Why we need Bitcoins for international transactions

[MagicalTux]

Reading the thread about the story of a man who deposited a fake check and ended getting his bank going from all nice to all not-nice.

Let me tell you another one (about 1% of people who do international wires to us actually experience that).

A man walks into a bank and asks for a wire transfer from his USD account to MtGox Co. Ltd. in Japan. He fills a form to send 1000 USD, and the bank teller inputs it faithfully. Later that day (or the next day), the bank's processing center processes the wire transfer and sends 1000 USD to the intermediate bank they are in contract with which claims being in contract with the receiving bank.

So far everything is fine.

Now, at the intermediate bank, the process is usually fully automated. It sees an incoming 1000 USD wire going to Japan. "Hey, in Japan they only have JPY, and my local intermediary in Japan can process this wire as a domestic transfer for only USD 10. Let's convert the amount to JPY, and take 3000 JPY fee for the whole process!"

Little did the intermediate bank knows that the target bank account is not in JPY but is actually a multi-currency account where customer funds are deposited based on their settings.

So:

• Sending bank took their 10~30 USD fee for sending the transfer
• Intermediate bank converted the 1000 USD into 75930 JPY
• Intermediate bank took 3000 JPY (38.33 USD) for their good services, leaving the amount as 72930 JPY
  
• Our bank received 72930 JPY, took 1000 JPY handling fees, resulting in amount being 71930 JPY
• Based on customer setting, we converted amount back to USD, resulting in 71930 JPY = 895.93 USD

In the end, that's 104.07 USD that went into useless currency exchange and intermediate fees.

Think about it, the intermediate bank, for its automated process of relaying funds (sometimes it's not fully automated, but rarely nowaday) and publishing a couple of SWIFT messages (cost is below 0.3 cent a message, much lower for large banks) took 38.33 USD in exchange of trying to be helpful by converting funds from USD to JPY at an overpriced rate (usually 3~5% higher than spread) because it thought the receiving bank account would be in JPY.
That's the kind of racket the current banking system allows.

We usually try to ask our customer to complain with their bank when this kind of thing happens, as we have no impact on what happens before our bank receives the funds. Usually that's an action taken by the intermediate bank (but not always - and sometimes can be because the sending bank chose the wrong intermediary) - I suspect to offset exchanges going in the other direction (so both exchanges cancel each other, and the bank is only left with more profit).

Recently, however, we received the following message by wire from an intermediate bank I won't mention, probably the result of long hours of complaining by one of our customers, showing that banks sometimes will do something about their errors (second time we receive this kind of message in more than one year):

ATTN PAYMENT INVESTIGATIONS
URGENT
REGARDING PAYMENT ORDER FOR **,***.00/JPY
VALUE DATED **-JUL-12 UNDER REF ***************
B/O ******* *********
F/O MTGOX CO LTD SHIBUYA TOKYO JAPAN

PLEASE URGENTLY CONFIRM IN WHICH CURRENCY FUNDS
HAS BEEN CREDITED TO BENE ACCOUNT AS IT WAS
SUPPOSED TO BE CREDITED IN USD.

IF THE FUNDS ARE CREDITED IN USD PLEASE URGENTLY
ADVISE US THE EXACT AMOUNT SO THAT WE CAN PAY THE
SHORTFALL.

IF THE FUNDS ARE CREDITED IN JPY PLEASE RECALL AND
RETURN THE FUNDS TO OURSELVES SO THAT WE WILL
RE-ISSUE THE PAYMENT IN USD.

PLEASE ADDRESS ANY FUTURE CORRESPONDENCE TO
**************,
QUOTING OUR REFERENCE
REGARDS **************
TELEPHONE

We replied to the bank and eagerly wait for them to send the missing funds...

[smoothie]

I guess that's why I use bitinstant or just go through dwolla and stomach the wait.

[Jointops420]

I have used one bank here in Aust to send funds to you many times with no problems but choose another bank because of their no fee policy on accounts but twice I have used them to send funds to Gox and both times it went from Aud>USD>JPY>USD, all up that was nearly $2000 short with all the changing.

They would not admit it was their mistake and after I told them the intermediates name that I got from you their tune changed but not to enough admit it. Although they say they will pay me only if I can get a letter from the bank who did it, my next step is to take it to the Ombudsman who should rule in my favour after many emails from the bank which they pretty much screwed up because of jumping me from one department to another and not keeping their story straight.

[Endgame]

I have sent international transfers into Gox through both your HSBC and Sumitomo bank accounts, and I have found that Sumotimo/Sumitomo's intermediate bank almost always takes a very large cut in processing and conversion fees - between 4% - 10%. I am sure I am not the only person this has happened to. By comparison, HSBC have always been extremely cheap (less than 1%).

MagicalTux can you please get your HSBC account reinstated, it would save a lot of bitcoiners a lot of money. I would much rather my money go towards supporting the bitcoin price than supporting Sumitomo's bottom line.

[MagicalTux]

I have sent international transfers into Gox through both your HSBC and Sumitomo bank accounts, and I have found that Sumotimo/Sumitomo's intermediate bank almost always takes a very large cut in processing and conversion fees - between 4% - 10%. I am sure I am not the only person this has happened to. By comparison, HSBC have always been extremely cheap (less than 1%).

MagicalTux can you please get your HSBC account reinstated, it would save a lot of bitcoiners a lot of money. I would much rather my money go towards supporting the bitcoin price than supporting Sumitomo's bottom line.

Hi,

The intermediate bank depends on your own bank, not the receiving bank. Also there should be no conversion fees, unless your bank messes up something. The only fee that should appear in a perfect world (ie. for example when sending from a major US bank) is our reception fee of ¥1000.

HSBC officially stated that they do not want to see anything related close or far to bitcoin, and kicked out. We asked if it'd be possible to get back in and got politely told that it wouldn't happen anytime soon.


Mark

[BCB]

Mark

Is there a us branch or subsidiary of Sumitomo Bank that can be used to deposit USD to your account without the fees?

Thanks.

[P_Shep]

Sumitomo Bank took $40 off a $400 transfer :/
It was to a US HSBC account too.
And it took nearly 3 weeks.

[Dansker]

Fees and waiting times are ridiculous with international money transfers through the banks.

But of course they are in no hurry to modernize or compete, since people often find out when it is too late that they are being overcharged.

Also, for a lot of people, it's not something you do every day, leading the banks to have the upper hand in terms of knowlegde of how it all works and is supposed to be priced.

[istar]

From wikipedia.

SWIFT or IBAN wire transfers are not completely free of vulnerabilities.
Every intermediate bank that handles a wire transaction can take a fee directly out of the wire payload (the assets being transferred) without the account holder's knowledge or consent. In many places, there is no legislation or technical means to protect customers from this practice. If bank S is the sending bank (or brokerage), and bank R is the receiving bank (or brokerage), and banks I1, I2, and I3 are intermediary banks, the client may only have a contract with bank S and/or R, but banks I1, I2, and I3 can (and often do) take money from the wire without any direct arrangement with the client. Clients are sometimes taken by surprise when less money arrives at bank R.

Thats the banking system.

From http://en.wikipedia.org/wiki/Wire_transfer

[MagicalTux]

Sumitomo Bank took $40 off a $400 transfer :/
It was to a US HSBC account too.
And it took nearly 3 weeks.

Are you sure you're talking about a deposit?

From wikipedia.

SWIFT or IBAN wire transfers are not completely free of vulnerabilities.
Every intermediate bank that handles a wire transaction can take a fee directly out of the wire payload (the assets being transferred) without the account holder's knowledge or consent. In many places, there is no legislation or technical means to protect customers from this practice. If bank S is the sending bank (or brokerage), and bank R is the receiving bank (or brokerage), and banks I1, I2, and I3 are intermediary banks, the client may only have a contract with bank S and/or R, but banks I1, I2, and I3 can (and often do) take money from the wire without any direct arrangement with the client. Clients are sometimes taken by surprise when less money arrives at bank R.

Thats the banking system.

From http://en.wikipedia.org/wiki/Wire_transfer

Usually larger banks are able to send between each other with only one intermediate (and sometimes they can even avoid using an intermediate).

[thezerg]

Here's another reason:

I have a hobby OSHW (open source hardware) project.  I purchase components and circuitboards from China via paypal, build/test them here and sell em.  So that costs me .30 + 2.9% + "wholesale" exchange rate (whatever that is?) + 2.5% paypal conversion fee.  Now I sell to someone in Europe (for example), and again someone pays .30 + 2.9% + "wholesale" exchange rate + 2.5% paypal conversion fee.  So the total fee for the product "cycle" (fabrication -> sale) is .60 + 11% + 2 "wholesale" currency exchanges.

It doesn't matter whether I, my suppliers, or my customers pay these fees (the system spreads them out so the total is not obvious). 

Adding it all up there is a greater then 11% finance charge to bring the product to the customer!

This isn't a case like the OP posted where something went wrong... this is the BEST possible case.  No wonder the founder of paypal can now build rocket ships!!!

Now to beat a dead horse, contrast it to bitcoin: The fees for Bitcoin transfers are negligible.  But even if you go from fiat to BTC back to fiat, you are looking at < .5% fee at the exchanges and that's 2 exchanges so that's a 1% total fee.  Bitcoin will save me 10%!

Bitcoin may see a lot of competition in areas like mobile payments, but there is absolutely no doubt that it has a "killer app" in small to medium-sized international transfers.

[anu]

In the end, that's 104.07 USD that went into useless currency exchange and intermediate fees.

I agree with you in general, but I don't think you should use this particularly bad example of doing business. Last time I sent money to MtGox (using UBS in Switzerland) it took about 4 hours and my loss was negligible. So it *is* possible to do not just better, but so much better that the result is comparable to Bitcoin itself.

[niko]

The title asks a question. All the sorry discussion in this thread answers it. Now we need to move from "why?" to "how?".

[P_Shep]

It was a withdrawal.
I'm just using Dwollar now. Only used the bankwire as my gox account han't been verified yet.

[MagicalTux]

In the end, that's 104.07 USD that went into useless currency exchange and intermediate fees.

I agree with you in general, but I don't think you should use this particularly bad example of doing business. Last time I sent money to MtGox (using UBS in Switzerland) it took about 4 hours and my loss was negligible. So it *is* possible to do not just better, but so much better that the result is comparable to Bitcoin itself.

Yes, there are good banks (as in "they know how to do banking") in this world too. I was just trying to put some spotlight on a not very documented practice by some banks to convert funds because they think they are helping (especially with such a large fee).

[Stephen Gornick]

Appropriate for this thread:

Mt.Gox announced new guideline for all Fiat deposits

 - http://mtgox.com/press_release_20120815.html

[Melbustus]

From wikipedia.

SWIFT or IBAN wire transfers are not completely free of vulnerabilities.
Every intermediate bank that handles a wire transaction can take a fee directly out of the wire payload (the assets being transferred) without the account holder's knowledge or consent. In many places, there is no legislation or technical means to protect customers from this practice. If bank S is the sending bank (or brokerage), and bank R is the receiving bank (or brokerage), and banks I1, I2, and I3 are intermediary banks, the client may only have a contract with bank S and/or R, but banks I1, I2, and I3 can (and often do) take money from the wire without any direct arrangement with the client. Clients are sometimes taken by surprise when less money arrives at bank R.

Thats the banking system.

From http://en.wikipedia.org/wiki/Wire_transfer

One of my computer science professors (in the late 90s) went on a tangent in class one day about how antiquated and vulnerable the wire transfer system is (and it has not been updated/fixed since then). He's a very well respected guy in industry and gets brought in from time to time to consult on such systems for large institutions. His takeaway, and the subject of his rant that day in class, was that the entire system needs to be re-written from scratch. He advised us to never send any amount of money we cared about via wire transfer.

[Peter Todd]

Appropriate for this thread:

Mt.Gox announced new guideline for all Fiat deposits

 - http://mtgox.com/press_release_20120815.html

It's interesting how one thing this could do is increase the volume of non-usd currencies. Right now a lot of them are traded pretty thinly - if I remember Canadian dollars see a lot more volume at cavertex than mtgox for instance.

[marcus_of_augustus]

 .... and now you see a large reason why the "money laundering" ruse was trumped up to keep everyone using the creaking, groaning dinosaur rip-off called "international banking".

If people had a choice, they wouldn't ... all this KYC/AML crap helps keep out real competition .... mega banks=regulatory capture.

[malevolent]

HSBC officially stated that they do not want to see anything related close or far to bitcoin, and kicked out. We asked if it'd be possible to get back in and got politely told that it wouldn't happen anytime soon.

Are Bitcoins illegal in at least one of the countries you sent/received payments from on your HSBC account?
If not, is such discrimination on the part of HSBC legal? I'd sue them if something like this happened to me.

[cbeast]

HSBC officially stated that they do not want to see anything related close or far to bitcoin, and kicked out. We asked if it'd be possible to get back in and got politely told that it wouldn't happen anytime soon.

Are Bitcoins illegal in at least one of the countries you sent/received payments from on your HSBC account?
If not, is such discrimination on the part of HSBC legal? I'd sue them if something like this happened to me.

How is that discrimination? Bitcoin is not a race, creed, etc.

[paraipan]

HSBC officially stated that they do not want to see anything related close or far to bitcoin, and kicked out. We asked if it'd be possible to get back in and got politely told that it wouldn't happen anytime soon.

Are Bitcoins illegal in at least one of the countries you sent/received payments from on your HSBC account?
If not, is such discrimination on the part of HSBC legal? I'd sue them if something like this happened to me.

How is that discrimination? Bitcoin is not a race, creed, etc.

Yeah, is outright competition 

[BCB]

HSBC has MUCH BIGGER problems with highly regulated fiat since their Mexican and US affiliates have been laundering Billions of Dollars of Drug Money for years and many other affiliates have been doing illegal business with IRAN.  They are facing serious sanctions and potentially billion dollar fines.  The last thing they need right now is to deal an unregulated instrument like bitcoin.


From the Financial Timeshttp://www.ft.com/cms/s/0/ace83b9a-e6fc-11e1-af33-00144feab49a.html#axzz23iH512MC
  

[Endgame]

I have sent international transfers into Gox through both your HSBC and Sumitomo bank accounts, and I have found that Sumotimo/Sumitomo's intermediate bank almost always takes a very large cut in processing and conversion fees - between 4% - 10%. I am sure I am not the only person this has happened to. By comparison, HSBC have always been extremely cheap (less than 1%).

MagicalTux can you please get your HSBC account reinstated, it would save a lot of bitcoiners a lot of money. I would much rather my money go towards supporting the bitcoin price than supporting Sumitomo's bottom line.

Hi,

The intermediate bank depends on your own bank, not the receiving bank. Also there should be no conversion fees, unless your bank messes up something. The only fee that should appear in a perfect world (ie. for example when sending from a major US bank) is our reception fee of ¥1000.

HSBC officially stated that they do not want to see anything related close or far to bitcoin, and kicked out. We asked if it'd be possible to get back in and got politely told that it wouldn't happen anytime soon.


Mark

Thanks for the response MagicalTux. That is interesting news about HSBC. If HSBC have indeed sworn off bitcoin, would you consider opening an extra bank account with another more bitcoin-friendly bank? Having only one bank account for accepting international wire transfers seems a bit precarious to me - what if sumitomo decided to take the same line as HSBC? Also, I think it would help in alleviating the large international wire transfer and conversion fees that many of us are experiencing. Just a suggestion.

[Stephen Gornick]

"Hey, in Japan they only have JPY, and my local intermediary in Japan can process this wire as a domestic transfer for only USD 10. Let's convert the amount to JPY, and take 3000 JPY fee for the whole process!"

That must be what happened here:

I asked my big bank to wire a hundred dollars to the bank MtGox suggested which is in Japan. Well, my bank cannot send dollars to Japan, only yen. And since I requested dollars, they had first transfer the money to JPMorgan, a bank that can transfer dollars.

 - http://blog.archive.org/2012/12/19/i-donated-bitcoins-to-the-internet-archive/

What "big bank" cannot send an International bank wire transfer in USDs?

[kangasbros]

Funny, I just recently read this article about HSBC:

http://www.rollingstone.com/politics/blogs/taibblog/outrageous-hsbc-settlement-proves-the-drug-war-is-a-joke-20121213

So apparently, money laundering for HSBC is allowed because otherwise the financial system would collapse