Cross-border transfer remittance : wire transfer fee analysis

This article introduces the methods of money transfer and its fees.

Glossary

There is no strict definition between money transfer and remittance. Now, remittance usually refers to cross-border fund transfers; while a money transfer is the transfer of funds electronically, including wire transfers.

Transfer-in bank = Remitting bank = Paying bank = Originating bank

Intermediary bank = Agent bank = Middle bank = Correspondent Bank

Transfer-out bank = Receiving bank = Beneficiary bank = Destination bank

Transfer path: Payer bank (→ intermediary bank) → Receiver bank → posting, may not go through an intermediary bank.

Types of Remittance

According to the different remittance methods, it can be divided into:

Demand draft (D/D). The payee takes the draft to the bank for payment, without having to notify the payee.
Mail transfer (M/T). The remitter entrusts the bank to send the mail transfer order to the receiving bank to authorize the payment of a certain amount to the payee.
Telegraphic transfer (T/T). The bank charges the remitter a certain remittance fee, and sends a telegram or telex to the receiving bank to instruct the payment of a certain amount to the payee.

Now demand drafts and mail transfers are relatively rare, and telegraphic transfers are usually used; and now telegraphic transfers are no longer transmitted through early telegrams.

Transfer Methods

The region in this section refers to economic zones such as the UK, Japan, the Eurozone, Hong Kong, etc., and generally overlaps with “national” administrative regions.

Generally speaking, transfers through the same bank internally, inter-bank transfer systems within the region, and transfers within the same group of banks across regions are faster and more cost-effective.

There are four situations:

Within the same region within the same bank
Inter-bank within the same region
Inter-bank across different regions
Inter-bank across different regions and through correspondent banks

Within the Same Region Within the Same Bank

Transfers within the bank system.

Fees: Check the bank’s fee schedule.

Inter-bank Within the Same Region

Path: [Domestic] Payer bank → [Domestic] Receiver bank → Posting

Transfers can be made through the local transfer system or local telegraphic transfer.

Through the Regional Transfer System

Local banks often have good transfer systems that can quickly confirm transfer instructions. For example, Hong Kong Faster Payment System (FPS, supports 2 currencies), Real Time Gross Settlement (RTGS / CHATS, supports 4 currencies); Macau Quick Pass; Singapore PayNow (only supports SGD); CN Central Bank clearing system (non-CNY must go to the counter for transfer); US ACH. Generally, there will be restrictions on currencies.

In CN, transfers through the UnionPay app are done in this way.

Fees: You need to check the fee schedule of the transfer-in bank, transfer-out bank, and clearing institution. Generally, no fee is charged for domestic currency transfers.

General Method

Local wire transfer. The payer bank and the receiver bank have reciprocal accounts with each other (the Chinese translation is not necessarily accurate). If not, refer to the situation through a correspondent bank.

The payer bank receives the payment instruction from the payer;
The payer bank sends an instruction to the receiver bank (through a specific system, such as SWIFT) to confirm the payee’s information;
After the receiving bank confirms the information, the two banks start to process the remittance:
The paying bank reduces the corresponding amount from the payer’s account;
The receiving bank transfers the corresponding amount from the paying bank’s reciprocal account at the receiving bank to the payee’s account;
The remittance is completed. The balance of the payer bank’s reciprocal account at the receiver bank decreases, and the liabilities (the bank’s liabilities are the depositor’s deposits) in its own bank also decrease correspondingly. The assets and liabilities are balanced, and the transaction is completed;

Fees: You need to check the fee schedule of the transfer-in bank and transfer-out bank.

Inter-bank Across Different Regions

Since banks in different regions are subject to different laws, even if two banks have the same name and belong to the same group, they are equivalent to two banks.

Telegraphic transfer. Path: [Domestic] Remitting bank → [Foreign] Receiving bank → Posting

If it is in a country with free flow of capital, the operation is basically the same as a general inter-bank transfer; international inter-bank remittances are basically done through the IBAN (International Bank Account Number, mainly used by European banks) or SWIFT (Society for Worldwide Interbank Financial Telecommunication, which involves non-European banks) systems.

If it is in a country with capital controls, such as CN, whether it is remittance or receipt, you need to prepare sufficient related transaction documents for filing, and then go through some approval process to complete the remittance.

Fees: You need to check the fee schedule of the transfer-in bank and transfer-out bank. Transfers within the same group of banks may have discounts.

Inter-bank Across Different Regions and Through Correspondent Banks

Telegraphic transfer. Path: [Domestic] Remitting bank → [Foreign] Intermediary bank → [Foreign] Receiving bank → Posting

If there is no reciprocal account between the payer and receiver bank, it is necessary to go through a third-party bank where both parties have opened a reciprocal account, which is a correspondent bank;
After the receiving bank and the correspondent bank receive the instruction, the correspondent bank will transfer the corresponding amount from the paying bank’s account to the receiving bank’s account, and the other processes remain the same;
The payer bank’s liabilities (customer deposits) decrease, and its assets (balance in the correspondent bank) also decrease. The receiving bank is the opposite.

There may be more than one intermediary bank.

In general, the remitting bank will choose its own overseas bank (if any) as an intermediary bank. The selection of intermediary bank is also related to the currency.

The remitter can designate the intermediary bank (but other intermediary banks may be added on this basis). The receiving bank will give a recommended intermediary bank for the receiving currency, and this bank is generally designated.

Fees: You need to know the remittance path, and check the fee schedule of the remitting bank, receiving bank, and agent bank.

Composition of Wire Transfer Fees

Wire transfer path: Remitting bank → Intermediary bank → Receiving bank → Posting

The composition of wire transfer fees is as follows:

Fee Item	Content
Outgoing Fee	The fee charged by the remitting bank, including the handling fee (the remittance fee charged by the bank itself) and the telegram fee (the fee for sending telegrams to the intermediary bank)
Agent Bank Fee	Commission charged by the agent bank, the exact amount depends on the agent bank. The more intermediary banks, the higher the fee
Incoming Fee	The fee charged by the receiving bank
Exchange Rate Spread	The exchange rate difference earned by the bank when exchanging foreign currency, deducted during currency exchange

SHA: The remitter pays the local fees, and the receiver pays the overseas bank fees. The receiver will receive the remittance balance after deducting the overseas bank fees.
OUR: The remitter pays all local and overseas bank fees. The receiver will receive the full amount remitted by the remitting bank.
BEN: The receiver pays all local and overseas bank fees. The receiver will receive the remittance balance after deducting the above fees.

When the incoming fee is paid by the receiver, some receiving banks will grant an exemption.

SHA Mode

SHA = SHARED, which means that both parties share the fees. The payer bears the outgoing fee, and the receiver bears the intermediary bank fee and the receiving bank fee (most banks do not charge for incoming fees).

This sharing method is used by default.

Using SHA mode to remit 1000 US dollars, the payer needs to pay about 20 US dollars in handling fees, the intermediary bank deducts 20 US dollars, and the receiver actually receives 960 US dollars. Many wire transfers use SHA mode, which is generally less expensive.

However, due to the unclear situation of the intermediary bank’s fees, the actual amount arriving at the other party’s account is uncertain, so this method should be avoided when paying tuition fees to foreign schools.

OUR Mode

OUR means that the payer bears all the fees.

Using OUR mode to remit 1000 US dollars, the payer needs to pay about 30-40 US dollars in handling fees, and the receiver actually receives 1000 US dollars. In terms of overall fees, OUR mode is mostly less than the previous two modes.

It is best for international students to choose this mode when paying tuition fees to foreign schools.

BEN Mode

BEN = beneficiary, which means that the receiver bears all the fees. Using BEN mode to remit 1000 US dollars, the payer does not need to pay extra fees, but the receiver needs to pay the outgoing fee (about 20 US dollars) and the intermediary bank fee (about 20 US dollars), and the receiver actually receives about 960 US dollars.

Many banks do not support this mode.

In addition to checking the fee schedule to understand the specific fees, you can also ask others who have used the same transfer path about the specific fees.

Transfer fees are related to the amount of the transfer.

The fee schedules for personal accounts and company accounts are different.

After the remittance is completed, some banks will provide the transfer path and detailed fees.

When cross-border remittance is required, it is recommended to choose according to the following priority, and check the required fees in advance:

Cross-border transfer within the same group of banks
Other lower-cost wire transfers

When it is expected that cross-border allocation of funds will be required, such as paying overseas tuition fees or accommodation fees, it is recommended to open a local bank account in advance and remit funds to the account for storage first. When needed, transfer directly through the local inter-bank clearing system.

You can plan a low-cost transfer path in advance. For example, [Domestic] Deposit bank A → [Domestic] Bank B → [Foreign] Overseas branch C of Bank B → [Foreign] Bank D that charges fees → Complete payment. In this process, you need to hold accounts at A, B, and C. And it is generally necessary to ensure that C to D is a full amount transfer.