International money transfers, otherwise known as wire transfers allow businesses and individuals to send money from one country to another. Money transfers are made for a number of reasons, including payment for goods and services, tax payments, salary transfers, investment purposes etc.
Wire transfers function as the most efficient way to transfer funds abroad. Traditional bank wire transfers are associated with higher costs than other money transfer options, and for this reason businesses are evaluating their options.
Typically, bank or non-bank providers conduct money transfers. For many years, banks dominated the money transfer industry, owing to the lack of reliable, cost-effective alternatives. However, non-bank providers and FinTech companies are now challenging banks’ hegemony in this arena. There are many inherent benefits to using non-bank money transfer services over traditional banks, notably cost considerations, regulatory constraints, and the speed of executing transactions.
With wire transfers, bank and non-bank providers typically send instructions to bank or non-bank providers in other countries to process the transactions. Money is not physically transferred from one location to another – an instruction is sent to process a payment at a fixed exchange rate as agreed at the time the transaction is signed. Money transfer services with non-bank entities do not always require a bank account, making these options preferable for many SMEs.
Why Are Traditional Bank Wires So Expensive?
There are many costs associated with a traditional bank wire. For starters, banks levy a flat fee on all wire transfers domestically and internationally. Currently, the rate for domestic wire transfers in the United States averages around $25 per transaction, and abroad can be as high as $50 per transaction. Recipients of bank wire transfers are also required to pay fees for receiving money. These can be as high as $10 for incoming domestic wires and higher for international wires. It’s important to note that there are many hidden fees, charges, and commissions that banks levy on money transfers, notably the exchange rate fees.
The quoted exchange rate you see online with Reuters, Bloomberg or other Forex services is not the rate that banks charge. It’s interesting to note how overseas transfers work; with banks, it’s typically a blanket strategy that is applied to all money transfers. It doesn’t matter whether it’s a business or personal requirement. Many of the non-bank international money transfer companies provide cheaper quotes for currency transfers, and they provide greater stability to guard against currency fluctuations. In the United Kingdom, all international money transfer companies must be approved by the FCA (Financial Conduct Authority).
Always Shop Around for the Best Rates
Banks buy Forex cheaply from clients and sell it at a much higher price than non-bank providers. For this reason, it is especially expensive to use banks for your business transfers. Fortunately, with both bank and non-bank providers, wire transfers are ironclad. Safety and security is assured with all regulated money transfer services, but businesses can certainly save a small fortune by looking to non-bank providers for their international money transfer needs.
Non-bank service providers have the added benefit of a huge network of participating banks and financial institutions. In other words, no physical money needs to be transferred from one country to another. A myriad of banks operates in the network in multiple countries, making it a highly cost-effective option for money transfers. This means that it is easy to simply debit one account and credit another account. There are no actual wire transfer services required. Businesses can save a considerable amount of money by shopping around at non-bank providers for the best rates.