By Megan Doyle
Today, of course, telegraph technology is as antiquated as a buggy whip, and most B2B international money transfers are sent using computers.2 Curiously, though, the term “telegraphic transfer” is still widely used. Global enterprises may be interested to understand the history of TT and what telegraphic transfer actually means today.
The first international telegraphic funds transfers date back to 1872, when Western Union developed a method of transferring funds long distance via telegraph.3 To make a TT, the sender would pay money to a telegraph office. The operator would then send a coded message to another office, which would authorize the release of funds to a recipient at that location.
By the mid-20th century, telegraphs evolved into the telex system. Telex used a system of interconnected machines to automate the process of sending a telegram, making it faster and cheaper.4 Obviously, technology has since advanced much further, and sending money no longer requires use of a telegraph or telex. Instead, international and domestic money transfers are initiated and completed via computer.5
So, while the underlying technology has changed, the term “telegraphic transfer,” surprisingly, is still used today to refer to various types of computer-initiated money transfer, whether domestic or international. It’s important to note that telegraphic transfer can be used interchangeably with the terms “wire transfer” and “electronic money transfer.”
However, observers note that the interchangeability of these terms can become confusing for businesses that make and receive international payments. For instance, telegraphic transfer is commonly used in the U.K., Australia, and New Zealand when referring to electronic money transfers, whereas wire transfer remains the more familiar term in the U.S. To make it more complicated, Japan uses telegraphic transfer not in the context of electronic money transfers, but for quoting foreign exchange rates.6
The basics of sending money internationally or domestically require a business or individual to submit information and instructions to their bank, including detailed recipient info. Banks usually let senders make the transaction request online or in-person. When it comes to making or receiving an international money transfer, businesses often must check with their bank for specific instructions, since banks in different countries can have different requirements.7 With today’s technology, money is typically transferred within a day or two (and sometimes faster). Depending on the service, there can be a fee to send or receive international and domestic money transfers.8
Today’s international telegraphic transfer technology is predominantly based on the Society for Worldwide Interbank Financial Telecommunications (SWIFT) network. SWIFT lets businesses and individuals send payments and currencies from one bank to virtually any other bank in the world. This is possible because each bank in the network has its own dedicated SWIFT code to help streamline international payments.
But SWIFT isn’t the only option for modern telegraphic transfer. For international money transfers in U.S. dollars, businesses can use the Federal Reserve’s Fedwire system. Fedwire is one of many central bank real-time gross settlement (RTGS) systems that create the “hubs” of the international payments network. Fedwire can be accessed directly by financial institutions worldwide, or through correspondent banks. Each currency issuer has its own central bank RTGS system that handles international payments in real-time, such as the Bank of England’s CHAPS system or the European Central Bank’s TARGET2 system. Several online and in-store TT services exist as well, and fees and money transfer limits can vary.
To keep pace, International businesses might also want to understand two more terms related to telegraphic transfers: TT letter of credit (LC) and TT in advance.9 A TT LC payment is an instruction from the buyer to a foreign bank to pay the seller a sum of money when certain conditions are met. Experts suggest that a letter of credit is used to take the risk out of buying or selling goods to a company that is unknown or possibly not creditworthy. The buyer opens the letter of credit at her bank and delivers it to the seller. The seller can then take the LC to its bank to remove the credit risk in the transaction.10
A TT in advance is a payment made before goods are shipped. Without a contract to develop, a TT in advance is usually quicker than a TT LC. However, the lack of contract can introduce extra risk to the transaction, since a supplier might receive payment without sending goods.11
The technology required to quickly send money internationally took hundreds of years to evolve, and the mid-19th century invention of telegraphic transfers changed global business forever. Even though the telegraph has nothing to do with electronic money transfer today, the term is still being used worldwide in connection with moving money electronically. Businesses should beware, however, that it is used somewhat differently in certain regions. TT truly is the “back to the future” of international money transfer.
Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.
1. “The Past, Present and Future of Global Money Transfer,” Forbes; https://www.forbes.com/sites/ofx/2018/09/12/the-past-present-and-future-of-global-money-transfer/#2f1a1a8231c9
2. “What is a Telegraphic Transfer?,” OFX; https://www.ofx.com/en-us/money-transfer/telegraphic-transfer/
3. “What is Telegraphic Transfer (TT)?” Investopedia; https://www.investopedia.com/terms/t/telegraphic-transfer.asp
4. “Difference Between Telex and Telegrams,” BizFluent; https://bizfluent.com/info-8636397-differences-between-telex-telegrams.html
5. “What is a Telegraphic Transfer?,” OFX; https://www.ofx.com/en-us/money-transfer/telegraphic-transfer/
6. “Let’s master the meaning and use of TTS,” GemForex Asia; https://gforex.asia/en/column/20170925
7. “Receiving an incoming international wire transfer: The basics,” Transferwise; https://transferwise.com/us/blog/how-to-receive-international-wire
8. “Wire Transfers: What Banks Charge,” NerdWallet; https://www.nerdwallet.com/blog/banking/wire-transfers-what-banks-charge/
9. “TT payment: Meaning and definition,” TransferWise; https://transferwise.com/au/blog/telegraphic-transfer-meaning
10. Difference between Letter of credit and Telegraphic Transfer, LinkedIn Learning; https://www.slideshare.net/MuzammelAnanda/difference-between-letter-of-credit-and-telegraphic-transfer-tt
11. “TT payment: Meaning and definition,” TransferWise; https://transferwise.com/au/blog/telegraphic-transfer-meaning