Money Transfer Companies: How they Operate and How to Save Money Using Them?
Foreword on Money Transfers: Money transfers serve an important function in the global economy. Funds are transferred from one currency to another, to facilitate a transaction. In the olden days, money was wired from one banking institution to another, but nowadays electronic funds transfers (EFTs) are largely responsible for money transfers all over the world. This method allows funds to be transferred from one bank to another, by exchanging data.
It is important to understand that fiduciary currency is not transferred from one point to another – it is simply an order that is fulfilled electronically. In much the same way, customers at a grocery store can use their debit card to seamlessly transfer funds from their checking account into the store’s account. These electronic funds transfers are not the same as modern-day online money transfers. In fact, online money transfers with reputable companies like TransferWise, TorFX, MoneyGram International, WorldRemit, PayPal and others work quite differently.
The process requires logging on to an online money transfer service, inputting payment information and transferring funds from sender to recipient. The funds are transferred instantaneously with minimal contact information required. Typically, all that is needed is the receiver’s email address, or mobile phone number. Provided the sender and receiver have a bank account, online money transfer services can be conducted for a nominal fee. The world’s premier online money transfer companies offer secure services via PC, Mac or mobile devices. Users must have a secure Internet connection, using firewall protection, anti-malware, and SSL encryption. From then on, it’s a simple matter of logging on, sending money and signing off.
The Functionality of Money Transfer Companies
When people send remittances overseas, this is usually done for the purposes of paying bills in a foreign country, for investments abroad, or simply sending money back home where it can be put to good use. The value of global money transfers has ballooned in recent years, thanks to e-commerce, international trade in goods and services, investments, education, migrant workers, travel and tourism, et al. In 2016 for example, an estimated $601 billion was sent by expats worldwide. This excludes business payments between countries – that figure is substantially more. Remittances comprise a huge chunk of a country’s GDP, and it’s really important to understand how these remittances work.
Assuming that a worker in Canada wants to send money to the United Kingdom, the process works as follows:
International money transfers in Canada are certainly possible with a host of reputable money transfer companies. The person in Canada must have funds available to be transferred to the United Kingdom, or vice versa. If you are sending C$10,000 to the United Kingdom, the rate that is quoted to buy British pounds is known as the exchange rate. Assuming a rate of 0.60 per Canadian dollar, this means that C$10,000 is the equivalent of £6000. C$5000 is the equivalent of £3000, et cetera. That is based on the exchange rate provided by Reuters or Bloomberg. However, the interbank rate differs from the rate that banks and money transfer companies charge customers. In other words, the quoted rate between central banks and banks, or among banks themselves, is always going to be more favorable than the rates that banks and money transfer companies charge their customers.
In any event, once the exchange rate has been defined, the receiver of the funds will have the GBP equivalent of that set amount of Canadian dollars. If funds are moving from the UK to Canada, then the Canadian recipient will have the CAD equivalent of the GBP that was sent. Small changes in the exchange rate can have an outsized effect on the value of the funds that are received. That’s why it is important to carefully evaluate the pricing mechanisms, including fees, charges, commissions, brokerage costs, and hidden charges which may exist. Wire transfers for example typically take 3 business days – 5 business days, but can take longer with international payments to certain countries.
Swifter than SWIFT and Easier to Send & Receive Funds Anywhere
These SWIFT transactions are provided by a global network known as the Society for Worldwide Interbank Financial Telecommunication. Countries with exotic currencies like South Africa, Botswana, Angola, Zimbabwe, et al often have unfavorable exchange rates, or poorly defined banking structures, so it’s important to conduct the necessary research to ensure that the funds can be sent safely and securely. Sometimes, receiving banks also levy charges on money transfers, whittling away the amount received. Of course, the process changes when you use an online money transfer service, or Internet money transfers. These companies operate at small margins.
When using an online money transfer service company, it is possible to complete transactions within 1 business day. On certain occasions, these transfers can also be completed instantly. Fortunately, sending and receiving money through reputable online money transfer service companies can save significant costs, because they don’t have to deal with the high fixed costs of banks and traditional brokerages which have to maintain large buildings, payroll costs, utility bills, and so forth. Online money transfer services can quote better rates because they have lower cost of operations and they work on volume to generate their profits. The convenience of using an online money transfer company outweighs the merits of using a bank and the attendant high transfer costs and unfavorable exchange rates.