Cross-border remittances are costly transactions. On average, the charge for sending $200 is $14. The $14 is a combination of fees (including charges from both the sender and recipient intermediaries) and the FX margin. As seen, the charges alone take up 7% of the total amount sent.
There are many remittance service providers you can choose from, but cost-savings and trustworthiness should be two important factors you take into consideration.
In this article, we will be discussing some common hidden costs when using remittance service providers (whether traditional remittance houses, banks or Fintechs).
1. FX spread
FX spread is the difference between a forex broker’s sell rate and buy rate when exchanging or trading currencies. The wider the spread, the higher the cost is for you. Traditional banks and remittance houses often habitually charge a premium on their FX spread, which makes every remittance through them more costly.
2. Transfer fees – Handling Commission
Commission fees are surcharges that traditional banks and remittance houses levy on the transaction amount that is transferred overseas. The range for handling commission usually ranges from 0.125% onwards.
3. Transfer fees – Cable Charges
Conventionally, your beneficiary bank will impose a charge on the funds that you have sent. This charge covers the time and effort the bank needs to communicate with the receiving bank so that the transaction process can be completed. This means your beneficiary will not receive the full amount that you have sent. The insidious thing about these charges is they are not revealed and the full amount of charges are only known after the deductions have been made.
4. Transfer fees – Agent Bank Charges
Agent bank refers to the bank on the receiving end of your transaction in the context of overseas money transfer. Similar to how your beneficiary bank imposes a charge, the agent bank also charges a fee to accept the transaction.
All these hidden costs can accumulate, and add to the cost of the transaction. There are various options beyond the traditional route such as banks, and the bank you routinely opt for doesn’t need to be the best available one for your remittance transaction.