Banks are losing their market share on large-value money transfers

ByRichard C. Sloan

Mar 31, 2022

For a very long time, the big banks seemed almost untouchable. They monolithically dominated and held a monopoly on almost everything related to finance, from credit cards to large money transfers to international payments. But times are changing and regularly but surely, a multitude of innovative companies are now chipping away at their market share.

In this article, we’ll see how banks are no longer the only way to handle large international money transfers or overseas business payments. We take a look at the best way to transfer money overseas affordably and will also feature innovative companies and startups that can better help customers transfer large amounts overseas.

Who transfers large amounts abroad?

We live in an increasingly cosmopolitan world. The march of globalization has been relentless and our lives and economies are more connected than ever, no matter where you live. As a result, more and more money is flowing across borders and in foreign currencies than ever before. You do not believe me ? Let’s take a look at some of the people and organizations that find themselves making large international payments at various times.

If you ever decide to book a luxury villa in Mexico for vacation (and there are some wonderful ones in Tulum), you may end up paying over $1,000 to the owner’s bank account in Mexico City (unless you book via the platform which will increase the price). Although $1,000 may not seem like such a large amount to some of you, your bank will treat it as such.

Most people who move to a new country still have ties to their home country. Whether it’s family, business, or just the bureaucracy of citizenship, sooner or later every expat will find themselves transacting in their former country. They may want to send money home to family, or they may want to transfer their pension pot to their new bank (a UK pension goes much further in South East Asia than it does in Southend-on -Sea…).

It probably goes without saying that companies deal with the international on a daily basis. Many companies serve several foreign markets and others simply “outsource” some of their activities to reduce costs. As such, large companies need to be very careful about when and to whom they transfer money around the world.

  • Small and medium enterprises

But it’s not just companies doing this. Nowadays, even the smallest SMEs can find themselves doing business abroad. For example, a boutique restaurant might source wine directly from an Italian winery, or a cutting-edge fashion designer might get a bulk order from a store in New York. This means sending and receiving large sums of money abroad.

While many online sellers deal with small, piecemeal transactions, some offer wholesale and others simply buy their wares in bulk from cheaper markets like China. As a result, even DIY Etsy and eBay sellers are making large international payments in 2022!

Use banks to make large international money transfers

I understand. If you need to send money abroad, your instinct is probably to go through your bank. After all, all you need to do is get the recipient’s details, call your bank’s international payments team and they’ll take care of it. In fact, some of you might not even know there are alternatives.

But, whenever you use the banks for that, they use it as an opportunity to bank. When banks handle an international payment, they charge transaction fees. In the case of UK banks, these charges range from the slightly annoying £2.75 with HSBC, to the insane figure of £15 via Lloyds Banking Group.

In the US, fee levels tend to be a little more complicated with more variances depending on the specifics of the transaction. However, Bank of America charges $45 to make a non-USD international payment (and most international payments are inherently non-USD) and the aggregate average is around $40.

Apart from the initial transaction fees, banks also like to make money on the exchange rate. For example, if you need to send 5,000 euros to a relative or business partner in Naples, you can expect your bank to change or “sell” you the euros using the current market rate of 5,497. $.27. However, they will not offer this and instead use their own “marked up” rate which allows them to make a small profit. The bank’s rates change daily, but it’s not uncommon for them to ask for a 3-5% markup, which could mean they’re “charging” you $5,662.27 for that €5,000, and then adds $40 transaction fee on top!

Finally, the recipient’s bank will also charge transaction fees, and depending on the agreement you have with the sender, they may expect you to pay these.

Besides being expensive, the bank’s service also leaves a lot to be desired. First, many banks don’t allow international payments online or through the app, and instead insist that customers visit or call a branch, which can mean hours wasted in transit or waiting. Also, the SWIFT international banking system is extensive and used to be quite impressive, but these days it seems rather slow. Indeed, some international payments made via banks can take several days to reach the recipient’s account.

What is the best way to transfer money overseas

As we said at the start of this article, the good news is that the days of banking hegemony are over and in these exciting times there are far better ways to send or receive money. money from abroad.

  • Business FX Services – Ideal for overseas business payments

Any company that deals internationally has the opportunity to look for a specialized service dedicated to fx (Foreign Exchange) business. Commercial currency providers can help businesses maximize their foreign exchange transactions by providing personalized and tailored advice on a “per transaction” basis. Many business foreign exchange services also offer currency brokerage services and can sometimes help a business get a “better than” market rate on large international transfers.

  • Online Money Transfers – Ideal for high volume money transfers

Online money transfer services such as Wise or others listed on offer fast, cheap and efficient service when it comes to international money transfers. They come into their own for large international transfers. Fees are usually expressed in cents or pence rather than pounds or dollars and transfers take seconds rather than hours or days. The only downside is that the exchange rates are not always the best available. Ultimately, these services are great for small amounts or laypersons rather than businesses.

  • Multi-currency accounts – Ideal for expats

Multi-currency accounts allow the account holder to maintain a balance in multiple currencies. For example, an American expat living in Thailand might have both USD and Thai Baht balances. The advantage is that they don’t have to worry about fluctuating exchange rates or losses due to banks’ foreign exchange “mark-ups”. Of course, if an account holder wishes to send either currency internationally, transaction fees will still apply.

Final Thoughts

As you have seen, transferring large amounts abroad and making large international money transfers is quite common. The good news is that overseas business payments

and large money transfers no longer need to cost 3-5% with available alternatives – by being careful and researching the best way to transfer money overseas, transaction costs could be lower than the price of ‘newspaper.

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