FX International Payments
By Frances Coppola
Today, money can be sent online to another country in minutes. People can transfer money directly from their bank accounts, or use a credit or debit card. There is no need to visit a bank – money can be sent directly from a mobile device or laptop computer.
Many businesses routinely need to send money internationally. These days, supply chains for even quite small companies can cover several continents. A business may deal with businesses in multiple countries, not only for supply of raw materials and parts for manufacture, but also for services such as accountancy and payroll. Some businesses also need to send money to subsidiaries and partners in other countries, or remit profits back to parent companies in other countries.
Procurement has become an international business in its own right, as people and businesses purchase goods and services from vendors in other countries. Online marketplaces feature businesses from all around the world and accept payment by card or an alternative provider such as Paypal. If the purchase is in a foreign currency, that is no problem – the foreign exchange will be handled by the card or service provider. Just as it has never been so easy to send money internationally, it has never been so easy to buy internationally.
Many of today’s businesses are “virtual organizations”, with employees and contractors in multiple countries linked by the Internet and telephone. For these businesses - and their workers – a fast, efficient way of making international money transfers is crucial. Other businesses may use migrant workers, who often remit funds to their families and friends in their countries of origin. Money transfer businesses that offer ways of sending money online safely, quickly and at low cost are a boon to migrant workers and to the businesses that employ them.
Handling cash flow in multiple currencies has become an essential skill for business owners and managers. Online payment service providers give businesses the ability to control when and how to make international money transfers, helping them to manage their foreign exchange exposures and offset incoming and outgoing payments.
Faster and more efficient international money transfers are not limited to developed countries. They are available for some emerging market countries, too. For example, money transfers to the Philippines can be made online, via a mobile device or via a bank, with funds often arriving in less than a day.
Some emerging market countries such as India have capital controls. But even here, there are numerous ways of sending money to India, provided that the payments are in US dollars, not Indian Rupees. Remittances can be sent via the US’s domestic ACH system or by card using a partner money services provider. Alternatively, online transfers can be made directly to the recipient’s bank account, or money can be sent by wire transfer from a bank. Money transfers can even be made by email or SMS text message.
The U.S. and Mexico have a long and fruitful trading partnership which has historically relied on businesses sending money via correspondent banks. But recently, the US cracked down on international money transfer to Mexico after high-profile money laundering cases.1 However, the U.S.’s clampdown has had a beneficial effect, since the Bank of Mexico is introducing a streamlined U.S. dollar settlement system incorporating transparent “know your customer” and anti-money laundering checks. Businesses should find that sending money to and from the US via a fast, efficient real-time gross settlement system is easier, quicker and more reliable than wire transfers via correspondent banks.2
The growth of online and mobile payments services means that international money transfer is becoming faster, safer and more reliable. For businesses, the increased speed and efficiency of online international money transfers offers an opportunity to develop new, fruitful trading relationships in far-off places.
With 17 years experience in the financial industry, Frances is a highly regarded writer and speaker on banking, finance and economics. She writes regularly for the Financial Times, Forbes and a range of financial industry publications. Her writing has featured in The Economist, the New York Times and the Wall Street Journal. She is a frequent commentator on TV, radio and online news media including the BBC and RT TV.