How international wire transfers work
Wire transfers are a common method of sending money both domestically and internationally. The payment method plays a crucial role in today’s global economy.
This article will explain how wire transfers work and assess the pros and cons of wiring money. It will then look at some alternatives that may be more efficient and cost effective for international businesses.
What is a wire transfer?
A wire transfer is a method of electronically transferring money between people or businesses. It can also be known as a telegraphic transfer or electronic transfer of funds.
When money is wired, it travels through a network of banks. The process is secure but relatively expensive due to fees charged by each financial institution the money passes through.
How wire transfers work
These are the several steps involved in carrying out a wire transfer, whether domestically or internationally:
Sending: The sender can initiate a wire transfer either online, in person at a bank branch, or via a mobile app. They provide information about the recipient’s bank account and the transfer amount.
Verification: The sender’s bank or financial institution verifies the sender’s identity and checks they have the necessary funds.
Processing: The sending institution debits the sender's bank account for the transfer amount, along with any associated fees. The transfer request is then transmitted to the recipient's bank through a secure system.
Intermediaries: Wire transfers may pass through intermediary banks en route to the recipient's bank.
Receiving: The receiving institution receives the funds and credits the recipient's account with the transferred amount.
Types of wire transfers
There are different parameters to consider when sending domestic and international electronic transfers.
Domestic wire transfers are relatively simple. Most domestic banks have a direct correspondent relationship with each other. This means that the wire transfer can be handled directly between the sender’s bank and the recipient’s bank, which can be easily identified by its routing system. Both banks can charge fees for handling the transfer.
International wire transfers are more complicated, slower and involve additional costs. As well as the recipient’s bank account details, the sender needs to provide the recipient bank’s SWIFT code, also called a BIC (Bank Identifier Code). SWIFT (short for Society for Worldwide Interbank Financial Telecommunication) is a global network that ensures international wire transfers reach their destination, with standardised codes to facilitate communication.
Because some banks don’t have a direct correspondent relationship, intermediary banks may be used to help route international wire transfers. They help facilitate the transfer and each one may charge a fee for these services.
A further consideration when sending an international wire transfer is currency conversion. This can add extra transaction fees to the cost of wiring money, and banks usually charge a relatively steep markup on the interbank foreign exchange rate.
Domestic wire transfers usually take 1-2 business days, international wire transfers usually take 2-5 business days or more.
Costs of wiring money
There are several costs to consider when wiring money domestically or abroad.
Transaction fees: These are charged by both the sender’s bank and the receiver’s bank, as well as any intermediary banks. These fees often increase when sending money across borders.
Exchange rate margins: Banks usually charge a higher foreign-exchange rate than the standard interbank rate. This hidden markup may be difficult to calculate before sending money internationally, which adds complications to financial planning.
Tips for sending money internationally: Airwallex offers a faster and more cost-efficient alternative to traditional wire transfers, enabling businesses to send instant payments around the world via local payment routes at market-leading rates.
Risks and Safety Measures
Wire transfers are generally considered to be a secure method of transferring funds. However, there are some associated risks:
Scammers can convince you to wire money by impersonating legitimate entities.
Thieves that gain access to your account may be able to initiate wire transfers without your consent.
Errors could result in funds being sent to the wrong destination.
Hidden costs can result in problems when they are not factored into financial planning.
To mitigate these risks, you should:
Always verify the identity of the recipient.
Double-check all account details.
Monitor your accounts for suspicious activity.
Keep your personal and financial information secure.
Understand the fees and exchange rate margins associated with the transfer.
Disadvantages of wire transfers
Traditional wire transfers require manual processes which may not suit businesses that need to manage payouts to multiple suppliers and contractors around the world at scale.
Wire transfers are also a relatively expensive and inefficient method of sending money internationally, they can take up to five business days to clear and may involve hidden costs that are not transparently communicated by the financial institutions facilitating the payment.
Manage money globally with Airwallex
Airwallex is a global payments and financial platform with its own proprietary payments network. Airwallex enables businesses to manage global money movement efficiently and cost-effectively.
Payout to 150+ countries and regions in 46+ currencies.
Make high-speed transfers to 90 countries via local payment routes.
Enjoy market-beating foreign exchange rates no matter the transaction size.
Use batch transfers to send funds to up to 1,000 recipients around the world in one go across countries, currencies and transfer methods.
Manage each step of paying an invoice - from uploading and approving bills to making payments - within the Airwallex platform with Bill Pay.
Customise transfer approval workflows for your business based on specific transfer amounts.
Connect Airwallex to your accounting software to automatically reconcile transfers and close your books faster each month.
Businesses that wish to programmatically manage global transfers can leverage Airwallex Payouts to automatically deploy payouts to thousands of suppliers, employees and other business partners around the world quickly and cost-efficiently.
Airwallex exists to help companies around the world unlock new opportunities and grow without limits. Our global business accounts, powerful payment processing, and payout solutions save you time and costs as you grow.
Ready to take control of your global money movement and future-proof your business for global scale? Switch to Airwallex today. Click here to get started.
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