FX International Payments
By Gianvito Grieco
Money transfers are a popular choice for sending or receiving money from overseas despite the fact that fees in Australia typically range from AU$10 to AU$50 for the sender, plus the possibility of additional fees charged by intermediary and receiving banks.”1,2 Money transfers are unique among all domestic and international forms of payment in that their use increases by company size (measured in revenue).3 It is reasoned that larger firms may obtain volume discounts, and can develop more efficient money transfer processes when doing a large volume of transfers. That enables larger firms to spread internal costs over more transactions when sending or receiving money from overseas clients. Businesses also can save money by properly identifying and matching the specific needs of a given payment with the appropriate provider in order to avoid overpaying unnecessarily for things that may not be needed, such as a faster transfer time.
Unlike domestic money transfers, money received from overseas via international transfer can take multiple days to clear because an additional foreign correspondent bank (or intermediary) is needed. In terms of cost, money transfers usually involve a flat fee for both sender and recipient. Fees charged by banks and money transfer services for receiving money from overseas via money transfer range from AU$11 to AU$15.4 However, if a business and its customer have accounts with the same bank, it may be possible to transfer money for a low fee – or none at all.
The flat fee for a money transfer is not the only cost consideration when sending or receiving money from overseas. Low upfront fees, for example, may be paired with unfavourable exchange rates. So, before deciding on a bank money transfer, carefully consider the exchange rate offered. Also, be aware that the exchange rate quoted before a transaction may be estimated, not fixed; exchange rates can change from moment to moment. To reduce risk, it’s possible to fix the rate in advance of settling the transaction. Another factor to be aware of is that the exchange rate quoted by any bank may be different than the “spot rate,”5 which is the rate most commonly cited by public sources. Banks may set their own exchange rates, which can differ based on transaction size.
When choosing a provider for sending or receiving money from overseas consider many metrics, including fees, exchange rates, customer support and speed. Choosing a method solely because it offers the lowest exchange rate, or the fact that there is no commission or upfront fees, may be a costly mistake in the long run, especially if a transaction goes awry. Experienced customer support from a reputable provider can prove invaluable if issues come up before, after or during a transaction. Additionally, consider a provider’s experience, as seen in metrics such as transaction volume and the number of countries and currencies available. Just as one might choose a surgeon based on the number of times he or she has performed a given procedure, experience counts when it comes to potentially complex overseas transactions.
To save on costs when receiving money from overseas clients, consider the big picture. Go beyond comparing the different methods and providers based solely on one metric, such as exchange rates or fees. If something during the transaction goes wrong, and service and support is poor, the lost time and cost of resolving difficulties can be more than the anticipated savings. This is especially the case when transactions involve large amounts.
Gianvito Grieco has served in a variety of roles in investment banking, financial services, and law. Gianvito holds a Bachelor of Science in Finance from the University of Florida, and a Juris Doctor from Stetson University College of Law. He is also fluent in English, Italian, and Spanish.
1. “Overseas Money Transfers”, Choice; https://www.choice.com.au/money/banking/foreign-transactions/articles/overseas-money-transfers
2. “A Comprehensive Guide on How to Transfer Money Overseas”, The Currency Shop; https://www.thecurrencyshop.com.au/international-money-transfers
3. Business-to-Business Wire Transfer Payments: Customer Preferences and Opportunities for Financial Institutions, The Clearing House Payments Company and the Federal Reserve Banks; https://www.frbservices.org/assets/news/research/wire-transfer-research.pdf
4. “The Best Ways to Transfer Money Back into Australia”, The Currency Shop; https://www.thecurrencyshop.com.au/transferring-money-back-to-australia-from-overseas
5. “Forex Spot Rate”, Investopedia; http://www.investopedia.com/terms/forex/f/forex-spot-rate.asp