6 Things to Know Before Using a Money Transfer Service

Over the past few years, the financial services industry has seen an explosion in the number of companies providing low-cost international money transfers. These services often offer better exchange rates than banks along with affordable fees that also save customers money.

However, some money transfer service providers are less transparent than others. You could end up overpaying for your transfer or, in a worst-case scenario, your transfer could fail, and you could be on the hook for its full cost anyway.

As you check out money transfer services, there are six questions to consider.

1. Is the company licensed and regulated?

Many money transfer services are based in major international financial centers like New York and London. Financial services companies operating in these locations are subject to close scrutiny at the hands of regulators and licensing agencies, ensuring their activities are on the level and comply with local and international laws.

Regardless of where the company you’re considering is headquartered, check to make sure it adheres to all applicable laws and regulations. If a company provides vague answers or tries to hide its regulatory or licensure status, you may want to consider another provider. You have no shortage of options and there’s no reason you should take chances.

2. What is the currency conversion markup rate?

When you check the financial news for exchange rates, the rate you’ll see is known as the mid-market interbank rate. It represents an even split between the currently offered “buy” and “sell” prices for a given currency pair, as determined on international foreign exchange markets.

All money transfer services generate revenues on the margins between the exchange rates they pay and the rates they offer customers. In some cases, the money transfer provider can quote the exact rate of their markup. For example, the company may state that it limits its markups to, say, 2.9% of the mid-market rate.

However, not all money transfer services provide hard numbers, as their markups and margins can change depending on which currency pair you’re converting. Remember that you can always check for yourself to see how much the company is marking up your transaction.

Here’s how:

Don’t expect any provider to give you the mid-market rate, as it is functionally theoretical. However, the lower the markup, the better. Markups in the range of 1% to 2% are considered very good. Some companies charge higher markups, but many of them make up for it in the form of lower fees and transaction costs.

3. Are there any additional transaction fees?

As mentioned in the previous section, some money transfer companies promote their services as carrying “no fees” and/or “no transaction costs.” In most cases, this simply means they apply higher markups to their currency conversion rates, so you may not stand to save much money through fee reductions.

When doing your due diligence, it’s important to know as much of the story as possible with respect to conversion markups and fees. The best way to get a handle on the relative value offered by any one provider is to perform direct comparisons between multiple money transfer services to see how much your recipient would receive in each case.

Here’s how to do this:

However, keep in mind that the raw numbers don’t always tell the full story. A particular provider might offer faster service or support a wider range of payment and pickup options, making them a better choice for your situation. Prioritize these factors into account when crunching the numbers, as they can profoundly impact your service experience.

4. What payment and receiving options does it support?

The more payment and receiving options a service offers, the better. Most providers support online banking payments, credit card payments, and debit card payments. A smaller number accept wire transfers, digital wallet payments, and/or cryptocurrencies.

Meanwhile, recipients usually have up to two options: to have the funds delivered to their bank accounts in their local currencies, or cash pickups at a designated service point.

As a general rule of thumb, online banking payments incur the lowest fees while card-based (credit and debit) payments incur the highest fees. Providers that support a large number of payment options usually also come with higher transaction costs.

For recipients, cash pickups usually command a premium charge, making them cost more. However, they can be a handy option, as they are often very fast, and the quickest cash pickup transfers can be completed in just a few minutes.

5. When and how can you get help if you need it?

A lot of things can happen once you’ve confirmed your transfer. You could incur an emergency expense, necessitating a refund of the money you just sent. You may want to change the recipient or cancel the transaction altogether. Or you may just find a better rate and want to use a different service.

Thus, it’s important to know how to get customer service assistance if you need it, and when service is available. In this regard, money transfer providers vary considerably. Some prioritize online service, making options like live chat and email more available than telephone-based service. Others offer 24/7 assistance, while some limit it to regular business hours on weekdays.

You don’t want to find yourself scrambling for answers without knowing how to get them. Take a moment to look into each provider’s customer service structure before initiating your transfer.

6. What do other customers have to say about the service?

Last but not least, follow up your own research by comparing your findings against the experiences of customers. You can consult sites like Trustpilot, the Better Business Bureau, and Google to see user-generated insights into a company’s services and reliability.

In this regard, you should look for broad trends. Companies that have earned high scores on a relatively large number of reviews should inspire more confidence than ones with only a handful of ratings. Also, avoid the temptation to place too much weight on the opinions or experiences of any one review or complaint, positive or negative. Even a great company can have a bad day, and bad customers are as real a phenomenon as bad companies.

It only takes a few minutes to generate accurate insights into the reliability and trustworthiness of a money transfer service. Given what could be at stake, it’s an investment well worth your time.