International Money Transfer – Jargons Decoded

To find the most efficient way to send money abroad, it’s important to understand the exchange rates, speed of transfer, fees, and a few other things.

If chosen carefully, the international money transfer services can be fast, convenient and cost-effective. But if you aren’t careful, you may end up paying extra for the convenience of a quick money transfer; which is not always necessary and neither is the best option for regular or large payments. Fees charged for sending money abroad can, at times, be high. So, it’s worth investigating different providers to get the best deal.

This guide will help you to understand the jargons involved in sending money abroad. A clear understanding of the terminologies will help you in choosing the best option to transfer money abroad.

Ways To Send Money Abroad

There are different ways in which you can transfer money abroad:

Foreign Currency Demand Draft: Foreign Currency Demand Draft are physical paper drafts which can be carried physically to an international destination or mailed/couriered to the beneficiary abroad. These drafts can also be encashed at a correspondent foreign bank with which the issuing bank has an agreement.

Wire Transfer: Wire transfers are money transfers that take place between two banks. Here, the money from the sender is directly transferred to the beneficiary’s bank account abroad. Wire transfers are known as the most convenient way to send money internationally. This method is probably the most secure and hassle-free way to send money abroad.

Telegraphic Transfer (TT): Wire transfer – previously known as Telegraphic transfer is an electronic method of transferring funds. Here, cable services or telegraphs are used to send money from one bank to another. Telegraphic transfer was a popular method for overseas payments in the earlier days. Today, telegraphs are not used for transfers but the name still remains in some parts of the country.

A telegraphic transfer (TT) is an electronic method of sending money utilized primarily for overseas wire transfers. TT is most commonly used in reference to Clearing House Automated Payment System (CHAPS) – a U.K.-based system that facilitates large British pound-denominated fund transfers.

Typically a telegraphic transfer is completed in 2-4 business days, depending on the origin and destination of the money and any currency exchange requirements. TT is usually expensive because of the fast nature of the transaction.

Rates

International money transfer involves numerous nomenclatures for rates:

Sell rate: The selling rate is the price at which a financial institution would sell the currency. In other words, it’s the rate at which foreign currency is sold in exchange for local currency. The selling rate is also called the ‘ask’ and it basically reflects the price at which the market is willing to sell an asset. Tourist rate and Holiday money rate are other terms used for a sell rate. The selling rate is mostly higher than the buying rate.

For example, if you are planning to head to Paris, you would exchange Indian Rupees for Euros at the sell rate because that is the rate at which the money changer is selling Euros to you.

Buy rate: The buying rate is the price at which a financial institution would purchase the currency. In other words, it’s the rate at which financial institutions purchase foreign currency back from travelers in exchange for local currency. The buying rate is also called the ‘bid’ and it reflects the amount that the market is willing to pay for a currency. The buying rate is mostly lower than the selling rate

For example, if you are returning from Paris, you would exchange your Euros back into Indian Rupees at the buy rate.

Spread: Spread rate is the difference between the buy and sell rates offered by remittance service providers. This spread between buying and selling rates is where financial institutions make a profit.

Mid-market rate: The mid-market rate is a price in between the buying and selling price of currencies at any time. As the buy and sell rates depend on the demand and supply of a currency, the mid-market rate constantly varies. The mid-market rate is known as the most transparent and fairest exchange rate. This means that if you want to send money abroad, you want to get the mid-market exchange rate. It is also sometimes known as the interbank or middle rate.

Commission: Commission is the fee that forex providers charge for exchanging currency. It mainly comprises of two different fees:

1. Markup Fees: A markup fee is an amount that financial institutions charge their customers when a foreign currency transaction is made. This is the difference between the interbank rate and the exchange rate offered by the customer. Markup fee is also known as ‘currency conversion fees’. Some financial institutions add the mark-up fee to their sell-rates. So, you must do your research before choosing where you send money abroad from.

2. Transfer Fees: Most financial institutions charge a transaction fee for every International Money Transfer Transaction. This fee may vary among different institutions.

Foreign Exchange Rates

Foreign Exchange rate is the price at which a currency is exchanged for another. There are two types of exchange rates:

Locked-In Rates: You need to set up a “forward contract” to lock in the currency exchange rate. Locking-in fixes the current exchange rate. In the future, when the exchange rate fluctuates, you can exchange at the rate you’ve locked in. While transferring money abroad with locked-in rates, the fixed rate is applied at the time of converting the money to overseas currencies.

With locked-in rates, you will know the exact amount that the recipient will receive. It’s a useful option when you have a fixed commitment abroad like a property purchase, mortgage, loan EMI, etc.

Indicative Rates: Unlike the locked-in rate which is fixed, the indicative rate fluctuates according to supply and demand. The exchange rates fluctuate constantly depending on the changing market conditions. Usually, the central bank or the government don’t interfere in deciding the price of a currency. However, the central bank sometimes participates in reducing day-to-day fluctuations in the exchange rates. As the rate fluctuates in such cases, the amount that the recipient receives may vary depending on the market.

Indicative exchange rates are also called floating exchange rates. There are two types of indicative rates:

1. Free Float: Free float or clean float rate is determined by the currency’s force of demand and supply with no intervention from the government. There is a great risk of the currency becoming volatile under free float exchange rates.
 

2. Managed Float: In managed float or dirty float rate the central bank and/or the government contribute to setting the exchange rates. Here, the risk of currency volatility is comparatively less.

Transfer codes

To send money abroad, you’ll need some of the following codes:

BBAN: The Basic Bank Account Number (BBAN) is a unique combination of digits that recognizes individual bank accounts from specific banks within a country. It can be up to 30 characters long (length is determined by the country). BBAN forms the basis of an IBAN.

IBAN: The International Bank Account Number (IBAN) is a standard international numbering system used for identifying an overseas individual bank account. While a BBAN can sometimes be used in the absence of an IBAN, an IBAN is the most secure way to make sure the money reaches the correct account as soon as possible.

IBAN contains unique information that identifies the recipient’s country, bank, and account details. An IBAN is made of up to 34 characters – the first two-digit is the country code, two check digits, and then the BBAN, which is made of up to 30 characters. While the number of letters and digits may vary between countries, the format within a country remains standard.

BIC/SWIFT code: The Society for Worldwide Interbank Financial Telecommunication (SWIFT) exists to help banks within its network communicate securely among themselves. SWIFT codes are eight (8) to eleven (11) characters long. It contains all the information required to identify the exact bank the money is going to. SWIFT codes are used to ensure that you send money to the right country, first of all, then it also pinpoints the bank along with the branch. It is also known as Business Identifier Code (BIC). You may be asked for your recipient’s SWIFT code, BIC, or BIC/SWIFT code – all of them are the same thing.

The difference between IBAN and BIC/SWIFT codes

While both IBAN and BIC/SWIFT serve a similar purpose – what differentiates them is that the BIC/SWIFT code identifies the bank while IBAN identifies an individual account.

NCC: Some banks don’t provide an IBAN and provide a National Clearing Code (NCC) instead. It is required for sending money abroad to bank accounts that do not have an IBAN. They are also referred to as ‘Federal Wire Numbers’ or ‘Routing Code’. You won’t need to submit an NCC if you have an IBAN or SWIFT/BIC.

Bank Codes: Bank codes are numerical codes that are assigned to every bank by a country’s banking body or central bank. They are known by various names:

India – IFSC (Indian Financial System Code)

Canada – Transit Number

USA – Routing or ABA Number

Australia/ New Zealand – BSB Code (Bank State Branch)

Hong Kong – Hong Kong Branch Code

UK – Sort Code

Bangladesh – Bangladesh Branch Code

Singapore – Singapore Branch Code

Understanding the jargons with an example:

Jon Snow has to make an international money transfer to Australia. He has to send a total of Rs. 5,00,000. He does his research and finds out about HOP Remit. He believes that he’ll get the best rates at ‘HOP Remit’ and goes ahead with them. Read along to find a breakdown of the rates, fees, and codes involved in going through with the transfer:

Note: With most remittance providers, the fees will be Rs. 7,000 – Rs. 9,000 and the recipient will end up receiving AUD 8,890 – AUD 8,863. HopRemit lets you save up to Rs. 9,000 on extra fees.

Codes and documents that Jon Snow will require: (This example only involves codes and documents required to send money to Australia)

1. Beneficiary’s Bank Name.

2. Beneficiary’s Swift Code.

3. Beneficiary’s Routing number.

4. Beneficiary Name and Address. (as provided to the bank).

5. Correspondent Account number.

6. Remitter’s Name.

7. Remitter’s Account Number.

8. Remitter’s purpose of transaction with KYC.

9. Form cum declaration with signature.

10. Valid passport.

11. PAN.

12. KYC documents.

Apart from this KYC details of the sponsoring company (if any) would be required as per RBI guidelines.

Once Jon Snow has submitted all of the above documents, he can initiate the transfer. After HOP Remit receives the funds, wire transfer instructions get processed immediately and money gets credited to the recipient’s account within 24 hours.

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Conclusion:

While choosing the best way to send money abroad, a little planning and research can go a long way. You need to be well informed to find the best mode for sending money abroad. And we hope this guide helped you to the fullest.

Send money abroad easily with HOP Remit

HOP Remit is designed to remit money in a paperless and convenient manner while sitting in the comfort of your homes. Send money abroad with ease and confidence – offering low cost and speed of a FinTech, and the peace of mind and security by being backed by a global bank.

HOP Remit offers real-time exchange rates and provides a full breakdown of the costs. With HOP Remit, all of this information is available upfront so that you have a clear understanding of the total cost of your international money transfer.

Once you’ve set up your HOP Remit account, just enter the amount you would like to send, the recipient’s bank details, and currency. When this is done, HOP Remit shows you the exchange rate and fees before confirming your transaction. Also, if you have any doubts, our support executives are available 24*7 to help you via call, chat, or WhatsApp.