What is remittance and what are remittance payments?
The term ‘remittance’ comes from the word ‘remit or ‘to send back,’ and so ‘remittance payments’ refers to the amount of money transferred from one person to another – usually in that person’s home country. The term is primarily used in the context of international payments – however, more loosely, it is also sometimes used to refer to business payments made across international borders.
To make the picture clearer, here are some examples of remittance payments: If you work in the United States and send 20% of your monthly earnings back home in India, it is a remittance payment. Also, if you are sent $1000 each money to the US from India as rent for your property in India, it may also be considered a remittance payment. If your parents send you a few hundred dollars as a birthday gift, that may be considered a remittance payment too. Essentially any international transfer can be considered a remittance payment, but the most common use of the term is for people supporting families overseas via money transfers. This is most common in middle income countries where the labour force is largely made up of immigrants, but is also commonly used by students and other professions.
How do remittances work?
On a basic level, the answer to how does remittance work is by sending money from one place to another, and ensuring the money arrives with its intended recipient. There are several ways in which you can send remittance payments, so the actual way they work depends on the method you are using, and some payment methods are speedier, more convenient, and efficient than others. Some commonly used methods for sending remittance payments include:
Cash transfers
Cash transfers is the traditional means of sending remittance payments, but it’s not as simple as the name makes it sound. While some people do simply send cash in the post or with someone traveling to another county, these are not safe or secure ways of transferring money. More often a cash remittance payment will be facilitated by a company with branches in both countries (e.g. Western Union), whereby someone can fund a transfer in one country and their recipient can pick it up in the form of cash from the branch near where they live.
Bank transfers
Bank transfers are quick, easy and safe, and widely used for sending remittance payments around the world. You can make an online international money transfer via your bank by going to a local branch or simply logging into your internet banking account, and entering the details of the transfer you wish to make. There are a few drawbacks to using bank transfers, however. One of the most notable is that your recipient will need to have a bank account in order to receive the funds, and not everyone has access to this. The other is that banks tend to charge high fees and exchange rate margins, which can eat into the amount you want to send as a remittance payment.
Specialised remittance providers
The most popular and efficient way to send remittance payments is via specialized remittance providers, which largely take the form of online money transfer services with physical branches. The sender just needs to visit the nearest agent location of the remittance provider or login to the online account, pay for the transfer (through the card, bank transfer, or cash), and send money.
The advantages of online payments through international money transfer providers over a bank transfer is that they tend to charge significantly lower fees and margins (which is helpful as the money sent as remittance payments is often vitally important to the recipient), and they allow for a variety of payout methods. You can still transfer into a bank account if your recipient has one, but if not these services can deposit money into online wallets, send to a mobile, or deliver the money as cash either to a branch or sometimes right to your recipient’s doorstep. This allows you to transfer money across different financial services easily, without worrying about security or speed.
Sending and receiving remittance payments
Sending remittances is now easier than ever before. There are many remittance companies to choose from and you can do everything online. The basic steps for sending a remittance payment remain the same. We believe the best option for sending remittance payments is to use a specialized provider, so here is a quick guide to show you how to sign up and use one of these services:
- Choose a payment provider: When selecting the provider you wish to use, the important things to look out for is the exchange rate margins and fees they charge for your chosen transfer corridor, and also that they support your desired payment method (e.g. cash). The details of each service offered will vary from provider to provider, with some companies specializing in specific routes, so it pays to shop around.
- Sign up: Opening an account is almost always free of charge. You will need to provide your personal details and proof of identification such as your passport, driver’s license or any other government-issued ID. The company will verify your details and your account will be ready to use in a few hours.
- Provide recipient’s details: You will have to provide the recipient’s personal details and bank account details (if sending money to the bank account), or other information about their identity if you’re arranging to have them pick up the money in cash.
- Double-check the fees and margins: Once you have entered the details for your transfer, double-check that no hidden fees or high margins are being applied.
- Pay for the transaction: You can make payment using bank transfer, credit/debit card, or cash depending on the provider you choose.
- Send money: You can then make a transfer. The transfer provider will give you a transaction ID for the transfer, which you should save for future reference. In most cases, the transfer happens instantly and the funds are available for withdrawal in a matter of minutes.
In order to receive a remittance payment, the most important thing to do is to provide accurate details to the person sending the money. This can mean providing the correct bank details, or your ID information so they can arrange to have the money sent to you. If you’re receiving a remittance into your bank account, all you’ll have to do is wait for the money to arrive, but if you need to collect the money then here are the steps to follow:
- Visit the nearest agent collection: To collect the payment, you simply need to visit the nearest agent location. The list of agent locations will be available on the providers’ site.
- Show your identity proof and the transaction number: In order to collect the payment, you will have to show your identity proof, which has the exact same name as mentioned in the transaction. You will also need to provide the transaction number provided by the sender.
- Collect payment: If the transfer was made to the bank account, you can withdraw funds from the bank account as required. Depending on the delivery method chosen, you can also collect cash from the agent location. Some providers also offer home delivery of cash for an added fee. If the sender chooses home delivery as the delivery method, the cash will be delivered at your doorstep.
How much does it cost to send a remittance payment?
This question will vary from provider to provider, and also depends on the currencies, countries, and the amount of money involved in your transfer. For this reason, it’s not possible to give a one-size-fits-all answer to this question. Instead, the most useful thing is to be aware of the different charges that are applied to remittance payments so you can make sure you’re not getting ripped off. Here’s a quick summary:
- Transfer fee: Most remittance providers charge a fixed fee for transferring funds overseas. This transfer fee can range anywhere from $1.99 to $30 or even more, depending on the transfer provider you choose, the amount you are sending, where it is going and the currencies involved. On more common currency routes, the fees are lower compared to less common routes.
- Exchange rate margin: The exchange rate margin is the additional percentage a company adds on top of the mid-market exchange rate when facilitating a transfer between different currencies. Quite often, remittance providers claim that they charge no fee for their transfers. This does not mean they mean they charge no fee at all, but simply means they’re charging you through an exchange rate margin. Exchange rate margins differ significantly from provider to provider and commonly fall somewhere between 1% and 5% on top of the mid-market rate. Usually, only banks will charge on the higher end of this, with specialized remittance services applying margins in the region of 1%-2%.
- Additional fees: Apart from the two main costs described above, there can be other fees applied to remittance payments. For instance, you may have to pay some additional fees for making a payment using your credit card or for home delivery of cash. The fees can quickly add up if you don’t choose your provider carefully, so please make comparisons before you make your choice.
To learn more about money transfer costs, check our guide to the cheapest ways to send money abroad.
How fast are remittances delivered?
In most cases, remittances are delivered almost instantly or in a matter of minutes. Again, the actual speed of the transaction will depend on a number of factors including the payment provider you choose, the currencies involved, and the delivery method. If you have chosen to send a payment using a specialized remittance provider, the recipient will be able to collect cash in a matter of minutes by providing the transaction number and proof of identification. However, transfers to bank accounts can take between 1 and 5 working days to complete.
Can I send a remittance to someone without a bank account?
Yes, you can send remittances to someone who does not have a bank account. In order to do so, you will have to use a provider that allows for remittance payments to be delivered in different ways. The most common method is to arrange a cash pickup, but some providers will also allow you to have the money delivered to mobile or e-wallets, or even sent right to your chosen recipient’s doorstep.
Summary
The term remittance means ‘to send back,’ so ‘remittance payments’ can be used to describe almost any international money transfer – for either personal or business reasons. It is most commonly used, however, to refer to payments made to support family and friends back home from people who have migrated to another country to find better employment opportunities.
There are many different ways people can send and receive remittance payments, and services exist to ensure money can be sent across the world easily to anyone at all – even if that person has no access to a bank account. A variety of companies specialize in arranging cash pickups, which have the advantage of being available for collection almost immediately as soon as the sender has funded the transfer in their current country of residence.
Remittance payments are centrally important to the current global economy, as they help support millions of people in developing countries across the world. If you’re looking to find the perfect remittance provider to send money home without having too much of it eaten up by transfer fees and exchange rate margins, then we’re here to help. Simply use our free money transfer comparison tool and we’ll show you all the best options for your chosen transfer route in seconds.
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Artiom is a marketing graduate from the University of Portsmouth, Artiom’s primary experience is in SEO but he has a broad knowledge of all facets of digital marketing. He optimises the organic experience on MoneyTransfers.com with the content team, manages and creates unique marketing tactics, and generally supports the overall growth of the website.