Do Banks Charge Fees for International Money Transfers via Wire Transfer or Western Union?
International money transfers are a common requirement for businesses and individuals alike. However, many are surprised to learn that the organizations handling these transfers, including banks and specialist money transfer operators (MTOs) like Western Union and TransferWise, make a profit from these transactions. This article explores the various fees and charges associated with international money transfers, with a focus on wire transfers and Western Union transfers.
How Money Transfer Organizations Make Money
Money transfer organizations, such as banks and specialized MTOs like Western Union, TransferWise, and others, generate profits through the fees and charges they apply to money transfers. These can take various forms:
1. Foreign Exchange (FX) Spread
The most common method is through the foreign exchange (FX) spread, which is the difference between the buying and selling rates of currencies. For example, if the buying rate is $1.10 for EUR and the selling rate is $1.15 for EUR, the bank or MTO makes a 5-cent profit for each euro transferred.
2. Direct Fees
Direct fees are charged by MTOs if they choose to charge for the service. These fees can vary depending on the service provider and the amount being transferred. However, it’s important to remember that even if direct fees are not charged, the money transfer service provider is earning money through the FX spread.
3. Payment-In and Payment-Out Fees
Transfers often involve payment-In and payment-Out fees. For instance, if you pay by credit card, the service provider might charge an additional fee, perhaps to cover the higher costs of using a card. On the recipient's side, if the payment is collected by cash pick-up, there could be a fee charged for that service.
Hidden Costs and Transparent Pricing
It’s not uncommon for some of these costs to remain hidden from the user. In the business-to-business (B2B) and individual-to-individual (I2I) market, sales personnel often aim to maximize the spread, leading to higher costs for the user. Therefore, it’s crucial to compare the full cost between different MTOs, especially focusing on the spread, which is often the biggest cost.
How to Compare Costs?
To compare the costs accurately, get a quote for the total amount of money that will arrive for the same payment, taking into account all the fees and charges applied. This allows you to make an informed decision and potentially choose a more cost-effective provider.
Additional Considerations
Sometimes, intermediary or correspondent bank and receipt fees and deductions can be charged by the intermediary or receiving banks. These fees can sometimes be due to tax reasons, such as in the case of Colombia, where the recipient may have to pay these because less money arrives than expected.
Conclusion
Understanding the fees and charges associated with international money transfers is crucial for both businesses and individuals. Whether using wire transfers, Western Union, or any other service, it’s important to compare the full cost, including the foreign exchange spread and any additional fees. By doing so, you can ensure that you are getting the best possible deal and not overspending on your international money transfers.