International Money Transfers: How does it work?

International Money Transfers: How does it work?

International money transfers play a vital role in today's world. Both individuals and institutions have many needs to perform international money transfers. Migrant workers who needs to send money back home, global trading that involves international payment to vendors or suppliers, receive money for exports, overseas education feed are few individual needs of international transfers. Major industries like stock market, real estate, telco and insurance, needs to use international money transfers often for their goods and services. Countries use international money transfers to pay for energy, gas, imports, debts or to receive loans or development donations.

During the early days’ banks used a system called Telex for international money transfers, using telephone lines connected to telex machines and was called “Wire transfers” since the connection between two parties are done through telephone cables. There are many other traditional methods of sending money overseas that include cash, check, bank draft, or money orders. Speed and safety were the drawbacks for these methods.

Due to many disadvantages, banks shifted to a more advanced payment system called SWIFT (Society for Worldwide Interbank Financial Telecommunications). At the start it was only supported by 239 banks in 15 countries. SWIFT established a common standard mainframe to adhere for financial transactions and a shared data processing system for worldwide communications. The first SWIFT message was sent in 1977. It became popular among banks so fast making the International money transfers so much easier and at the same time allowing banks and other financial institutions to communicate securely with each other in a fast and accurate manner.

For international money transfers banks need to use a correspondent bank also known as a NOSTRO agent in the respective currency that they need to send. Banks use a number of foreign currency accounts in GBP, EUR, AUD, JPY, etc, with different countries for this purpose. To understand this better, for instance if your bank is in India and you need to send US Dollars to another bank within the USA or elsewhere, the Indian bank needs to maintain an USD account in a bank in the USA and the recipient bank also needs to maintain a USD account in the USA if they are not located in the USA.

Recipient bank's USD account is called an intermediary account and the receiving bank account will be the beneficiary bank. SWIFT enables this transaction smoothly by passing few authorized messages between the banks involved in this transaction. SWIFT MT 202 Bank to Bank payment message will be sent to Indian bank to the USA correspondent bank, US bank to the recipients USA corresponding Bank and SWIFT MT 103 customer payment message from Indian bank to the final recipient’s bank providing the recipients account details.

Banks mostly use MT202 messages to furnish payments for transactions like money market borrowings and landings, SWAP transactions, etc. within banks. SWIFT uses different category messages like category 5 to enable trade finance deals like letters of credit, Bank guarantees, etc., And within the different regions Banks use separate identification systems to locate the banks in the region or country, like IBAN in the European region and CHIPS UID in the Americas.

To transfer money within the European union they use a system called SEPA, stands for the ‘Single Euro Payments Area’, and is part of a system designed to make transferring money between the participating countries as simple as domestic transactions. ACH (Automated Clearing House) system are the transferring method currently available only in the United States and Canada.

Most common information you need for an international money transfer will be

  •  Name and address of recipient’s bank, (Recipient)
  •  Recipient’s IBAN (International Bank Account Number)
  •  BIC/SWIFT code of recipient’s bank
  •  Reason for the transfer
  •  Transfer amount and currency
  •  Who will pay the fees: You, the recipient, or a split between you and the recipient

Banks usually charge a commission for the SWIFT transfers and if the transaction involves two different currencies then exchange rate and the bank’s markup.

International money transfers usually take about 2-5 days to complete depending on holidays, weekends, bank cut off times, how many intermediary banks it must go through to reach its final destination and various fraud prevention procedures adopted by different banks.

To make International Money Transfers way much easier, a lot of alternate transfer services are available nowadays. If you are in a hurry to send the money, lack mobility or if you do not want to go through a bank there are many options available to you which enable same day international money transfers.

Money transfers are made through non-bank remittance service providers using their own systems. Non-bank online money transfers may use mobile wallets from a mobile app and other types of digital wallet accounts. Most services have now been introduced to the mobile phones via mobile apps so you have the ability to do an International money transfer only by using your mobile phone no matter where you are located. Money transfer service providers are mostly used for smaller transfers as mostly they set a cap for the maximum transfer amount.

And platforms like Teeparam Exchange are becoming more popular due to their speed, less hassle and security. Also Teeparam offers high Sri Lanka exchange rate from UK.

Some money transferring companies may offer higher fees and lower exchange rates so finding the best service provider will provide a fast transaction for a lower cost.

To use these services mostly you need to register with the service providing company, by providing identification or do some liveness test initially, then connecting your credit or debit card and/or bank account, download their app or by using their web service you will be able to do the transfer instantly. And in most cases the recipient gets the money the same day or by latest the next day.

Next time when you want to select a service provider to do an International money transfer consider the cost of the service, Information needed, transfer duration and most importantly the reputation for a smoother, cheaper and secure transfer.