All of us have heard the term wire transfer being thrown around in fancy movies and shows. Wire transfer is one of the most popular methods of moving money from one place to another. In actuality, do you know what is wire transfer and how do wire transfer work?
Whether you’re sending the money to family overseas or concluding international business payments, it is vital that you determine if your money is in good hands or not. Wire Transfers are complicated and the more you know about them, the more your business will be safe from the risk of fraud. Businesses need to follow the best practices for wire transfers.
What Is a Wire Transfer?
To put it in simple words, a wire transfer is an electronic method of sending money from one person or business to another business. Using wire transfer, money is transferred from one bank to another one by filling out some basic documents. There are different types of wire transfers and you need to know what are the different types of wire transfers for most efficiency.
How To Send a Wire Transfer?
The easiest way to send a wire transfer is to visit your bank and fill out a form for a wire transfer.
Wire transfers can be of two main types:
Domestic and international wire transfers can further be broken down into two categories:
How do Wire Transfers Work?
Wire transfers are sent via networks that connect different banks or the same banks. You can think of the network as a middle man between the banks in an electronic money-sending transaction.
They don’t personally handle any money, but instead, they help in sending the international money order from one bank to another one.
The SWIFT network is the network that most banks use for these transactions. This means transactions can be completed without needing any intermediary bank.
Different types of networks can be used for international inter-bank wire transfers. Some common examples based on the region are Canada & U.S (ACH). Europe (SEPA). India (NEFT/IMPS/RTGS).
It is common knowledge that wire transfers are expensive, on average the domestic wire transfers cost $25 per transfer but the cost can reach up to $35.
International wire transfers are even more expensive, they can cost anywhere from $30-$80, at times can cost even more. The worst part is that the person who is receiving money will also have to pay a fee of $10-$15. Wire Transfers are so expensive because of multiple hidden fees that add up throughout the completion of the process.
What’s The Time Taken by Wire Transfers?
Wire Transfers are slowly becoming obsolete, because of the time taken to complete the process. Now that online transfers have become a norm, there’s no real need for wire transfers.
Domestic wire transfers are said to take just one day, however, they can take more than one business day. When it comes to international wire transfers, it can take 3-5 business days but there have been multiple cases of it taking more than a week. There is a difference in time because wire transfer goes through a domestic network as opposed to international networks that have to clear multiple compliances which adds more time to the process.
Add in the time difference and different opening times of banks in the destination country, it adds up extra hours/days until the transaction is completed.
Wire transfers are secure, but not completely secure. As wire transfers need the recipient’s bank account number and a network (SWIFT) code, any errors in entering this information can send the money to some other account.
It can take weeks to recover the money or you may never get it back. If your wire transfer has gone through multiple intermediaries, it may be almost impossible to get the money back. Fraudsters have made their way inside wire transfers, fraudsters can pretend to be a legitimate business and once you transfer money to them, it’s impossible to get the money back. There are some practices that you need to learn how to avoid wire transfer fraud.
Can Only Banks Send Wire Transfers?
Some companies that aren’t banks offer wire transfer services, one of the most used services is Western Union. Some people may think that just because they aren’t using a wire transfer, they’re using a better option, in most situations that’s not the case.
A non-bank-based wire transfer may complete faster, but it will surely cost much more. To make things worse, if you wire a payment to be collected in cash, fraudsters can use identity theft techniques to claim the money.
There are some non-banks or e-wallets that offer digital services where you set up your account which acts as an intermediary between the banks for your wire transfer. PayPal is a common experience that charges a very high percentage of currency conversion while making international payments.
Companies that rely on wire transfer fraud need to employ best practices to increase company-wide policies designed to increase employee awareness and prevent wire transfer fraud. Here are some of the wire transfer best practices: