People send money abroad for a variety of reasons, including gifting money to friends and family, buying a house abroad, making an overseas purchase for goods and services, making overseas bill payments, and moving money between personal accounts etc. Regardless of the reason for making international money transfers, there is a specific process involved in the transfer.
The process for sending an international money transfer will differ depending on whether you are sending the funds via a bank or a specialised international money transfer provider:
Banks use one of two standardised methods to identify bank accounts when making an international money transfer. The International Bank Account Number (IBAN), and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) code. The IBAN is used to identify the recipient’s account, and the SWIFT code is used to identify the bank. Depending on the bank, the transaction process takes approximately three to five working days. The funds are converted, and the recipient receives the money in their local currency. If the transaction is made between banks that do not have an existing financial relationship, an intermediary bank is required which could delay the process further.
With a specialised provider, an international money transfer works by having the sender provide their personal details to the agent either online or in person. They will verify the sender’s details and take details from the recipient such as full name, location, amount being sent. Depending on the provider, it can accept credit cards, debit cards and bank transfers as payment. The sender can also use cash when making the payment at an agent location. Some specialised providers offer instant transfer services, whilst some could take a few days.
There are typically two options when sending an international money transfer:
A forward contract is an agreement between two parties to exchange two currencies at a determined date in the future. These contracts protect buyers against fluctuations in currency prices. To cancel a contract, both parties must agree to the termination. In general, forward exchange rates for currency pairs are held for up to 12 months. However, some of the pairs of currencies are referred to as the “major pairs”, which can exchange rates for up to 10 years. These include:
Several providers also offer contracts for as short as a few days. It is also important to mention that there is a £30,000 minimum for forward contracts. To learn more about the contracts, check out our in-depth forward contracts guide.
When making an international money transfer, the spot contract is the most common type of contract. They are ideal for businesses and individuals who need to make a quick overseas payment. You are given the exchange rate available at the time of the transfer and funds are delivered on the same day.
In the United Kingdom and Europe, the Financial Conduct Authority (FCA), regulates online providers. They can not operate without being licensed as Electronic Money Institutions. A licensed practitioner is subject to European rules that protect payment service users.
There are several factors that affect an international money transfer and they are all determined by the exchange rate. The exchange rate is defined as the conversion rates between the two countries. The supply and demand for currencies will cause daily fluctuations which means that you can not determine how much money the recipient will receive until you are about to make the transaction. For this reason, it’s important to understand the economic conditions that determine exchange rates.
International money transfers are a convenient way to send money abroad; understanding how money transfers work and the factors that determine foreign currency exchange rates will assist you in better evaluating the optimal time to make a money transfer.