What happens when an international money transfer is made? | FlashFX
Have you ever wondered what happens to your money after you arrange an international wire transfer? Where does it disappear to? And why is the final amount always less than you were expecting?
You set up an international money transfer. The money leaves your account. You wait. And wait… and wait. Then, days later, the money arrives. But it’s less than you were expecting.
Have you ever wondered what happens to your money after you arrange an international wire transfer? Where does it disappear to? And why is the final amount always significantly reduced?
Banks rely on the ill-named SWIFT (Society for Worldwide International Financial Telecommunication) for moving your money around the globe. The SWIFT system functions on intermediary banks, which is why the transfer process is so slow and opaque.
When the sending bank does not have a direct relationship with the bank to which the money is being transferred to, there is another institution that the funds need to pass through. This bank sits in the middle, and is referred to as an intermediary, or correspondent, institution.
It is not uncommon for multiple correspondent banks to be involved in a single international money transfer, adding unwanted delays and costs to the process.
Photo by Matthew Henry / Unsplash
Each bank takes a cut of your money along the way in the form of “correspondent bank fees”. These are not usually known at the time of transfer and are one reason that the final amount received is usually less than what was expected. Each intermediary institution can take a day or two to process your transaction before sending it on to the next bank in the chain. No wonder it takes days for your money to arrive!
Other fees that can come as a surprise to the sender are incoming fees charged by the receiver bank. These can range anywhere from $10-$35 and relate to processing an international wire as a deposit into your account.
In some special cases ‘extra services’ fees can be applied. These are added in situations where you need to cancel the wire after sending, require an investigation into the status of the payment and/or amending the wire details.
Photo by Freddie Collins / Unsplash
Sounds complicated, right? Well, it is. In a world where everything happens in an instant it seems crazy that international money transfers still operate on this archaic system. Most banks don’t even offer a way to track the status of your transfer. You are simply left in the dark for days wondering when you funds will arrive.
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