Why is Zerodha taking so long to offer US investing?

[Prayag]

@nithin

The real problem to solve isn’t really the tech integration, but actually the very painful and expensive international fund transfer process.

Remittance & withdrawal issues

• Banks charge between Rs 500 to Rs 1500 for every single international fund transfer.
• There is another 1% in currency spread on the transaction that gets eaten up for every transfer.
• There is an A2 form that physically needs to be submitted and presented to the bank for international transfers for the purpose of investing. Some banks might pick up this document from your place, but it can take up to 2 weeks for the funds to show up in your international trading account. Two weeks of opportunity and interest cost.
• The same costs and time when withdrawing the funds back to India.

Most of our customers are those who will most likely transfer between $500 to $2000 at a time. In the current remittance regime, the customer will be down by up to 5% on the capital because of all the above costs immediately.

@siva-reddy

But still it won’t solve for remittance charges, we are working on finding a solution for it.

@nithin @siva-reddy One way I see the remittance charges issue being resolved is if the money never really get converted from INR to USD. There is a company called Transferwise which does this. They maintain accounts in different countries and when a inter-currency transfer needs to happen, they take the money and deposit it into a local currency bank account in the sender’s country & then according to prevailing currency conversion rate, remit the money from a local currency bank account located in the receiver’s country. This way the money never really gets converted between currencies. A short video by the company explains how it happens https://www.youtube.com/watch?v=MLKKzRvOsLQ&t=45

Their fees are around 2.5% for a 1000$ transfer and reduce as the amount increases (around 1.8% for 10,000$) for INR to USD transfers. Their USD to INR transfers is even cheaper with fees hovering around 1%. All these calculations are done using their publically available calculator. One of the thing that I found interesting was that they shared how exactly the fees they charge are used behind the scenes (Wise Fees for Sending Money). According to that, the real cost of currency conversion is only around 1/3 their fees (around 0.65-0.9% for INR to USD & 0.4-0.35% for USD to INR conversion) and remaining 2/3 is used by them (building the product, customer support, office cost, their margin, etc).

Also, seeing a similar opportunity (aka lower currency conversion fees) , recently they announced that they were working on providing investment options for the money deposited with them (This is for people who have multi-currency accounts with them) - https://www.cnbc.com/2020/06/30/fintech-start-up-transferwise-gets-fca-approval-to-offer-investments.html

TransferWise said it expects to launch its first investing feature in the next 12 months. Though the firm is starting with the U.K., it hopes to also roll the product out internationally later down the line.