Home Guides What is a Money Transfer?

What is a Money Transfer?

The term ‘money transfer’ refers to the general process of moving money from one person or business to a designated beneficiary. The sender and recipient could be in the same country or different countries and the transfer can be done online, over the telephone, using mobile apps, or through banks and money order services. Whether you are sending money for family support or investment, this guide will show you the various money transfer options available,along with information about how much they cost, and the pros and cons of each method.

Updated: 01/10/2021
Read time: 9 minutes
Compare Rates
 
   
Spain
EUR
GBP
£

The different ways to transfer money

When transferring money either within the same country or across borders, there are several options available to you. Here’s a quick summary of some of the most popular.

Bank transfer

Banks are the most well known and historic presences in the money transfer space, having been around from as early as the 15th century. Through worldwide banking networks, users can transfer money within the same bank, or to other banks locally and internationally, with the knowledge that their money will reach its destination safely and securely. Here are the most common types of bank transfers:

  • ACH transfers: Here, transfers are pushed or pulled electronically from one bank account to another through the Automated Clearing House network. These transfers are either free or may cost up to $3 and can generally only be used for domestic transfers.
  • Wire transfers: Users can transfer funds from one bank to another either domestically or across borders using wire transfers. Wire transfers can cost upwards of $25 and in the case of international funds transfers, and deliveries can take up to 3 working days.

Money transfer companies

Companies such as TransferWise, Ria, WorldRemit and OFX have come up in recent years to help individuals and businesses to send money to designated beneficiaries. Some of the companies such as Zelle and Venmo have specialised in domestic transfers while others are exclusively targeting cross border transfers.

These transfer platforms can be accessed online, and many are also available in-branch and on mobile applications. Users can initiate and pay for their transfers using debit cards, credit cards, bank accounts or even cash deposits in the case of MoneyGram, Western Union, and Ria. 

Depending on the transfer company, beneficiaries can receive their money through their respective bank accounts, at cash pickup locations, through their mobile wallets or as direct deposits in their cards. Service providers may charge either a service fee or an exchange rate margin or both – but these fees and margins tend to be considerably lower than when making a money transfer with a bank.

Mobile apps

Mobile money applications can be integrated as an extension of either of money transfer companies’ platforms or banks or can also be designed as standalone money transfer solutions. Applications such as M-Pesa in Kenya, bKash and Rocket in Bangladesh, and Paga in Nigeria are some of popular mobile money transfer solutions. 

In addition to facilitating local mobile to bank and mobile to mobile transfers, these apps have also linked up with internal money transfer services to facilitate cross border transfers. For instance, Paga has a partnership with WorldRemit, M-Pesa with Western Union, and bKash with TransferWise.

Cash

Cash is still king in many contexts. However, its prominence is slowly fading with more people preferring electronic money transfers. Cash transfers can be sent through the mail, though this method is highly discouraged for safety reasons.

Service providers such as Xpress Money, Ria, Western Union, MoneyGram and UAE Exchange allow customers to deposit cash at their branches and partner locations for onward transfer to their recipients, offering a safer way to send money as a cash payment. Normally, transfers take minutes and recipients can collect the funds sent at designated cash pickup locations.

International money orders

Moving funds through international money orders is one of the oldest money transfer methods. Users can purchase money orders from post office locations, along with other select financial institutions. In the United States, the US Postal Service sells money orders of up to $700 per order.

Not every country accepts the cashing of international money orders. For instance, the US-originated international money orders are accepted in only 26 countries and territories around the world.  Users can pay for money orders using cash, debit cards or traveller’s checks. The money orders are then mailed to the recipients who can cash them at any authorised post office location.

Customers can also send domestic money orders within the US up to a maximum value of $1,000.

How much do money transfers cost?

Whether you are using the banking network, money transfer companies, mobile apps, or international money orders, money transfers come at a cost. Compared to domestic transfers, international transfers incur more fees because of the intricacies involved such as currency conversion.

Secondly, the type of money transfer service you choose, and the destination will also determine how much you pay. Here are the costs to expect when moving money.

Transfer fees

Sending money whether locally or internationally involves certain costs such as administration costs, network partner fees, payment fees, and other charges. Service providers build these costs into their transfer fees. For instance, Venmo charges 3% to send money locally using a credit card. Barclays charges a £25 fee per transfer when sending money within Europe by telephone banking or through the branch.

TransferWise’s fees depend on the currency pair and amount being sent. Sending £1,000 to France in Euros will cost you £3.95 in fees while sending the same amount to the United States in US dollars will cost you £4.44. Other money transfer companies have their fees structured in such a way as to include a fixed component and a variable component.

For money orders, the charges vary based on the amount sent and the destination. International money orders from the United States cost $10.25 per order. On the other hand, local money orders between $0.01 – $500.00 in value cost $1.25 while orders ranging from $500.01 to $1,000.00 cost $1.75.

Exchange rate margins

International transfers involve currency conversions, and so making sure this conversion is processed at a favourable rate is key to getting the best deal. Banks and most money transfer companies often charge a margin above the mid-market rate to cater for the conversion charges. This means that the rate you get is worse off than the prevailing interbank rate in the currency market; the markup they add is the exchange rate fee and often referred to as the hidden cost.

For instance, NatWest charges a margin of 3.98% above midmarket when transferring money from the UK to the US. For large transfers, exchange rate fees can quickly add up. Money transfer companies like TransferWise process all transfers at the mid-market rates, and other money transfer companies will commonly charge exchange rate margins in the region of 1%.

Other fees

Apart from the two main types of fees above, you also need to be careful about other nominal fees your transfer may attract. Customers who pay for their transfers using credit cards may attract a cash advance fee or about 5%. Beneficiaries may be charged an inward SWIFT fee, landing fees, bank processing and intermediary fees deducted from the amount received. The extra charges applied will vary from transfer to transfer, so make sure to research the method you’re using before sending your money.

Pros and cons of transferring money online

Online money transfers have become increasingly popular as technological advances have made them more accessible faster, and cheaper. Most customers now feel at ease transacting using mobile applications and online platforms. Having said that, users need to be cautious when moving their money online to ensure safety and cost-effectiveness. Here are some pros and cons to consider before transferring money online.

Pros
Highly regulated: Online money transfer companies are highly regulated in the jurisdictions they operate in. Organisations such as the Financial Conduct Authority (UK), the Financial Crimes Enforcement Network (US), and Australian Transaction Reports and Analysis Centre (Australia), ensure that money service businesses follow the stipulated guidelines
Safe to transact: Money transfer services are required to have valid SSL certificates to ensure customers information is always protected. Those that accept card payments are required to implement the Payment Card Industry Data Security Standards (PCI/DSS) to guarantee safe card transactions.
Competitive exchange rates: Online money transfer companies offer better exchange rates compared to high street banks. This means you are left with more money in your pocket to spend. On average, these services charge a margin of around 1% above the mid-market rate, but the exact level will depend on the transfer you’re making.
Lower transfer fees: Because of lower overheads, online money transfer services offer lower transfer fees than other players in the market. Banks may charge up to $40 per transfer while money transfer companies charge only a fraction of that for the same transfer.
Speed of transfer: Transfers can take anywhere from minutes to 3 days to be delivered. Cash pickups and mobile wallet deposits are delivered almost instantly. Bank transfers may delay a little bit depending on the intermediaries involved and the destination.
Cons
Disbursement coverage: Online transfer services such as Azimo cover a total of 189 countries while others like Aussie Forex cover only 10 countries. Customers need to check the countries supported by a provider before making transfers.
Availability: Online money transfer platforms rely on the availability of the internet. While internet penetration has greatly improved, users from countries such as Belarus, Myanmar, Cuba, Iran, and North Korea, and remote areas may have difficulties accessing the online and mobile platforms because of internet restrictions and inadequate coverage.
Exposure to cyber risk: Even with the intensified security measures in place, cyber threats are still on the rise with online-based information systems being the prime targets. Users need to be extra careful when transacting to ensure their exposure is limited.

Are online money transfer companies safe?

Despite the growing concern about hacking and information system compromise, online money transfer services are generally safe. They have invested in technologies that enhance the safety of their platforms and those of their customers.

Some of the technologies include end-to-end SSL encryption, adoption of Payment Card Industry Data Security Standards for user safety, and third-party proprietary security layers such as Norton Seal, Visa Secure, and Mastercard SecureCode.

Also, the high-level industry regulations requiring in part that customer funds be held in segregated accounts, give customers confidence when transacting.

Are there minimum and maximum limits on money transfers?

Yes, some money transfer providers have minimum and maximum limits you can send. Others only have a minimum with no expressly pronounced maximum. For example, VFX Financial has a minimum transfer of £500 with no stated maximum while WorldRemit allows a maximum of up to $5,000 when sending to Nigeria. 

At times, limits are based on the transfer payout options. Direct-to-bank deposits tend to support higher amounts compared to cash pickup or mobile wallet deposits.

Summary

With people living and working in different countries or cities away from their families and friends, the need to transfer money keeps on growing. Billions of transactions are processed daily thus requiring a stable, safe, and efficient money transfer ecosystem.

Whether you are looking to use banks, cash transfer systems, international money orders, or money transfer companies, you need to consider the costs involved, safety measures and the pros and cons at play. 

Remember, the safety of your money is critical and calls for a closer examination of the different safety layers that the transfer services have to put in place. If you feel that a particular online money transfer service doesn’t represent your preferences, you can always shop around for an alternative provider. MoneyTransfers.com has a proprietary money transfer comparison tool you can use to make the process faster and more accurate, so you can get the best deal and transfer your money securely anywhere in the world.

Related Content

IBAN vs Routing number
Understanding the difference between an IBAN and a routing number will massively benefit both parties involved in an international money transfer. In this guide we will present the distinguishing features of both, looking at the similarities and differences between the two identification codes. 
Converting IBAN to BIC
Whether you are sending money to friends and family overseas, or making mass business payments, it is easy to get confused when dealing with various foreign bank details. In this guide we explain how to differentiate between these two banking terms, as we consider the possibility of converting an IBAN into a BIC code.
Top 35 Blogs for Remittance Advice
In this list we have picked out the very best online resources for free remittance advice; regardless of the purpose, size or destination of your transfer.
Thomas
Written by
Thomas
Companies
All Services