International Money Transfer: Transfer Money Overseas

Great amounts of money are being sent overseas by international money transfer everyday. Some send large and some small amounts. Some transfer money overseas on a regular basis, whereas others may have to send a one-off payment abroad. What is important is that for every occasion there is a unique service that optimises transfer factors such as cost and speed. One must know the best option for each case in order to get the best deal for international money transfer.

In any particular case of international money transfer, there are five major concerns to look out for. These are:

Cost
Security
Transaction Speed
Choice of Destination/Destination Type
Transfer Amount

1. Cost: The most important thing for someone who wants to transfer money overseas is to find a deal which will give the most value for money. There are three different costs involved in an international money transfer. Firstly, as the term international depicts, it’s the matter of currency exchange rate. Every international money transfer involves this stage and it is hence important to find the best deal. More on currency exchange rates will follow in our ‘Forex’ subsection, below.

The second cost that many transfer agents may charge is commissions, which is usually dependant on the amount of money transferred. Remember that the exchange rate you get is crucial. Many companies that transfer money overseas claim to be charge-free/commission-free but then give you a substantially worse exchange rate, meaning you get less value for your money.

The third and most occasional cost you may acquire when sending money overseas is the actual transfer fees, usually charged banks.

In any case, when you want to compare two international money transfer services for cost purposes it is best to ask the golden question of ‘How Much Euros/Yen/Dollars Will I Get For My Pound, Etc. After All Fees And Charges?’

2. Security: While small amounts may not involve high risks for transfer, larger amounts of money call for extra security measures. For this reason it is always best to work with those services which have been long in the business. One might consider the use of a colleague or a friend’s past experience in a successful international money transfer.

3. Transfer Speed: Another very important factor involved in an international money transfer is the speed with which the transfer is conducted and the time it takes for the money to reach its destination. While some services offer transfer times as low as 20 minutes others may take days or even weeks to reach completion. It is therefore very important to find out about the transaction speed before committing to transfer money overseas.

4. Choice of Destination/Destination Type: While many companies may be able to offer the cheapest or fastest deal to transfer money overseas many are often limited in the choice of destination countries which they can offer for international money transfer. To find the right deal you must refer to a service that offers transfer of money to your desired destination country.

Other than the country to which you are transferring money, it is important to decide about the type of money you wish to receive at the destination, which may be in the form of a bank deposit, bankers draft, traveller’s check, postal order, etc. Again it is important to consider the costs involved when choosing any of the above.

5. Transfer Amount: Many services tend to impose limits on the amount of money you are allowed to send, based on whether or not they are designed for large transfer amounts. This limit should also be considered when trying to choose the best method to transfer money overseas.

Now that we have become familiar with the general aspects of an international money transfer, it is time to study the likely situations that may arise for any case of overseas money transfer. On a broad scale this includes whether or not to have a bank account on either end, whether the transfer amount is large or small, whether the payments are regular or not and whether or not case is involved in the transfer. Below we will try to look at a few likely cases and offer advice on the best possible service to look for, based on the main five criteria explained above.

A. Sending Small Amounts:

Sending small amounts of money overseas means that the currency exchange rate will not be the most important factor in the transfer and one could save money by choosing commission-free or low-commission services which are fast and secure. Although the presence of a bank account on either end means that funds can be transferred through international wire transfers for a small transfer fee (£10-35) and usually commission-free, the bank-to-bank transfer of money can take from 1 day to several weeks depending on the service you choose. You will have a choice of wire transfer (1 day to complete, most expensive), cheque (5-7 weeks and relatively expensive), Foreign Draft (3 weeks and relatively cheaper) and money order (5 days and quite cheap).

When sending a cheque abroad by means of international money transfer the recipient will need to pay the processing fee and it will take about 4-6 weeks. Even though it’s easy to issue a cheque to transfer money overseas, it may not be easy for the recipient to cash the cheque, especially with some countries having banking systems which tend to be less welcoming towards foreign-drawn cheques.

Foreign drafts can take from a few days to a week to be prepared by the initiating bank, depending on the city or town it is in. The money comes out of the account when the draft is prepared and not when the recipient gets it. Since the draft is drawn on your bank to another bank, the recipient must have access to the corresponding bank in order to cash the draft.

Wire transfers can be initiated without the need to be a customer of the bank, for an extra charge, provided the money is paid to the bank in cash. Although wire transfer is the most expensive type of bank transfer it tends to be much faster and more secure, but the recipient still needs to have access to the corresponding bank.

While bank transfers may not provide for the most cost-effective international money transfer method, they have the advantage of being able to transfer money overseas to almost all countries, a limitation set by many other services.

This all was possible with the presence of a bank account on either end, but many cases of international money transfer do not actually involve a bank account on either end. For such types of transfer, i.e. cash transfers, customers must refer to international money transfer companies such as Western Union, MoneyGram, and Travelex.

Western Union, MoneyGram, and Travelex

Western Union is known to be the leading service for international money transfer where there is need to transfer money overseas in cash or without involvement of a bank. Western Union has been in business since the early days when it would send wire transfer on actual wires using telegraphs, contributing towards the remaining name for today’s ‘wire transfers’ now referring to electronic exchange networks.

Western Union uses its many 245,000 many transfer agents in over 200 countries to send and receive money abroad. A customer takes cash to a local money transfer agent, fills-in a form detailing the recipient’s name and the destination country, and pays the money to the agent. This agent will then inform the recipient agent about the money transfer providing them with the same transaction code given to the payee. Meanwhile the payee will have contacted the payment recipient and provided him/her with the transaction code. This code is then used by the recipient to collect the money from the money agent residing in the destination country. The whole process could take as little as 20minutes depending on the two countries.

Although Western Union is known to be a very fast and secure international money transfer service, it is also known to give customers a relatively poor exchange rate as well as having high-rate commissions. That being the case, Western Union is now finding increasingly new rivals in the business including MoneyGram who claim to have cheaper rates compared to Western Union.

MoneyGram being one of the main rivals of Western Union operates in over 170 countries through more than 75,000 outlets. One must, however, bear in mind that despite the claim to have cheaper rates than Western Union, the actual cost of any one transaction may be either higher or lower than that offered by Western Union.

Founded in 1976 by Lloyd Dorfman, Travelex is the world’s largest non-bank foreign exchange payment company serving over 29 million customers in 29 countries each year. Countries include United States of America, Canada, United Kingdom, Malta, Netherlands, Belgium, Germany, Switzerland, Finland, France, Czech Republic, Italy, Bahrain, Oman, Hong Kong, Singapore, Indonesia, Thailand, Australia, and New Zealand.

About 40 percent of the world's airline passengers now pass through airports at which Travelex operates its retail foreign exchange branches, including the major gateways at London, New York, Hong Kong, Frankfurt and Sydney.

In Jan 2006, Western Union signed an exclusive global agreement with Travelex. Travelex locations will now only offer the Western Union Money Transfer service, making it available at 650 of their 700 retail locations in city centres and across 97 airports worldwide. The agreement marks an important milestone in the ongoing expansion of the Western Union global network. The addition of Travelex, in particular locations at the world's leading airports, extends Western Union's connection to the more than 185 million people living outside their country of origin.

Recently, these companies have introduced a good online service that provides for estimating the transaction costs as well as making it possible to transfer money overseas through their websites and online. This has also eliminated the need to pay-in by cash, where credit/debit card payments have also become an alternative. Payment collection must however be done in-person, except in some countries where Travelex will transfer cash to a bank account instead.

All the above companies tend to pose restrictions on the amount of money that can be sent per transaction, although it is highly discouraged to send large amounts of money overseas through these companied due to the poor exchange rates they give their customers. Alternatively, in the case of a large international money transfer, it is suggested to transfer money overseas through Forex Brokers (see below).

B. Sending Large Amounts:

All the services and companies mentioned above are known for giving their customers substantially poor exchange rates and hence less value for money. A single percentage of difference in exchange rates would mean hundreds of thousands of dollars of difference in the final price, where large amounts of international money transfer are in place.

In such cases it is best to refer to specialist international currency companies that are part of the forex (explained below) who usually tend to provide better exchange rates, generally commission-free, due to their competition with the leading dealers in the foreign exchange market (Forex).

Forex – Foreign Exchange Market – and Forex Brokering:

The foreign exchange market exists wherever one currency is traded for another. This is an international exchange market where simultaneous buying of one currency and selling of another is done. Currencies are traded in pairs, for example Euro/US Dollars (EUR/USD) or US Dollars/Japanese Yen (USD/JPY). It is by far the largest market in the world, in terms of cash value traded and includes trading between large banks, central banks, multinational corporations, governments and other financial market and institutions.

The foreign exchange market is unique because of its trading volume, the extreme liquidity of the market (i.e. price stability even with the fastest buying or selling), the large number and variety of traders in the market, its geographical dispersion, its long trading hours (24 hours a day – except weekends) and the variety of factors that affect exchange rates.

The minimum trading size in this market is usually $1 million, with an overall trading volume of about $1.9 trillion per day worldwide. Buying and Selling of currencies is basically for two reasons. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is mostly for profit. In fact, this market has the potential to earn almost $100,000 with an initial capital of only $500!

The ten most active traders account for almost 73% of trading volume. These are Deutsche Bank (17%), UBS (12.5%), Citigroup (7.5%), HSBC (6.4%), Barclays (5.9%), Merrill Lynch (5.7%), J.P. Morgan Chase (5.3%), Goldman Sachs (4.4%), ABN AMRO (4.2%), Morgan Stanley (3.9%). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually only 1-3 pips. One pip is the smallest measure of price move used in forex trading and refers to 1/10,000 of the bid/ask spread. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 (i.e. 3 pips difference).

Although the banks get the least and most stable bid/ask spread they never offer the same rates to their customers, since their key purpose of participating in this market is for profit.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar. According to April 2004’s BIS (Bank for International Settlement) study, the most heavily traded products were: EUR/USD (28 %), USD/JPY (17 %) GBP/USD (14 %). The US currency was involved in 89% of transactions, followed by the euro (37%), the yen (20%) and sterling (17%) - (Note that volume percentages should add up to 200% - 100% for all the sellers, and 100% for all the buyers). Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus still largely dollar-centred. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The only exception to this is EUR/JPY, which is an established traded currency pair in the inter-bank market.

According to the BIS study, 53% of transactions were strictly inter-dealer (i.e. inter-bank), 33% involved a dealer (i.e. a bank) and a fund manager or some other non-bank financial institution, and only 14% were between a dealer and a non-financial company. The inter-bank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.

On the other hand, retail forex brokers handle a minute fraction of the total volume of the foreign exchange market, estimated at $25-50 billion daily, which is about 2% of the whole market. In the retail forex industry market makers more often than not run two separate trading desks- one that they use to actually trade foreign exchange (essentially serving as a proprietary trading desk or "non-dealing desk") and one that is set up for the expressed purpose of off-exchange trading with retail customers (called the "dealing desk" or "trading desk"). The dealing desk operates much like the currency exchange counter at a bank. Inter-bank exchange rates, those coming in from the inter-bank system and displayed at the non-dealing desk, are adjusted to incorporate spreads that safeguard the bank’s (in this instance the market maker’s) profit before they are displayed in the lobby (at the dealing desk) to the retail customer. Dealing desk pricing is, therefore, not a direct reflection of the currency exchange but artificial pricing created and controlled by the originating broker.

Forex Brokers tend to provide better exchange rates for international money transfer compared to the banks also trading in the forex market as well as companies such as Western Union or MoneyGram in order to keep up their competition against them. Hence dealing with specialist international forex brokering companies is a suitable way to transfer money overseas both in large and small amounts.

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