Cross-border payments (or International Money Transfers) are confusing and expensive. We are bombarded by ‘hidden charges’ and ‘transaction fees’. On top of that, the high exchange rate markups make the whole experience even more unappealing.
It sucks that most people are often unaware of any other viable alternative. So they tend to stick to what they know best (banks, ew.) – even if they don’t make the best financial sense. So it’s about time for us to shed some light on this topic:
What is SWIFT? 🏃
You can’t talk about international money transfers without first understanding SWIFT.
SWIFT stands for Society for Worldwide Interbank Financial Telecommunications.
It is a messaging network that financial institutions use to securely transmit sensitive payment information and instructions through a standardized system of codes. SWIFT assigns each financial organization a unique code that has either eight characters or 11 characters.
Does SWIFT help me transfer funds? 💶💵
No, SWIFT is simply a messaging system. It does not hold or transfer any funds.
Who uses SWIFT? 🤪
A range of institutions uses the SWIFT network in order to securely facilitate money transfers. These can include but are not limited to:
- Brokerage Institutions and Trading Houses
- Clearing Houses
- Treasury Market Participants and Service Providers
How is SWIFT used in international money transfers? 🤨
Institutions send payment orders between institutions’ accounts, using SWIFT codes.
More often than not, sending money overseas involves intermediary banks. These are banks which are acting on behalf of the beneficiary bank. Most of these banks are affiliated with the SWIFT network.
We wish banks would do this for free! There are two main components that make up the fees when it comes to sending money overseas. These are SWIFT charges and transaction fees. This can make international money transactions expensive (as heck!) as often times, each intermediary bank involved will impose steep fees to consumers. For example, Malaysian banks often charge anywhere from RM15 to RM25 in transaction fees and RM70 to RM100 in SWIFT charges.
Who pays for these fees? ☹
If the consumers are sending funds through traditional banks, these charges are usually borne by either the sender or recipient (or even both).
However, recently other industry players (like us) have popped up in the market by offering something different to the user -one where users don’t have to bear these fees. How this typically works is that these companies will transfer funds to the destination countries in bulk and incur these hidden fees once. They will then distribute smaller sums as normal local bank-to-bank transfers when instructed by their customers – avoiding the hidden bank fees for each of these smaller transfers.
So, are there any other alternatives to the SWIFT system? 🤩
With the advent of technology and a vibrant global FinTech industry, many challengers to the SWIFT system are popping up everyday! For example, the Ripple Blockchain network is giving the SWIFT system a run for its money. Heck, we made the news recently for being the first in Malaysia to complete payments using the Ripple network.
But more on blockchain and cross-border payments in another post. 😉
What are your thoughts on the fees imposed for cross-border payments? Let us know in the comments below!
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