The modern economy is globalized and borderless. Businesses partner with each other across borders, with exported and imported goods traveling long distances to get shipped to different countries and continents. How are these activities financed? 

The bloodstream of the global economy is the international banking system. Thousands of international money transfers are sent and received every day to keep global trade moving. These transfers happen not only between businesses but also between people – expatriates sending remittances to their families, parents supporting their children studying overseas, and hundreds of other purposes. If you are new to the concept and want to understand how it works, welcome to this guide that explores the backstage of international money transfers. 

What Is an International Money Transfer?

If we start from the basics, it’s worth defining international money transfers in their broadest sense. In simple words, it’s an act of sending money from one country to another using some financial institution or platform as an intermediary. The transfer may be done from one person to another (a P2P transfer), from a person to a business, between businesses (B2B payments), and from businesses to individuals (B2C payments). 

Not all banks or financial institutions can handle cross-border transactions. They need to be properly certified to complete such a transfer. The most popular processors of international money transfers include: 

• Traditional banking processors, such as SWIFT and SEPA. 
• Commercial services, such as Western Union or MoneyGram. 
• Online and mobile services like PayPal, Revolut, Skrill, and Wise. 
• Cryptocurrency transfers via popular blockchains, such as USDT or Bitcoin. 

The availability of international money transfers is critically important to all market players, from individuals to businesses. Sending money abroad is a vital instrument for remittance payments, financing travel, and international education for individuals. Businesses can pay remote workers and develop the gig economy, finance their exporting and importing activities, and outsource vital tech tasks. State governments also benefit from international money transfers because they can provide FDI to other countries, issue foreign aid and disaster relief finance, and facilitate global trade. 

‍

What Is Fiat Money?

When it comes to international money transfer discussions, fiat money comes to the fore as the primary medium of financial exchange. Fiat currencies like USD, EUR, and GBP are widely accepted across the globe due to their stability in terms of value. They have been used by governments, banking institutions, and businesses for many decades, thus being associated with lower currency exchange risks. Therefore, the fiat money meaning remains significant in international finance, as this type of money remains the globally established standard of cross-border exchange. 

What Is Remittance?

Another important dimension associated with international money transfers is the global remittance sector. Let’s define remittance to clarify why it is so important for the international financial system. In simple terms, remittances are transfers from individuals to individuals, typically conducted by expatriate workers providing for their families at home. Since remittance payments are usually made from more developed countries to developing ones, they act as vital support for national economies and aid the financial inclusion of many marginalized populations. 

Simple, convenient, and affordable remittance payments are critically important for the reduction of poverty in developing economies. They also boost foreign currency reserves in the receiving countries, as many transfers are made in EUR or USD and are further converted into national currencies at the destination point.

This way, they act as an instrument of banking access by encouraging local residents to open bank accounts or install mobile banking apps to receive their relatives’ financial aid. 

‍

Electronic Fund Transfers (EFT) vs. Wire Transfer: What’s the Difference?

When we talk about sending money across borders, there are several options for completing an international money transfer. In most cases, you will need to choose between an electronic fund transfer (EFT) or a Wire Transfer option. Let’s clarify what each of them means to guide you further. 

What is the electronic fund transfer meaning? In a nutshell, an EFT is a secure, low-fee transfer conducted via one of the EFT processors, such as ACH or SEPA. Wire Transfer, in turn, is a bank-to-bank type of transaction that takes place using the global SWIFT system. 

How long does an EFT transfer take? As a rule, the transfer may take from one to three days to process. Yet, for large sums, the EFT may extend to up to 5 working days, which is too long for urgent business transactions. 

So, let’s compare these two methods across the main parameters that a sender and recipient typically take into account: 

• Duration. An EFT usually takes 1-3 days to complete, but some transfers can take up to five days. A Wire Transfer is usually completed within 24 hours (1-3 days in rare exceptions). 
• Fees. The cost of EFTs is from zero to $5 per transaction. Wire Transfer fees range from $15 to $30 per transaction; they are usually fixed even for high-value transfers; the sender also covers currency exchange rates. 
• Safety. Both EFTs and Wire Transfers are secure; the latter is irreversible. 
• Relevant regulations. An EFT is subject to regulatory checks, though the Wire Transfer KYC/AML regulations are much more stringent. 
• Coverage. The majority of EFT providers offer limited geographical coverage. Thus, for instance, an ACH system works only in the USA, while SEPA covers European countries. Wire Transfers are powered by SWIFT, so they ensure global coverage. 

Based on this information, you may conclude that an EFT is the best choice for cases when you need to send a small sum of money, set up recurring payments, or cover regular payroll or subscription fees across borders. Wire Transfer is a more expensive option, so it doesn’t suit small-sum payments and should be used for high-value transfers, urgent business transactions, and other sensitive transfers requiring an added level of security. 

Common Fees in International Money Transfers

Every international money transfer comes with a fee that you have to pay for the processor’s services. Fees vary by processor and by transfer type, and one transaction may involve several fee categories at once. Thus, it’s important to read the fine print and choose the best currency transfer option for your needs after considering all fees and commissions involved. 

Let’s take a look at the fee types you should be ready to cover: 

• Transaction fees. This fee is charged by the provider for their service. It may be fixed (e.g., SWIFT) or percentage-based (e.g., Western Union). 
• Currency conversion fees. Many countries forbid the receipt of money in international currency, such as USD or EUR. The recipient gets the remittance payment in the national currency at the actual conversion rate. So, the conversion fees may be covered by the sender if they want their recipient to get a specific sum in the national currency or by the recipient at the moment of getting the remittance at a bank. 
• Additional fees. Other fees that are hard to factor in the transfer include the potential intermediary bank’s charges, the ATM withdrawal fee, or fees for credit card usage. 

Here is a comparison of several major providers of cross-border money transfer options in terms of their fee structure: 

‍

Choosing the Best International Money Transfer Service

With all these details and nuances of executing an international money transfer at your disposal, how do you choose the best service for your cross-border payment needs? We recommend focusing on the following parameters in the process of provider selection: 

• Speed of transfer. 
• The cost structure of your banking entity. 
• The destination country to which you’re sending money (not all transfer providers offer global service coverage). 
• Security. 

With so many fees associated with traditional financial channels, you may find it necessary to consider cryptocurrency options in the process of searching for the best currency transfer. Though this method is relatively new and unexplored in business and governmental money transfer areas, it is a very popular option for P2P transactions. The guaranteed speed, affordability, and transparency of blockchain-powered transfers have made this method much more efficient than the old banking mechanisms.

‍

‍