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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Proof of Onward Travel

One of the annoying worries is the possibility of an airline asking for “proof of onward travel” before checking you into your flight. Airlines do this theoretically because they may be liable for getting you back out of the country. Airlines also check that you have a visa for the new country for this reason (which also confirms you have a passport).

It makes sense that they check that you have a passport with a visa for the destination. Still you could be rejected from entering even with the visa. If that happened I don’t see what good it would do to have a plan reservation in 50 days going somewhere. I suppose the country might push the responsibility for getting you out of the country to your departing airline but I seriously doubt it. If you claim you can pay to leave I would have to imagine if some other party gets stuck with the bill it is likely the airline that delivered you.

photo of Air Asia airplane at Yogyakarta, Indonesia airport

Air Asia airplane at Yogyakarta, Indonesia airport

I suppose it could also be the airline only gets stuck if you don’t have proof of onward travel. And if you have that proof they are still responsible for getting you back but someone else pays until someone can collect the money from you (and gets stuck with it if you never pay). This seems pretty unlikely for most “normal” travelers from rich countries that have credit cards which would just be billed for whatever cost there is.

It sure seems to me that credit cards should add a perk to “gold cards” (or even less fancy card types) that promise to bill whatever costs accrue due to you being forced out of the country to you (and just like other costs the credit card issuer is stuck paying the cost if you don’t pay them back).

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USA Expat Tax Advice and Services

Taxes for USA expats can be complex. The USA is one of less than a handful of countries that tax citizens on worldwide earnings no matter where they live.

If you are employed by a foreign company and stationed overseas for the full year (in qualifying countries) you will pay tax on your earnings where they are earned and have the first $100,800 (in 2015) of earnings excluded from USA income tax. However earning above that level will be taxed where you earn them and by the USA. Learn about the Foreign Earned Income Exclusion on the IRS web site.

The IWantOut and USExpatTaxes SubReddit are forums to search for more information and learn from others. Taxes for Expats is one service many USA expats use and have been happy with.

image of the front of the current USA dollar

Like banking, taxes (at for USA citizens) are one of the more difficult issues of an overseas (including nomadic) lifestyle.

Related: Health Insurance Considerations for Digital NomadsFinding an International Business Bank as a Digital NomadTransfer Money Between Currencies Using New Providers Not Banks And Save

Health Insurance Considerations for Digital Nomads

Health insurance is something that many young healthy people don’t think about. And many digital nomads are young healthy people, though not all of them are. And if you are from most rich countries you may not think about health insurance as your country makes it pretty easy to just be treated if you have health care needs, without a need to have bought health insurance.

But when you are traveling outside your country health insurance is important. I am not very familiar with the details of how health coverage works for all the different countries so you will have to figure it out for your own country. It wouldn’t amaze me if European countries set up some kind of reciprocal care agreements but I have no idea if they do (they should if they don’t).

In the USA we know what a nightmare health insurance is. The ludicrously expensive USA health care plans generally don’t provide any coverage when you are outside the USA (even inside the USA, but not in your own state there are severe limitations). There are many wonderful things about the USA but the health care system is a nightmare and has been for decades.

If you are going to fly off and become a digital nomad one of the critical items to consider (though many don’t give it the attention it needs) is health insurance. It is true that in many countries you can pay out of your own pocket for health care that would bankrupt you if you used the USA health care system and tried to pay out of your own pocket (tens of thousands of people go bankrupt in the USA due to health costs).

If you use good personal financial planning practices you should have at least 6 months of expenses in an emergency fund (and I would strongly suggest at least a year for any digital nomads). That emergency fund should be able to pay for routine medical visits in many countries (Malaysia, Thailand, India, Indonesia, Vietnam, Singapore… – I would imagine this is true in most countries, but certainly not the USA.) without a need for health insurance.

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Economics: Digital Nomads, Visas, Foreign Currency

This is a slighted edited version of my comment to someone asking about countries that have laws specifically detailing digital nomads are allowed to work on tourist visas. My background is in economics and investing based on economic understanding.

The question of digital nomads working encompasses legal questions (do I need a special visa etc.), regulatory realities (regardless of what the law says how is it enforced at the ground level?) and economics (I am talking here about the benefits to the country economically from having digital nomads).

I like the economic thinking that should drive what the government’s wish to accomplish. The prohibition against work on tourist visas makes sense when work is defined as it was historically (being hired by a company in the country that otherwise would have hired a citizen). So when I am thinking about it I find thinking about the macroeconomic level view and how that is manifest in laws and policy. From a practical standpoint of being a digital nomad what really matters is how that all gets filtered down to the government employees on the ground making decisions.

Few laws say what is legal, they normally say what is not. I would imagine few countries specifically say it is legal to do work from another country (as a digital nomad, as a employee answering an business email on their vacation, as a private investor reading the news and using the internet to buy or sell a stock, as a writer writing a book that will be published back home, an entrepreneur refining ideas to launch a new business back home or whatever).

The laws usually are pretty clear you can’t apply for jobs and get hired by a company inside that country to do work in that country on a tourist visa.

“Thailand” has said it is ok to work as a digital nomad (work for some company outside the country) while on a tourist visa. But these pronouncements by officials don’t carry much weight with other officials so they are not worth much.

What is helpful is knowing the prohibitions against working are primarily about not having foreigners take jobs of the citizens. Digital nomads don’t do that. So they are not meant to be prohibited anymore than the other examples (an executive participating in a conference call from work while on vacation etc.).

But since it isn’t clear cut it can be confused by officials as something not allowed. It is much easier not to have to get low level officials to comprehend the intent of the laws. They think of it as tourists can’t work in the country and that is essentially true. But how “work” is defined is the issue; and digital nomad work doesn’t fit the description of work in that context.

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Medical Tourism

Medical tourism (traveling overseas to get medical care) is growing and likely to continue to do so. The USA’s extremely high costs of medical care push people to find more reasonable health care solutions. Also in some countries the very rich seek out advanced treatments outside their country.

Seeking more cost effective and more customer focused health care options are likely to lead to booming markets in catering to these customers. Many countries have seen this as a smart market to focus on. And I think they are right.

It is a booming market and the USA’s mess of a health care system doesn’t seem to be getting any better and certainly isn’t getting cheaper. In Europe the demand is largely driven by services that have very long waits if done using their national health system. Those that can pay, can pay to have it done where they live, or they can travel and have it done much cheaper.

The jobs provided in countries serving medical tourism are very good. And it brings in a great flow of foreign currency. Singapore, Malaysia, Thailand, Philippines and Mexico are putting forth smart governmental efforts to boost this industry in their countries.

photo of Raffles Hospital in Singapore

Raffles Hospital, Singapore by John. See more of my photos from Singapore.

Most of the time health insurance won’t pay for optional (emergency care while you travel depends on your policy) health care internationally. So most medical tourism is paid for by the person being treated. This is a somewhat silly policy as insurers could save a great deal of money even by only paying say 50% or less of what they would pay locally for those who were willing to travel.

And some insurers are letting people travel for health care (and even giving them incentives to do so). The governments seem willing to pay inflated local prices and so use things like the fear of untrustworthy foreign health care as unsuitable. And then they work with local health industry interests to restrict covered health care options. There is some sense in worrying about abuse but there is also hundred of billions of dollars that countries like the USA could save by letting people seek out health care solutions much more cheaply overseas. Europe could also save a great deal.

Some countries are doing smart things. At the same time Singapore is building up medical tourism for complex medical solutions (drawing people from SE Asia and further away) they are also working to boost the use of Malaysia to provide less complex medical solutions to Singaporeans. As is often the case, Singapore’s government is acting wisely.

Malaysia, Thailand and the Philippines are going after the large market for reasonably priced basic health care. Which is smart for all 3. They are also looking to move up-market (especially Malaysia and Thailand) which is also fine, but there is likely to be great competition and a much smaller market so I would suggest they do so, but do so with caution.

India has potential but has the general problems with infrastructure and a difficult business climate. The potential is huge though. Other countries targeting this market include Brazil, Hungary and Costa Rica.

Related: The Growing Market for International Travel for Medical Care (2013)Traveling for Health Care (2007)Finding an International Business Bank as a Digital Nomad

Start-Up Chile – An Innovative Program for Global Entrepreneurs

I am very impressed with Start-Up Chile. It is a Chilean Government run program that attracts early stage, high-potential entrepreneurs to bootstrap their startups in Chile, using it as a platform to go global. The goal of the program is to position Chile as the leading innovation and entrepreneurial hub of Latin America.

Silicon Valley provides huge benefits to the USA economy. Many countries are envious of this advantage and wish they could gain such economic benefits. But there is a big gulf between wishing and accomplishing. That path requires doing many things right.

Start-Up Chile alone is but a small step in the right direction. But it is a very interesting one. And they have kept it up for several years now. It is amazing how many efforts to create inviting climates for entrepreneurs start with a great flourish as diminish to nothing within 5 years.

Panoramic view of northeastern Santiago

Panoramic view of northeastern Santiago, as seen from the hills of Parque Metropolitano in Providencia. Visible in the background are Apoquindo and Sierra de Ramón. via wikimedia

For the current application (open during the month of September) Startup Chile is looking especially for startups in robotics; healthcare and biotech; clean energy; and education.

In my opinion the benefit for entrepreneurs is worthwhile (and especially strong for those in Latin America) but I am even more impressed with the sense the Chilean government is showing for talking concrete steps to boost the entrepreneurship climate in Chile. There are quite a few very good efforts to incubate startups. Few government though are doing much beyond talk. Singapore is another country that is taking fairly smart actions (which isn’t so surprising given Singapore’s long term evidence of smart government).

Many countries understand the benefits of creating a strong climate for entrepreneurs. And given the especially easy location independence of internet based businesses there is a public relations battle for attracting these entrepreneurs (even if most countries don’t seem to have caught onto this reality).

Chile has been getting great publicity from Startup Chile and if they can successfully build on that success they will gain a very nice advantage at very little cost. Like so many startups the Startup Chile program itself has to make sure it builds from the base it has built instead of just fading away.

Related: Finding an International Business Bank as a Digital NomadTransfer Money Between Currencies Using New Providers, Not Banks, and SaveLeading Economic Freedom: Hong Kong, Singapore, New Zealand, Switzerland (Chile was ranked 10th in the world)International Migrants: Economics and Banking

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)

Negative Interest Rates and the US Dollar

US $ are accepted in many countries. Often visa fees in SE Asia are quoted in US Dollars (USD) – they may or may not accept other currencies. In some countries the USD is the regular currency or the main currency anyway.

For example, in Cambodia the USD is used for almost everything but for change under US$1 local Riels are used. For the US this can actually be a nice benefit. US currency serves as a loan to the US government. When the USA prints dollars and distributes they avoid issuing bonds or treasury bills for their spending.

When interest rates were 10% on long term bonds if the USA had an extra $800 billion in currency floating around outside the USA they saved $80 billion every year in interest payments (when interest rates were 5% they would have saved $40 billion a year). In addition if those bills are destroyed or lost that open the way for the USA to put new USD into circulation and avoid that much borrowing.

image of the front of the current USA dollar

It really doesn’t amount to a huge amount of help given how much the USA government spends but still it is a benefit. But with negative interest rates the reverse would be true. Currency offers what is normally seen as only 0% but in the crazy new world created by the central bankers bailing out the too-big-too-fail banks all over the world (creating massive amounts of liquidity [cash]) they started a path that has now led to the crazy situation of negative interest rates.

A negative interest rate means that say the German government borrows $10 billion today and pays back less money in 5 years. So if they got $10.5 billion today they would only have to pay back $10 billion in 5 years. This seems crazy mainly because it is.

Now the USA rates are not negative yet for long term rates (I think maybe in some really short term bills – under 60 days – it may have been). But negative interest rates have spring up in Euro denominated bonds from Germany (and a few other countries).

I find it funny that in such a case the USA would actually be giving those using their currency around the world a higher yield than those holding their long term bonds.

According the US Federal Reserve there is about $1.2 trillion dollars of USA currency in circulation (July 2013). The Federal Reserve estimates that the majority of the cash in circulation today is outside the United States.

The increased demand for the USD abroad also helps keep the USD value from declining in the face of huge trade deficits. To some extent we ship dollar bills to countries and they ship us food, cars, smart phones, etc..

Countries that use the USD as an official currency (though they may also have a local currency at least for small amounts – often under US$1): Panama, Ecuador, El Salvador, Zimbabwe and East Timor.

In some places it may seem on the ground that the USD is the official currency but it is really just the currency used without an official declaration: Cambodia, Peru and Uruguay

Related: Finding an International Business Bank as a Digital NomadCredit Card Currency Conversion CostsWhich Currency is the Least Bad? The USD (2012 post)