The traditional way of international money transfer is banks and established financial institutions. These methods were effective when no other money transfer services were available.
Over the years, people trusted banks and their foreign-exchange divisions as the de facto methods of making international money transfers. These brick and mortar institutions are part of the established money transfer network.
Unfortunately, banks tend to abuse their ‘monopoly’ of global money transfers. This resulted in a multitude of cost-effective, safe, secure, and reliable FinTech operations entering the scene.
People grew tired of paying the extortionary fees associated with bank transfers, including international wire transfer fees, commissions, hidden charges, processing fees, administrative charges, etc.
These financial technology corporations now include a growing list of reputable companies offering their services to clients around the world. A handful of names has emerged as industry favorites including World First Money Transfer, Currencies Direct, Moneycorp, OFX, and TransferWise.
These global money transfer companies are displacing traditional banks with a growing number of users worldwide.
High Bank Charges
Banks tack on charges every step of the way, effectively squeezing as much out of every currency transfer as possible. Unfortunately, that doesn’t tell the full story of how banks maximize their profits through IMTs. They do this through the spread.
If the effective exchange rate set by the markets for the cable (GBP/USD) is 1.40, banks will always charge clients more than that for every GBP that is purchased with USD.
The interbank exchange rate is the rate quoted for Forex transactions between banks; it is not the same rate that banks charge customers. It is the rate at which wholesale FX transactions are made for the forward market.
The real exchange rate is known as the mid-market rate. For the most part, customers have not been able to influence the exchange rate big banks offered them. Banks tend to ‘hide’ their exchange rates from customers, so it’s often a gamble to determine what Forex rate will be offered.
This is how banks collect their profits. If they charge 1.4150 for every GBP that is purchased, they are effectively earning $0.015 on the purchase of £1 over and above the market rate. This oversimplification of the spread is important for illustrative purposes.
When large currency transfers are made, it’s easy to see how banks collect significant profits from their clientele.
Top Reasons to Avoid Using Banks for Global Money Transfers
- Banks are involved in many types of financial transactions, and money transfers around the world are only one component of their operations.
- The Banks tend to be slower at processing transactions since they are required to complete mounds of paperwork and compliance-related issues.
- Banks can charge up to $50 for global money transfers (outgoing), and there are also fees for incoming money transfers.
- Banks require senders and receivers to have bank accounts for transfers to be processed.
What Alternatives Are Available?
PayPal Fees
Many people consider PayPal to be an alternative to banks, but it’s no better. With PayPal, you are paying 2.9% transaction fees + a fixed fee-based on the currency received. PayPal is continually updating its terms of service to add conditions on international receipts and payments.
All of these are designed to increase PayPal’s take-home pay, with the effect that it reduces the amount you receive from abroad. The fees levied by PayPal are relatively low in the US for domestic transfers, however, sending to other countries becomes expensive given that PayPal levies multiple fees and charges and unfavorable exchange rates on all international money transfers.
This is how they bulk up their profits. The 2.9% transaction amount is the equivalent of $2,900 when you’re sending $100,000 abroad, but even that pales in comparison to the unfavorable exchange rate fees that they may be charging based on their spread.
Buyer beware: PayPal does not provide transparency with regards to the exchange rates that they charge on currency pairs until you’re ready to make the transfer. As a word of caution, you will always want to check the exchange rate you’re paying through banks and PayPal against other money transfer services.
It is highly recommended that you conduct an extensive analysis of the reputation, credibility, and rates charged by international money transfer companies around the world. A great point of departure is this informational guide on money transfers complied by industry-leading experts on the best money transfer companies for transferring funds abroad.
You cannot go wrong by evaluating your options by choosing companies that specialize in low-cost, safe, secure and rapid funds transfers for individuals and businesses alike.
Companies include OFX, Moneycorp, CurrenciesDirect, and WorldFirst. These companies are far superior to banks and PayPal, in that they offer instant transfers, low-cost, and guaranteed results.
The leading money transfer service target individuals, expats, SMEs and overseas employees who send funds abroad. Many of these FinTech companies cater to niche markets. They are also geared towards popular global destinations where customers can pick their preferred service and seamlessly transact.
