Advantages of Money Transfers

For decades, retail banks and wire services had a functional monopoly on the business of transferring money from local senders to faraway recipients. Like so many other things, the Internet has forever changed the way money transfers work. Today, innovative financial services companies have applied new financial technologies (“fintech”) to build an impressive new generation of specialized money transfer providers.

Banks still offer wire transfers, but new alternatives have made considerable improvements to their traditional service model. In this guide, we’ll examine some of the advantages you can enjoy by choosing a specialized online or app-based service for your next money transfer.

Better Exchange Rates

Money transfers that cross international borders require currency exchanges. Banks are more than happy to convert your local currency into the monetary units used in the recipient’s destination country, mainly because they make huge margins on these transactions.

Specialized providers have lower overhead and operational costs, plus the organizational agility to undercut their competition, which means they deliver better exchange rates almost without exception.

Let’s break down how this works:

When you search online for exchange rates, the rate quotes you see are known as the mid-market interbank rate. This rate represents the current median between the average “buy” and “sell” prices for a given currency pair, as they are exchanged among investors and financial institutions on international currency markets.

Retail consumers do not have access to interbank rates — only banks do. When you purchase foreign currency from a bank, they apply a hefty markup to their exchange rates. These markups typically fall in the range of 3.5% to 6.5%. In other words, if the bank paid the equivalent of US$100 for £75 in British currency, they would charge you somewhere from US$103.50 to $106.50 for that same £75.

Money transfer services specialize in foreign exchange transactions, and many of them purchase major global currencies in wholesale quantities. This, combined with their lower operational costs, enables them to sell that currency to you at far lower markups than banks apply.

Markup rates vary among money transfer providers. Some are transparent about their margins, providing hard numbers upfront. Others are less specific, stating only that their rates are as low as possible and that you will get better rates when exchanging large sums of money.

Even in the latter case, you will still likely save on the transaction compared to what you would have paid at a bank. Money transfer providers offer markups as low as 0.25% to 0.5%, and they rarely charge more than 2%. Even at the high end of the range, you stand to save anywhere from $15 to $45 per every $1,000 you transfer.

Lower Transfer Fees

Currency exchange markups aren’t the only way that banks profit off you when you order a wire transfer. Most of them also apply a hefty transaction fee that makes it even more expensive to send money abroad. According to a 2020 Business Insider article, the typical U.S. bank charges $25 to $30 for domestic wire transfers (within the United States) and $45 to $50 for international transfers to other countries. Factor in the higher exchange rate markup and you’re suddenly looking at some pretty hefty fees, especially if you’re only transferring a relatively modest sum.

On the other hand, specialized money transfer providers offer transaction fees starting at $0 and extending up to about $15 to $20 at the high end of the typical range. In general, providers that offer no additional transaction fees usually have slightly higher exchange rate markups, but you will still generally save money compared to the cost of the same transaction at a retail bank.

In most cases, you also stand to get something of value in exchange for your fee if you do incur one. Most money transfer services offer express service to customers who pay a premium in the form of higher transaction fees, which get the funds into your recipient’s hands faster.

Specialized Service

Money transfer providers focus primarily or exclusively on domestic and international transfer transactions. Thus, their customer service representatives tend to be more knowledgeable about the process, and they are generally able to provide customers with better, more specific advice. This is especially true for cross-border transactions involving currency exchanges, which can be complex.

Transfer services also tend to keep their customer service networks open for longer hours, with some even supporting 24/7 availability. They also provide customers with access to advanced online tools that allow them to track their transfers in real-time. Retail banks continue to lag far behind money transfer services in these regards, as they usually confine support availability to regular weekday business hours while offering limited transaction tracking capabilities.

You Can Send Money Anytime, Anywhere

Another major advantage of online money transfer services is that you can set them up no matter where you are and at any time of day or night. All you need is a secure Internet connection. Some banks offer limited online functionality, such as the ability to send money only to yourself or another customer in the same banking network. However, in most cases, you need to actually visit your local branch to gain access to the full suite of transfer services, especially for international transactions.

More Payment and Fund Delivery Options

Last but not least, online money transfer services usually support a wider range of payment options than most retail banks. When setting up a transfer with your bank, you will typically have to use funds in your bank account or pay with cash. Money transfer providers support online banking payments along with credit cards, debit cards, and digital wallet payment systems. Some of them even accept major cryptocurrencies.

These same conveniences extend to the recipient as well. Bank-based wire transfers can only be deposited into your recipient’s financial account. Some money transfer services also require this, but others support cash pickup options that allow your beneficiary to pick up their money through an offline agency. This is ideal if they do not have a bank account or do not wish to receive funds in their bank account for any reason.

Get the Most Out of Your Money Transfer

If you’re ready to try out a specialized money transfer service, there are a few things to keep in mind as you shop around. First, companies with higher levels of transparency are generally a better choice. Look for providers that are up-front about their costs and fees, and openly encourage you to compare them against your local bank and other money transfer services.

Next, be sure to review payment and fund delivery options, and check to see if sliding-scale fees apply. Some providers charge more for certain types of transactions. For instance, it is common for money transfer providers to offer free transfers to customers who pay through their online banking but apply a modest charge to those who pay with a credit or debit card. This is usually due to the transaction fees they incur when accepting card payments. Cash pickups tend to cost a little more as well, but they may be worth the extra money depending on your circumstances.

Finally, research any money transfer service you are considering before going ahead with the transfer. Look for companies with well-established online footprints, high volumes of independent user-generated reviews, and strong aggregate user ratings. They are the best bet to deliver as advertised on their services.