Friday, May 6, 2011

Banking across borders

Global money transfersFirst of the month means flooding liquidity through the system. With the business having a footprint in three countries, income can come from any direction.  Bills and taxes, however, must be paid in every jurisdiction, so funds received have to be redistributed across the whole.  And soon I needed to be an expert at cross-border exchanges.

These can’t be done lightly.  There are recent letters to the editor from distraught depositors, saying that account numbers were mis-entered, cash went astray, how do they reverse the transfers?  When the newspapers enquire, the banks maintain that they have faithfully carried out the instructions provided and are under no obligation to retrieve the wayward cash.  The editor silently tsk’s and advises the petitioner to take more care the next time.

Three business accounts (NL, UK, US), two personal (NL, US): here’s how I’ve set up the exchange paths.

First, business and personal funds cannot be co-mingled: it’s easy to cross lines where personal checks are cashed in the business (money-laundering) or personal expenses are withdrawn from the business (embezzlement).  So I set up very limited and defined same-country paths between business and personal accounts that I use to pay salary and expenses.

Domestic transfers require different information, depending on the country involved.

In Europe, Netherlands transfers only require an account number, containing both bank identifier and individual information. The UK requires a six-digit Sort Code for the bank and an account code for the individual. 

In the US, domestic transfers are made using a Routing Transfer (ABA) Code. These were devised by the American Bankers Association in 1910 for moving federal funds, and are the first 9 digits on your checks; the remainder is your account number. Unfortunately, my bank still has to issue a paper payment check.

International transfers within the EU can best be done through the SEPA (Single Euro Payments Area) system.  This network, operating only in Euros, harmonizes payment structures and processors to increase competition and decrease costs. There will be ‘universal’ debit and credit cards tied to it next year that should similarly lower the fees associated with using a Dutch card in another EU country.  The only downside is that transfers take about three days to complete: the upside is that fees are less than half of what an urgent (same day) transfer would cost.

More generally, cross-border transfers are based on SWIFT codes (Society for Worldwide Interbank Financial Telecommunications, also known as a BIC or Business Identifier Code).  SWIFT is an 8- or 11-character code: the first 4 letters give the institution, the next two the country, and the last two a location code.  The final three are optional and designate a branch.

So, my East-West Bank code is EWBK US66, my Barclay's is BARC UK33.  In general, call the bank to get the right code, then check it by putting it into an online directory to see that your bank correctly comes back.  Both a SWIFT code and account number are needed to make a transfer.

Closely related is the IBAN (International Bank Account Number) that combine the national, SWIFT, and account information all in one country-specific formatted code.  For example, the Dutch IBAN format is: NLkk BBBB CCCC CCCC CC, where NL is the country, BBBB is the BIC code, C’s are the account number, and kk is the checksum generated from the rest of the characters.  I seldom find banks that offer this method of identification, although every bank seems to have a code for me when I ask.  As with SWIFT codes, there are online validators that you can use to check a code before you use it.

It’s also good to check the exchange rates so that you know how closely your bank is matching the fair trade value.  I like for spot rates.  I usually end up paying about 30 (dollars, pounds, euros) additional in fees on each transaction, adding charges imposed by both the sending and receiving banks.

Finally, I initially make only a small transaction to assure that I have a valid connection: that money leaving one account arrives in the other.  Then I can transfer larger amounts confidently using the stored information for the connection between the banks.

And, as banks fail and merge, all of this information changes, even if the bank name doesn’t.  ING, for example, changed all of it’s codes after the PostBank merger.  So be sure to update your information periodically.

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