The process of sending money abroad is not a complicated one but it is important to be aware of things that could affect how soon your funds arrive. Let's walk through the process...
- The intermediary's (Gapex, FX Rand, etc) job is to book a deal for a client as early as possible in the morning, ideally before 11 AM. Any deal booked after 11 AM will not settle on the same day as the bank's dealing room/system does not allow for same-day value deals to be booked after this time. On top of this, the intermediary needs to put together the supporting docs to ensure the deal will be successfully validated by the bank. Therefore, it is crucial to get your instruction to them as early as possible. You will receive your first email with the subject "Deal Confirmation" once the deal is booked.
- The next entity in the process is a local South African bank (Investec or Mercantile). Their job is to send the funds off to Circle's bank account in the USA. You will normally receive an email with the subject "Deal Settlement Confirmation". If you receive this e-mail, then it means your funds have left South Africa and are en route to Boston (Massachusetts) and more specifically, to Silvergate Bank. This also means that the forex leg of this transaction has been concluded and your intermediary has no more access or control over the funds remitted.
- Once the funds arrive at Silvergate, the bank will process the transaction and then notify Circle that the funds are there. We have no insight as to what checks Silvergate does but we can only assume they do a few checks before notifying Circle.
- If Silvergate is happy with the transaction, they hand the funds over to Circle and notify them that the funds have arrived. From this point, Circle performs AML checks and various other checks. Again, we don't have detailed insights into this process, as this is internal to Circle.
- Circle then either rejects the payment, or Circle accepts it. If they reject it, it gets sent back to the bank account from whence it came. If they accept it, they notify us. This is done programmatically via their system. At that exact moment that we are notified, we send an email to the client to state that we have received the funds.
It is therefore important to note that after step 2, neither Koinexpert nor the intermediary has any eyes on the transaction. There is no way to get an update and the only time anyone will know what is going on, is when the funds are either rejected or accepted.
So what can go wrong?
The biggest pain for clients is when funds do not arrive on the same day. There are a few reasons why this can happen:
- If it is your first deal, then we have it on good authority that there are additional checks which almost always causes the deal to roll over to the next day. This is due to the checks happening at both Silvergate and Circle.
- Even if it is not your first deal, there will always be a chance that the deal rolls over. You have to remember that the banks can only process a certain amount of transactions in a day. If there are many deals booked on a day and the banks are backed up, it means you could end up in a situation where your cash doesn't leave South Africa on time.
- 2 PM SA time is 8 AM in Boston and 11 PM SA time is 5 PM in Boston. This is why funds generally arrive after 2 PM and before 11 PM South African time. If you book your deal too late, it might not leave SA on time, or it might not reach Silvergate in time.
So what is a person to do?
Currently, there is no realistic way to guard yourself against this. If you book a deal today, there is always a chance that it might only arrive the next day. And therein lies the risk with arbitrage trading. Someone could walk away with a 5.77% profit because the Rand got significantly weaker. But if it goes the other way and becomes stronger, then it can reduce your profits. This is the calculated risk that every client will have to take on their own.