Digital banking for expats moving abroad
Banking while travelling or living abroad is no longer a complicated matter; with the rise of digital banking, an expat can even set up a bank account before they move abroad.
Banking abroad has come a long way since the time when expats had to take loads of cash and traveller cheques to pay their expenses when going to live in a foreign country. Thanks to digital banking, an expat can even open an online account in another country before they arrive.
Similarly, when abroad, today's efficient cash management comes down to the easiness to pay your purchases and invoices either by one-off card payments or via regular payments, such as standing orders or direct debits from a bank account. With the rise of secure online banking services, these are increasingly available both domestically and internationally. As head of expatriate services at ING Belgium, Dave Deruytter explains the world of digital banking for expats and options for managing their money and payments when living abroad.
Opening a bank account abroad
Opening a bank account in another country can be an important step in making your life abroad easier. It is likely to be cheaper – and in some cases, necessary – to have a local bank account, for example for small daily transactions, receiving your salary or arranging a rent deposit or a mortgage.
In today's digitised world, opening a bank account abroad is easier than you think. You will typically need to provide proof of your ID and residential address (ie. with a utility bill or rental agreement) but some banks will accept proof of address from your home country so you can open a bank account before you even arrive.
There are also purely online banking accounts, which also mean expats can open an account before they leave their home country. These can even be free of service charges, providing a debit card and a range of online services. Although it should be noted that if certain banking services are required, such as credit cards or in-branch help, then considerable fees can apply.
Regardless of whether you open a local bank account before or after you move, payments can easily be made abroad using international credit and debit cards until you get sorted.
Using credit and debit cards abroad
Credit and debit cards were an early facilitator for international payments and still remain an efficient way to pay while travelling or living abroad.
Today VISA and MasterCard networks on the credit card side and MAESTRO cards on the debit card side easily allow one-off payments almost anywhere in the world and to pay on websites. When you combine this with internet banking services and apps offered by digital banks – allowing you to easily track your card usage and pay online securely with your bank cards – it is a pretty comprehensive and efficient way already for paying expenses abroad.
Soon we may have them in a digital form on our smartphone, the Swiss army knife of our time. Although it may take some time before paying via smartphone is widespread, apps and chips that allow this have already been developed.
Issues of standing orders and direct debits
It is when we talk about standing orders (regular payments of the rent for example) or direct debits (regular payments of utility bills like water, gas, electricity or phone for example) that operational issues still come into play.
On the direct debit side there is a three-person contract (utility provider, consumer and bank) that needs to be digitalised and signed and there are strict regulations for the protection of the consumer to be embedded. For example in the European Union (EU) the SEPA Directive (Single European Payment Area) details the proper functioning of Direct Debits and the protection of the individual in such agreements.
On the other hand, the SEPA Directive also works towards facilitating the ease of transferring money between banks within the EU. In most cases you should be able to avoid paying international fees on any money transfer within the EU, which instead can be either free or at the cost of a local transfer, although this largely depends on your bank.
Enough about the past and present. In the future we should be able to pay bills easily through touch payments, typically via our smartphones, without being asked for any code or signature to execute the payment, at least not for small amounts.
The good news is that this service is coming our way fast but the security and the regulatory framework needs to be ready for it. Bar code or QR code scanning has been around for quite some time but a multibank, or preferably also a multi-country, standard is what we need to move this forward.
Digital banking services for expats
There is more to banking than payments alone and an expat abroad can use these to their benefit. For example, there are lending, savings and investment services. The more basic services of savings accounts and investments in shares, bonds and mutual funds have been digitalised for many years now, and can be accessed no matter where you are in the world.
It is the disintermediation – cutting out the banks as middle men – that is gathering steam now. Peer-to-peer lending and crowd funding services are gaining ground and will likely develop further. Still the basics of credit risk, company analysis and counter-party risk remain the same. It will also have to be figured out how the EU savings protection rule (where savings up to EUR 100,000 are covered by the EU if an institution goes bust) can be expanded to these services.
Other services include Chat, Skype and Webcam sessions with financial experts who themselves are often in remote places. VPN and other software can secure these communications and taping them could provide an alternative for contract signing. Indeed, in Belgium for example, an oral agreement between two parties on a price and a good or service is a contract. Paper and signatures came in only to have a trace or proof of that contract when needed. That could easily be replaced by a digital form, even a video. Of course the legal framework, particularly case law, is needed for this to become widely accepted and used, but that should merely be a matter of time.
Digital money for payments abroad
An expat might also consider Bitcoins and other types of digital currency. Since the time that barter trade was replaced by coins to facilitate payment, means of payment, and more particularly the currency used, have evolved to the current central bank backed money.
Bitcoin is different in the sense that there is no central bank or paper notes. Bitcoin is a decentralised virtual currency. Every user has a Private Key, without which your Bitcoin money is lost (forever). The Block Chain technology used with Bitcoins is recognised as valid to process currency. Malware and fraud are sadly also a part of the Bitcoin world and there is the privacy issue of who is behind each Private Key.
Still, Bitcoins are accepted in some countries and by quite some companies, and are exchangeable for regular currency. Though not yet, it could become a mainstream currency, or another version of digital money may take over and win the world of cash management. It is probably just a question of time for that to happen. In the meantime it is recommendable to hedge your bets and not put all your eggs in the Bitcoin basket.
Of course, credit cards, bank accounts, internet banking, bank apps and cash still go a long way to efficiently pay bills today. Nevertheless to have some Bitcoins in order to experience how digital money actually works may be worthwhile, even if only to prepare yourself for a possible future with digital cash only.
Dave Deruytter, head of expatriates and non-residents at ING Belgium / Expatica
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