Although the US trade deficit with India decreased in 2016, trade between the two countries remains strong and healthy. Outpacing imports, exports have been particularly strong. Still, imports remain healthy, accounting for $7.25 billion annually. So why, then, is it so hard to send money to India?
With such strong import numbers and a healthy trade relationship, more and more small- and medium-sized businesses (SMBs) are paying attention to just how difficult it is to send money to India. And they remain frustrated. Paying suppliers should not be this difficult, in their point of view, particularly when India is the United States’ ninth largest trading partner.
But a deeper dive into the process of traditional international wire payments—the preferred payment method when businesses need to send money to India—sheds a bit of light on the complex exercise of moving funds from a buyer’s bank account in North America to a supplier’s bank account halfway around the world.
Financial, Government Players in India
Here are a few of the key players and regulations you should be aware of when you need to send money to India:
The Reserve Bank of India (RBI) provides the infrastructure that enables businesses and consumers to send money to India via traditional bank-to-bank wire transfers.
The Payment and Settlement Systems (BPSS), a subcommittee of the Central Board of RBI is responsible for regulating payment systems.
The Payment and Settlement Systems Act of 2007 regulates the payments industry in India.
The Basic Process—It’s Complicated
Say you need to send $5,000 to India. Just like with all international payments, your money will quite a process before it gets there—a process riddled with complications.
Intermediary Banks. Some countries and/or smaller banks that do not hold reciprocal accounts with one another will rely on intermediary banks to facilitate the movement of cash, which further complicates the payment process.
Foreign Exchange. Many banks will deal only in their local currency, often requiring the conversion of currency at last once from US Dollars to Rupees, even if the receiver is to be paid in US Dollars.
Unpredictable Fees. Each party to the transaction will charge exchange fees, processing fees, etc. Unfortunately, the fee schedules for banks outside of your own country are unknown and not accessible, virtually guaranteeing that if you send $1 US dollar, the amount received by your trade partner will not be $1 US dollar.
Regulatory Restrictions. Anti-Money Laundering is a big concern for financial institutions and, as such, various regulatory bodies can hold up the flow of payments
While understanding India’s payments system is not required, it’s important to know that all U.S. wires will fall under the scrutiny of the Office of Foreign Assets Control (OFAC), not to mention any other regulating bodies that oversee your bank’s operations. The added oversight will cause delays, especially since the funds are moving to another country.
With so much oversight domestically as well as the added scrutiny in India, making payments to business partners in India can be difficult and is certainly cumbersome. Compound these difficulties, once your payment leaves your bank, obtaining information about the whereabouts of your funds is virtually impossible.
Global Business Payments
Despite all of the above, dealing with businesses and individuals in India isn’t prohibitive; over $7 billion was sent to India in the first two months of 2017 alone, and nearly $46 billion last year. Particularly in this disruptive age, there are tools, apps and technologies that give small businesses unprecedented leverage on the global stage by making it easier to develop global supply chains. Thanks to more simple, scalable and affordable technologies, small businesses today go toe-to-toe with resource-rich big businesses. In that vein, developed the Veem global payments platform with small business in mind, so they can send money to India (and over 60 other countries) simply, and cost effectively. Veem bypasses the intermediary banks, tells you exactly where your money is at all times, and exactly how much will show up in your Indian supplier’s account.