Whether it’s a global business payment or a personal remittance, money is sent abroad for a variety of reasons. However, unlike a domestic bank transfer, this process isn’t free for the customer. We explain why international bank transfer fees are charged and what factors impact the cost.
What is an international bank transfer fee?
International bank transfers are rarely straightforward transactions. Intermediaries are required to get the funds from A to B (or even from A to B to C to D) and a number of processes need to be completed in order for the money to arrive safely. As a result, banks and other payment providers are likely to charge a fee to customers making international money transfers. This covers the cost of payment processing, foreign exchange, bank deductions and other charges. In addition to the sender having to pay for these services, the beneficiary recipient is often charged a fee for receiving the money overseas.
What makes up the cost of an international bank transfer fee?
Foreign exchange rates
Foreign exchange conversion makes up a significant part of an international bank transfer fee. This will not be the same as the interbank exchange rate because individual banks and other money transfer services use different rates when buying and selling currency in order to profit. Effectively, the customer is paying a currency conversion charge on top of the interbank rate – either a flat fee or a percentage of the total amount being received. The rate at the time of the transaction will determine how much the sender pays and the beneficiary receives.
There are additional costs for senders and recipients using SWIFT, which is the network behind most international money transfers. Transfer and recipient fees could be charged for SWIFT wire transfers through large banks, as well as a SWIFT tracing fee for those who want to track the progress of the transaction.
On top of that, there can be additional discretionary costs that will be factored in, such as bank overheads, and other processing fees that are rarely disclosed to customers.
What factors impact the cost of international bank transfer fees?
Time and speed of transaction
The time of the transfer plays a big part. As previously mentioned, the foreign exchange rate changes and can increase or decrease depending on when the sender makes the transaction. International bank transfer fees are also impacted by how soon the beneficiary needs the money. Overseas payments typically take between three and five days, but extra charges will be applied if the parties involved need to speed up the transaction, such as by using a same-day option.
Currencies and countries involved
Another factor to consider is the currencies involved, as rates will vary depending on which pair of currencies are being processed. Certain locations are also more expensive to send funds to than others, particularly countries lacking modern banking infrastructure and financial technology. And the amount of money being transferred may also influence the fees — the more funds being sent, the better the rates are likely to become.
The payment provider
Ultimately, the biggest factor impacting the cost of international bank transfer fees is the bank or payment provider being used. Every financial institution has different capabilities that will influence the price of its services. For example, technological limitations may mean a bank has no choice but to rely on legacy systems that are likely to be more expensive. Other banks could be understaffed or operate in an under-resourced area — it’s possible that a transfer between two EU banks with high fees will still be cheaper than a transfer between low cost banks in countries such as Moldova and Nepal.
How much does an international bank transfer cost?
Given that there are so many determining factors, there is no such thing as fixed international bank transfer cost. Country, currency, time and speed of transaction must all be taken into account, with rates varying between providers according to their unique capabilities. Therefore, the only way to know how much an international bank transfer costs is to contact the relevant payments provider and find out what they charge to facilitate a specific transaction.
Who offers the cheapest international money transfer fees?
As it’s impossible to give precise price estimates, it’s also impossible to pinpoint which provider offers the cheapest service. This is why it’s so important for consumers and businesses alike to research and compare financial institutions offering cross-border payment services. If not, they could be overpaying to make overseas transactions and these fees could significantly add up — especially for global businesses and others who send money abroad regularly.
This is also something banks and other financial institutions need to consider. The international payments industry is extremely competitive at the moment, and customers won’t be loyal to their bank if they can find a provider offering the same services for a lower fee. In order to gain a competitive edge, banks and financial institutions must find agile technological solutions that enable them to streamline their international payment processes and bring down the costs. This can be best achieved by collaborating with fintechs that have the freedom and capacity to provide them with these necessary functions.