Year after year, we inhabit an increasingly accessible, borderless world, thanks to the wonders of digitisation and technological advancements. And yet, as we take our place in a closely-knit international community, we find ourselves confused and frustrated with one of its most fundamental tenets – sending, spending and receiving money internationally. Despite the growing number of options that have streamlined and eased the process, remittances remain a difficult concept for most. Due to a lack of understanding, and an inability to navigate “bank-ese” fluently, consumers end up paying a lot in hidden fees/charges.
Most banks and money transfer providers don’t exchange your money using the mid-market rate – the one you see on a Google search. They add a markup to the rate, which is not disclosed to you, the consumer.
The only way to make sending money abroad safe, efficient and seamless is to uncover these hidden fees. Here’s what you must watch out for to avoid them.
Research the real exchange rate
Most bank and transfer service websites will tell you that the exchange rate is made up of their reference rate and a margin. This is an ambiguous way of informing the consumer that they are not employing the real, authentic currency exchange rate.
Financial institutions can levy hefty prices on currency conversions, without explicitly informing consumers what they are being charged for. Often this can be well over 5 percent of the value of one’s transfer. To avoid this outgo, it’s essential for a consumer to look for the official, mid-market exchange rate, and match it with the quoted rate given by the transfer service before going ahead with the transaction. The difference between the two figures is often the additional cost consumers end up paying, which can be exorbitant.
Also read: Explained: What RBI’s announcement to allow Indians to invest in International Finance Centres through LRS means
Look for correspondent fees
The bulk of international money transfers takes place through the SWIFT (Society for Worldwide Interbank Financial Telecommunications) network – a worldwide system of interlinked banks – that may not always be as its name suggests, and is beset with complications. One major complication is correspondent fees. Banks are not always equipped with a network of branches in all countries, and resources necessary to conduct international money transfers. In this case, they enlist the services of another financial institution, called a “correspondent bank” to help them carry out their transactions. These banks can deduct a fee of any amount directly from money being transferred using the SWIFT network. The point is they don’t really inform you of it, nor do they ask for your permission. These fees are arbitrary and difficult to predict.
The best way to avoid these kinds of fees is to use a transparent transfer service that lists its costs upfront.
The truth about recipient fees
Recipient fees are not something you, or your bank can control. Some banks around the world can charge consumers for receiving overseas funds, and these costs can vary from bank to bank, and be difficult to overturn. The best solution, in this case, is to weigh your options carefully, and try to gauge if the person you are transferring money to will be stung with this fee. Of course, a great way to skip all of this is to turn your eyes to tech, and see which money transfer app or portal suits you best. This will save you time, all intermediary costs and leave you footing only the market-determined, fairly-priced commission.
The global average cost of a remittance remains painfully high, at 6.5
percent. That’s more than double the 3 percent target identified as a Sustainable Development Goal by the United Nations. This is largely due to hidden costs attached to the remittance process of banks and financial institutions. The call for price transparency is being undertaken at an international level, but the first step to achieving that goal at large is to be vigilant at an individual level.