How Online International Money Transfer Works?
Online Money Transfer Systems vs Banks
Before people jump on the international money transfer service hype, and decide against using their banks for online money transfers and online payments, they often want to know how international money transfer works, and whether online money transfer systems operate in the same fashion as do banks.
In this brief article we will touch the most crucial aspects of using an online money transfer service and focus on how these innovative foreign exchange companies
, as do money sending apps in Australia
, compare against banks when it comes to payment speed, online systems and how the money transfer process actually works.
What Are Online International Money Transfers?
Any international money transfer where you send money from one location across borders to another location which is done online, whether via a computer or a mobile phone, would constitute as an “online international money transfer”, regardless of the medium (and yes, even transferring cryptocurrency online would be considered that if the sender and the recipient are in different countries). The vast majority of the instances of sending money overseas are done online nowadays. The exceptions to that would be immigrants remitting cash overseas at a branch of a company like Western Union or MoneyGram, elderly people who may feel uncomfortably transacting online, and outdated banks forcing customers to make the transfer at the bank’s branch, rather than online.
Why Consider Using an Online Money Transfer Service Against Banks
There is a growing level of dissatisfaction when it comes to using banks for online money transfers from Australia. Popular reasons include less-than-friendly online banking systems, certain things you can’t do through a bank (like wiring money internationally online when you’re out of the country), and above all – costs. Australian banks charge around 2.5-3% per transfer in addition to the direct money transfer fees, and that’s only if you know how money transfer fees work, and can work out exactly how much you’ll pay. Banks are notoriously unfriendly and they are even unfriendlier when it comes to online money transfers abroad.
Online Money Transfer from Australia: Alternatives
The best money transfer companies in Australia
all have an online money transfer functionality, and most of them have fully functional apps. You get better currency rates, pay no fees, and get a higher quality service (for large online money transfers, you can also speak to a currency dealer).
How Online Money Transfers Utilise Banks
For starters, it should be clear that online money transfer companies rely on their bank’s infrastructure. In other words, they use their bank accounts to handle many of their customer trades, in a similar fashion in which a customer would book the trade directly through his bank
. While such services are normally cheaper (they buy currency from the bank too, just at much better prices, and that saving is rolled on to the customer using them), in many cases the online money transfer speed
will be similar to what it would normally take with a bank simply because they actually USE the bank to transfer funds internationally online.
For example, if you need to transfer money from Australia to NZ
, then your provider may simply book a “mirror trade” with his bank based on your indications. You pay the online money transfer service, they pay their bank, and keep some of the margin or fees they took from you. That’s how money transfers basically
work but in some situation, online money transfer providers can facilitate a faster trade AND offer even more savings on related fees/costs…. by using their own FX reserves and own global banking network.
How Online Money Transfers Also Utilise Their Global Bank Account and Debit/Credit Internally
trades with some
online money transfer methods go through directly through their own bank accounts, there are some
trades that will go through without the bank’s involvement. This is how it works – an online money transfer provider will receive your trade, and after its funded, that provider will debit its bank account in the sending country (where money is outbound from) and credit an account in another country, and then pass the funds on to the recipient. The way it works is that the funds are never actually “transferred” through banking protocols (i.e. SWIFT
For example if you want to transfer money from Australia to USA
through an online money transfer company like Wise
(or a Wise-like alternative
), it is likely that the transfer will go through in a short time, as short as minutes
. That is because Wise have such large foreign currency reserves and vast global banking infrastructure across the world, that the way money transfers work with them is that would simply move the amount of money transferred from Australia from their Australian bank account (owned by their Australian entity Wise Australia Pty
) into another subsidiary of theirs in the USA, and from their US USD account credit the recipient with a domestic transfer. As Wise offers dual currency bank-like accounts, if both the sending party and the recipient have an account with Wise, the transfer could be instant, similarly to how money transfers with PayPal or Skill would work.
Who do Smaller Online Money Transfer Brokers Rely on for an Online Money Transfer System?
Smaller online money transfer services may not have the liquidity described above, but they are using online money transfer networks like Currency Cloud. Currency Cloud is a third party infrastructure that many money transfer companies use, and enables them to onboard customers from all countries in which their third party is regulated, make transactions etc.
There are many online international money transfer companies using such third party infrastructure with the formerly mentioned Currency Cloud being the #1 provider. This enhances the smaller providers to act like the bigger players in this market and transact funds without using SWIFT, as described in the previous section.
Conclusion: Money Transfer Explained
We hope to have explained in simpler terms how is money transferred from one country to another and from one bank to another, but also why are money transfers not instant in some cases. The involvement of banks and why the specialised foreign exchange
companies can provide the best rates for international money transfers.