From large multinational corporations to small mom and pop operations, business has gone international these days. Thanks to the internet, free trade deals, and improvements in the global supply chain, money is ripping around the globe like never before.
However, this has created a problem for business owners, as the foreign transaction fees and the wide spreads charged by banks made moving money a pricey proposition. Finance-minded entrepreneurs saw an opportunity in this unfair situation, creating enterprises that are now known as money transfer companies.
By offering advice to clients, tighter spreads, and refusing to charge foreign transaction fees, they gave business owners an alternative to the banks. Yet, some traditionalists remain skeptical. To them, anything related to the internet sounds like a scam. For others, their hesitance is rooted in a lack of understanding about how online money transfers work.
In the following paragraphs, we’ll address common concerns and explain how money transfer companies move cash from one end of the planet to the other.
Most money transfer companies are legitimate
Much to the chagrin of online entrepreneurs, the internet has allowed fly-by-night companies to thrive. The ease of registering a domain name and its anonymity of the web has made it a con artist’s paradise.
Because of this, many hesitate to use a money transfer site even if it appears to be legitimate. There is a (false) perception these sites are all unregulated; should something go wrong, potential customers fear they would have no legal recourse.
Fortunately, nothing could be further from the truth. There are numerous money transfer companies on the web that have been rigorously vetted by various governmental agencies.
I recommend only companies that are registered in jurisdictions that require adherence to regulations set out by bodies like the Financial Conduct Authority (FCA). The reasons for this are simple: their rules compel money transfer companies to keep client money separate, it saddles them with the burden of proof, and it mandates them to have funds available to clients by the following business day.
If that isn’t enough to convince skeptics, I would encourage them to use operators that move billions of dollars per annum. Any company that consistently puts up these numbers doesn’t get there by employing shady tactics.
For example, OFX transfers more than $10bn a year for major companies and individuals alike. If millions of large and small customers trust this company to transfer funds for them, it is extraordinarily unlikely that something malicious will happen.
From point A to point B: the anatomy of a money transfer
Some customers want to use a money transfer company to move funds internationally. However, the perceived complexity of moving their savings via the internet stops them from following through.
How does an online money transfer work anyway? It starts by filling out an application form. The customer provides information such as their name, address, and origin + destination account details. The latter account needs to be segregated and in the name of the applicant, as per regulatory requirements.
Once all required information has been received, the funds are sent to the money transfer company. They complete the transaction, exchanging the origin currency for the destination currency at a rate just above the wholesale rate given by banks.
This amount is then deposited in the customer’s account from the money transfer company’s branch in the destination country. This way, no funds cross borders, making transactions quicker and more efficient.
Money transfer companies better than bank wires for moving funds
Those who promote bank wires over the alternative fear change. After comparing usurious foreign transaction fees and the greedy spreads charged by established financial institutions to the competition, any objective observer would conclude online money transfer companies are the superior option.
Whilst scam sites do exist, all major cash transfer firms are registered in countries which subject them to strict regulations. Anyone considering using these services should be assured that their money is safe. In the rare event that capital gets misplaced, mechanisms exist to promptly repatriate it to the customer.
In summary, any business that needs to transfer capital to a subsidiary in another country can greatly reduce their foreign exchange expenses using a money transfer company.
The larger the sum that needs to be exchanged, the greater the impact that big spreads and foreign transaction fees have on the client. Those who find themselves in this situation can save hundreds or even thousands of dollars by switching to a money transfer company for their currency exchange needs.