Monday, 5 August 2019

How are people sending money overseas and across borders?

According to the World Bank's latest Migration and Development brief, global remittances reached $689 billion in 2018, up from $633 billion in 2017. And, other reports say that over the next few years, remittances show no sign of slowing down.

There are multiple ways to forward funds abroad, from prepaid gift cards to mobile money transfer services. However, factors such as affordability, timeliness, convenience and security all play a role in how people choose to send funds internationally.

Use a Peer-to-Peer App

Peer-to-peer (P2P) payment apps allow senders to move funds by mobile phone using a bank account, credit card or debit card. P2P apps are generally light on fees and typically take the place of middleman entities, such as banks, opening the door for more competitive foreign exchange rates and potentially eliminating the sometimes hefty margin applied to those rates by financial institutions.

On the flip side, there are price variations from app to app and variations in payment network coverage in the destination can also vary; the sender should do some research before choosing a service. A good way is to read the comments on the app store and through third party rating services quickly accessible through an online search.

Send a Bank Wire Transfer

International bank wire transfers are generally a costly option, unless the sender and beneficiary both have accounts at the same bank, in which case, moving money from one account to another is typically cheaper.

Conversely, the fees for sending a bank transfer from one bank to another internationally vary by financial institution, and according to personal finance source NerdWallet, many banks also charge a fee for receiving funds. For the national banks surveyed by NerdWallet, the average fee for incoming international transfers is $13 and $45 for outgoing international transfers. International bank transfers usually take longer than P2P bank services because many variables are involved, including the domestic bank, the foreign bank and a clearinghouse in both countries.

Send a Transfer through a third party Money Transmitter

Third party money transmitters are independent money transfer service providers which offer international P2P through their store locations and, in some cases, their own app. Money transmitters tend to have less foreign exchange markups and cheaper fees than bank transfers, but these fees vary widely by service provider. Compared to bank transfers, which typically only use bank accounts, nonbank transfer services give senders the option to pay by bank account, cash or similar, credit card or debit card.

Depending on where the beneficiaries are collecting the money, they may not need a bank account to receive the funds in cash. Transfers and pickups can typically be done online, at retail stores and at over hundreds of thousands of worldwide agent locations.

The downside is that a sender needs to research these services in detail, because depending on the service provider, a transfer's timing and payment method can drastically affect fees and the overall cost. Transfers through money transmitters can be sent to the beneficiary in a few minutes or the same day, but may sometimes come with a higher price tag. Also, using a debit or credit card usually can lead to higher fees than using a bank account. While some money transmitter services charge a flat percentage fee, others charge a percentage fee based on the amount being transferred. Senders who use money transmitters are protected by the remittances rules of the Consumer Financial Protection Bureau.

Conclusion

The remittance industry is changing quickly and more options are becoming available, with some banks offering low cost transfer options and still other companies popping up every month with differentiators like speed, payment networks, foreign exchange rate and price options.

While the many ways of sending money may lead to uncertainty about the right way for your situation, one thing will always remain. It will likely be cheaper to send money if you have a bank account and your beneficiary has a bank account - how much cheaper will depend on the service provider.

So, when looking to send money abroad, make sure to do your research. Take 30 minutes to look up price, foreign exchange rate and payment network options online, on social media or by asking friends who've sent money abroad. The time you invest in researching and choosing the best option for your needs can save you and your beneficiary time and money.

 

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