The World But You Own a House (Or Apartment) which prompted me to add a comment and I figured I would share and expand on that comment here.

Owning rental property can be a wonderful way to help support your nomad, location independent lifestyle. Rental property can provide a source of regular income to supplement your earnings. Of course, getting a rental property into that state is usually something that takes time, or a huge downpayment.

I have found dealing with property management folks to be extremely annoying. First they charge ludicrous amounts (in my opinion), especially for places that have high rents (they normally charge a % of rent + huge amount to rent the place out). These costs greatly reduce the investment appeal of renting out your property. On top of paying them a huge amount they are not very customer focused (to me paying them, or to those seeking to find a place to live).

15 years ago I started renting out my first house and obviously created a web page for it. Nearly none of the expensive professionals did that back then. Only years later they finally were dragged into catching up. And still today, they post not nearly enough useful information.

Still it can be that even with these costs and frustration it makes sense as an investment (especially in the last few years when investment climate is so challenging).

Often the decision to rent out your home (versus selling it when you leave) is impacted by your long range plans. If you want to move back into your house in a year or two or five that limits your options. You may have to accept a bad investment to keep that option open. Especially if you are just going to go give the nomad idea a try for a year, selling may not be wise (unless you don’t want to return to your house even if the nomad idea doesn’t appeal to you once you try it).

photo of a house

Another consideration, even if you don’t care about moving back into the same house, but plan on moving back to the same city, is that if you sell and real estate values climb you could find yourself priced out of the market.

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Transfer Money Between Currencies Using New Providers Not Banks And Save

One of the annoyances of travel and even more so with business (for digital nomads or expats) is converting money between currencies. It actually is fairly easy now for a traveler but can be costly. When you have a business and need to convert between currencies it can be very costly.

Using ATMs to get cash in the local currency normally give better rates than you can get in most other ways. And you are unlikely to be outright swindled any more than large banks do (which if you follow the news is a great deal, scandal after scandal of illegally taking from customers in violation of the law). The transaction costs of ATMs can be ludicrously high. In Thailand all banks seemed to have agreed to charge foreign cards $6 for a transaction. That is crazy. But you don’t have much leverage.

Schwab, and a few other, financial institution will reimburse you for ATMs fees. Many digital nomad and international travelers make sure to get such an ATM card which is wise.

And you can occasionally find banks that are must more customer friendly. The MayBank in Siem Reap, Cambodia didn’t have ATM charges for me. And I found a bank in Hoi An, Vietnam that didn’t charge either (I can’t remember the name). It may well be that they just didn’t charge do to deals between the banks so I don’t know who else it would work for.

Even though the currency exchange rates are normally not too bad on ATMs or using a credit card they are still weighted in the banks favor. And I don’t know of any banks that disclose how wide a profit margin they take for simple currency transactions (and I am sure it fluctuates depending on the situation).

When you need to transfer money (for example if you are paid in US$ but have a bank account elsewhere or if you are making a big purchase in another location) and convert currencies you can find the financial institutions taking advantage of you. There are several currency exchange services that have stepped into this business opportunity created by the large margins financial institutions have been taking from their customers.

One such service is Transfer Wise. As Transfer Wise says “Banks charge 5% in hidden fees. People on TransferWise pay 0.5%.” While banks might want to argue they don’t disclose the hidden fees and bad exchange rates they use so they don’t have much in the way of an evidence based argument to make.

TransferWise saves you money by matching your money at the mid-market rate. There’s just a small service fee and it’s all shown upfront. You can read more about our pricing here.

To demonstrate the possible savings you’ll get by using TransferWise, an average bank fee and exchange rate is shown. It’s based on independent research from Charterhouse Ltd, obtained on November 2014. The research looked into the costs of sending 1000GBP from a UK bank account, to another bank account in Germany. From this data, other currency route savings, fees and average exchange rates are worked out as well.

They still serve largely the USA and Europe but hopefully will expand further (they are also in India).

CurrencyFair is another good option and they posted a blog post looking at the costs of using old banks and even TransferWise – Money Transfer Companies Compared. The costs (including hidden costs of the banks are huge). The costs between these two are close (Currency Fair said at the time for express service they were significantly cheaper). CurrencyFair is actually a peer to peer service to match people needing to make transfers that balance each other out.

photo of currency: China, Hong Kong, Singapore, Malaysia, Thailand, Cambodia, Vietnam, USA

SE Asia, and beyond, currency: China, Hong Kong, Singapore, Malaysia, Thailand, Cambodia, Vietnam, USA. USA currency is used in Cambodia for most things and USA currency is used most airports to pay visa fees to the governments. Photo by John Hunter, see more photos of my travels.

If you are moving large amounts of money it definitely makes sense to seek out protection from old fashion banks ripping you off. These are the same banks agreeing to likely over $500 million in fines for currency manipulation (because even these huge profits on the backs of customers couldn’t satisfy bankers demands for multi-million dollar bonus for hundreds of employees at these banks every year).

CurrencyFair offers a peer to peer marketplace that lets you set a offer price and if someone agrees you can even been market exchange rates. Of course, if your currency happens to be a bit under-demand at the time you may get a bit less than market price. TransferWise sets the price based on the forex markets and then it is just up to supply on the demand on their marketplace to determine if you can find someone to take the other side of the trade.

Related: Negative Interest Rates and the US DollarFinding an International Business Bank as a Digital NomadCredit Card Currency Conversion CostsMicroFinance Currency RiskWhy the Dollar is Falling (2009)

Finding an International Business Bank as a Digital Nomad

Dealing with banking issues is one of the most difficult aspects of a small digital nomad business. Finding a bank for a small business isn’t easy. Add to that dealing with international banking and things get very challenging.

Finding a bank that will accept deposits via wire, provide a credit card for your business, has good online tools and you trust isn’t easy. I ran across a very useful post recently:

The Best Offshore Banks of 2014 which includes a good deal of information on the 30 best banks according to them, for example:

Butterfield Bank

Established: 1858.
Jurisdictions: Bermuda, Bahamas, Cayman Islands, Guernsey, UK.
Minimum deposit/balance: 5,000 BMD/USD/GBP for business banking, 250 – 500,000 BMD/USD/GBP for private banking.
Personal banking: Residents preferred.
Commercial banking: Yes, international.
Private banking: Quite strong.
Remote account opening: In most cases.
Mobile app: iOS, Android.
Cards: Full coverage, available in USD and GBP.
Website: http://www.butterfieldgroup.com/

All things considered, the finest bank in the Caribbean and Bermuda. 2009 to 2010 were rough years for the bank, but they bounced back to profits by the following year. Although the share price took a massive dip, but the Butterfield signature quality was never compromised.

Card services are some of the best in the region, with two airline partnerships being available (AAirways and British Airways).

Internet banking is strong but the mobile banking app, although light-years ahead of other banks in Bermuda and the Caribbean, leaves a lot to be desired.

It provides enough information for you to screen through and find some good options for you. And then you can do more research and pick one to try out. I would definitely do more research, you shouldn’t trust 1 internet post to find a bank.

Singapore Merlion with the financial district in the backgound

Singapore Merlion with the financial district in the backgound

Finding a bank that accepts EFT deposits from the USA makes a big difference but this can be a challenge. Many internet companies still are stuck a decade or two ago as far as banking is concerned. Many only pay via EFT or check. Some will also pay via paypal. The options are limited for people in many countries (with poor mail system and paypal is also not available to people in many countries).

Of all my efforts in creating a digital nomad existence banking has been by far the biggest negative surprise. It has just been a huge hassle. I may well look to using one of these banks if I can find a better option for me.

Some that look interesting to me for digital nomad businesses are: Butterfield Bank (Bermuda, Bahamas, Cayman Islands, Guernsey, UK), Crèdit Andorrà (Andorra, Panama), DBS Bank (Singapore, Hong Kong, Malaysia/Labuan, Taiwan), FirstCaribbean International Bank (Anguilla, Antigua and Barbuda, Bahamas, Barbados, British Virgin Islands, Cayman Islands, Turks and Caicos Islands), Standard Bank (Isle of Man, Jersey, Mauritius, South Africa, Ghana, Angola, Singapore, South Africa, UAE)

It has been awhile since I created this blog and haven’t posted to it, but my plan is to be more active posting here in the future.

Related: International Migrants: Economics and BankingPrivate Foreign Banking Deposits by CountryThe Importance of Long Term Disability InsuranceGoing Nomad in SE Asia