In recent months, the growing demand for quick and convenient ways to send money overseas has been impossible to ignore. The reason for this spike in demand is simple: unprecedented numbers of people are trying to send money to friends and families overseas to help them weather the ongoing instability in the global economy.
Due to the exorbitant cost of traditional services like overseas bank transfers and legacy remittance companies, customers are flocking to low-cost digital solutions to send and receive money abroad.
The emergence of these new money transfer providers has left the traditional money transfer industry struggling. For a long time, banks and remittance companies were able to enjoy a near-monopoly on the remittance market, but with the emergence of a slew of new, low-cost competitors, legacy companies have been left fighting for market share and profitability.
All of the major money transfer companies are now suffering from the same problem: their customers have become frustrated by the sluggish and expensive nature of their services, and are actively and increasingly looking for other options in the fintech space.
The best fintech money transfers now offer a comprehensive suite of services for the same price as legacy remittance providers. This means customers can move money anywhere, anytime, and from any location, with low or no fees.
How Do Money Transfer Services Work?
In the past few years, the consumer landscape has been transformed by the rise of digital money transfer providers. Instead of waiting hours in line at the bank, sending money overseas is now as simple as sending an email.
With a tap of a button, funds can be sent to friends and family abroad in as little as 24 hours. These providers offer customers a convenient experience and a wide range of features, such as the ability to track transactions in real-time, send funds to mobile phones, and even cash out together with a friend or family member.
If you’re only just exploring the landscape, you might be wondering what exactly a money transfer provider is. In a nutshell, money transfer providers are financial intermediaries that connect senders and recipients through existing electronic communications networks and, in some cases, their own proprietary transaction management and fulfillment systems.
Behind the scenes, the money transfer transaction can be a complicated affair. For transfers between developed economies (i.e. Australia to Germany), money transfer providers can utilize existing transaction infrastructure to quickly and cheaply move money between banks and financial institutions.
However, when sending money overseas to developing countries, most major money transfer providers have had to build their own backend systems in order to effectively process the multitude of transactions involved.
This usually involves integrating with government institutions and organizations that provide identity verification services, as well as mobile wallet integration and payment collection. To ensure both the transaction process and consumer protection are met, money transfer companies often go even further, working alongside everything from state regulators to local banks and government organizations.
How Do Money Transfer Services Save You Money?
If your main goal is to transfer between different international accounts under your name, the primary advantage of digital money transfer providers is that there is no longer a need to go through the cumbersome, expensive process of transferring funds to a bank or other financial institution in order to move money between two accounts.
While you might save some money on exchange rate costs and transfer fees, the biggest advantage is that you don’t have to deal with the added expense and hassle of dealing with a traditional institution.
Alternatively, if you’re looking to transfer money abroad as a remittance to friends or family, the cost savings of using a money transfer service can be considerable. Let’s start by outlining some of the standard costs of using a traditional overseas bank transfer.
- Firstly, you’re saddled with a hefty international transfer fee — this could be a flat fee or a percentage of the transaction.
- Secondly, you’ll likely need to stomach unfavorable exchange rate spreads and/or some excessive exchange rate markup to convert your funds into the currency of the receiving country.
- Thirdly, you’ll have to factor in wire fees, which can be as high as 1% and are usually levied per transaction. And that’s not even accounting for other hidden charges, such as downstream handling fees, cancellation fees, investigation fees, and branch fees.
Things get even worse when you’re only sending small amounts of money. According to the World Bank, a $200 remittance will be met with an average fee of around 6.5%. If you’re planning on routinely sending small remittances abroad, these fees can stack up quickly.
Fortunately, the cost of transferring money through a money transfer provider is typically far lower and you’ll rarely have to worry about the hidden fees.
Let’s take Wise, one of the largest money transfer providers on the market, as an example:
If a customer in Europe is making a €1,000 transfer to their family in India, they can expect to pay a €0.51 fixed fee and a variable fee of roughly 0.51% of the transaction (€5.07), for a total cost of €5.58. The currency exchange cost is baked into the variable fee and, according to Wise, is set to the mid-market rate (i.e., the rate used by banks before its subject to markup).
Now, you might be wondering how money transfer providers can afford to undercut banks and legacy remittance companies when they often use the same transaction infrastructure. The answer lies in the fact that money transfer providers are a specialized service.
Unlike traditional banks and other sprawling financial services companies, international money transfer services build their business on the foundation of customer relationships and reputation. Because they don’t have the overhead of a huge organization with multiple departments, branches, ATMs, and call centers, they can pass these savings on to their customers.
Moreover, because of their streamlined, highly digitized business model, money transfer providers are able to offer features that other banks and legacy remittance providers cannot, such as multi-currency accounts, real-time tracking of transfers, and the ability to send money directly to mobile phone wallets.
Choosing A Money Transfer Company
How do you know which money transfer company is right for you? First and foremost, you want to make sure that the providers you’re considering offer competitive international transfer rates and a transparent fee breakdown.
But it’s important to weigh your choices against your budget as well. While it’s definitely good to go with a provider that offers the lowest rates possible, you don’t want to sacrifice service quality.
For example, some providers may have more than one account option, while others may only offer limited currency or region variety. It’d be a shame to get a good deal only to find yourself trapped in an undesirable account with poor features or limited deposit options.
If you’re stuck on where to start, check out the reviews and service offerings of some of the large, reputable money transfer providers, such as Wise, Moneycorp, OFX, and WorldRemit. From there, you can start to compare the providers based on their fee and currency exchange structure, account options, account features, and customer service offerings.
Ultimately, you should take the time to familiarize yourself with the market. Don’t be afraid to shop around and compare the rates of providers against each other.
Using Money Transfer Services For Business Transactions
While low-cost remittances tend to be the primary drawcard for money transfer service customers, the technology and innovation that money transfer companies have developed in recent years have allowed for the integration of money transfer services into various business transactions and financial services.
The expansion of money transfer companies into the business transaction space is especially convenient for small and mid-sized enterprises. An online money transfer platform can be used to fund employee payroll, pay vendor invoices, and execute routine business-to-business payments.
This type of functionality is particularly useful for small businesses that have a need to make rapid, low-risk payments, but lack the time or human resources to process and clear paper-based invoices.
To further sweeten the deal, business customers can also look forward to superior customer service, including dedicated account managers, after-hours troubleshooting assistance, and multiple forms of fraud protection.
Paying For Money Transfer Services
Due to Know Your Customer (KYC) and Anti Money Laundering (AML) requirements, most money transfer services still require customers to hold a bank account in order to deposit money into their account via a debit card, credit card, or bank transfer.
For those who don’t have a bank account, the alternative is to make a cash deposit through a partnered service. Cryptocurrency deposits are also an option on some platforms, but customers will need appropriate identification information to ensure compliance with internal KYC and AML obligations.
The Bottom Line
As the cost of accessing traditional money transfer methods increases, more people are resorting to alternative methods of transferring money abroad. If this trend continues at its current pace, legacy money transfer providers, banks, and traditional remittance companies will be forced to innovate or risk becoming obsolete in the global money transfer space.