Forex transfers are a major headache for international investors, but Fintech has a solution that promises speedy and hassle-free transfers signalling a revolutionary change in the horizon.
THE PROBLEM
One of the downsides of investing overseas has always been the remittance of funds between the investors’ country of residence and the investment destination. In Japan, particularly, where it is near impossible for non-residents to own and operate functional local accounts, and where bank fees are excruciatingly high, this issue has been a thorn in the side of international property investors.
Transfers into and out of Japan normally cost between 40-90 USD for any remittance under USD50,000 – at the lower end of this range if one has signed up with a foreign exchange provider who has an account in the country of origin, and higher if one hasn’t. And since those forex providers would normally not be able to open an account in Japan themselves, remittances out of the country would always be on the higher end.
Furthermore, since most forex providers will not accept fund transfers under 2,000 USD or thereabouts, the issue becomes even more complicated – since one must use the banks’ own exchange rates, which are far less attractive and constitute a further “fee” which can greatly reduce the amount received on the other side, and exponentially so. Imagine having to suddenly remit funds for a small maintenance or repair request such as a broken air-conditioning unit, leaking toilet, etc,
which would normally cost less than 1,000 USD to attend to – not being able to utilise your forex provider would mean a substantial levy, of up to about 8-10% on your remitted funds – and this without even taking into account the further loss incurred on having to accept whichever exchange rate your bank currently offers.
Furthermore, these transfers can often take several business days (up to five), and if any of the required transfer details are wrongly entered, it often takes several business days just to find out about the error – at which point, the entire transfer has to be re-booked, with the waiting cycle restarting as a result. Similarly, if one were to repatriate one’s rental income in Japan, perhaps due to an urgent need for funds back home, one must wait for several thousands of dollars to accumulate at the very least, in order to utilise forex provider services, and pay hefty fees along the way – the more urgent the requirement and smaller the amount, the higher the associated fees.
The reason for this bulky and cumbersome scenario has, to date, been the necessity to use corresponding US banks for all major foreign exchange international transactions – a result of global financial systems being tied up to the US Dollar – an infrastructure which complicates international transfers and adds further costs to each of them, as detailed above.
THE SOLUTION
However, as a result of advances in technology and the ever increasing implementation of FinTech (financial technology) systems, there is now an end to this aching problem in sight. By using BlockChain technology, the infrastructure behind the digital currency known as BitCoin, several large international banks have already begun conducting experimental transfers directly, at a fraction of the costs and time-frames normally involved, and without having to go through the US banking system at any stage of the process.
In a statement issued in August 2016, SBI Ripple Asia, a provider of electronic settlement platforms, has announced a consortium of 15 large Japanese banks, including Yokohama Bank and SBI Sumishin Net Bank, have decided to implement a direct electronic settlement system using the company’s technology. The initiative will begin development in October 2016, with an estimated launch date in March 2017. The bank of Tokyo Mitsubishi (UFJ), one of Japan’s biggest mega-banks, has similarly launched its own test project, to be pursued further on proof of concept, seeking to establish a similar, independent platform.
If successful, these projects are likely to simplify, speed up and cheapen the process of international transfers, enabling account holders to issue affordable, small amount remittances between participating Japanese banks and similar institutions worldwide, by removing dependency on existing, overhead-prone financial settlement systems – thereby removing one of the main hurdles international investors in Japanese real-estate property and other assets are currently facing. And considering the success of a similar initiative recently launched between two Canadian and French banks, odds are looking good for the future of a truly connected, seamless global economic environment.
And to those of us trading the global equity markets – now may be an excellent time to purchase some stocks issued by any of those participating in the initiatives mentioned above.
Happy investing!