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Transfer Money Internationally: Review and Tips

When asking about “the best” way to transfer money, we realize that it is a very subjective question. The reason for that is simple: we are as consumers are quite unique in our behavior when it comes to handling money. Mexicans don’t behave like Indians and Chinese are very different from Filipinos. But even within each ethnicity, there are multiple distinct behavior patterns. One manager of an Indian restaurant has accounts with multiple digital providers and compares prices before each transfer while his colleague next door prefers to send cash via a Western Union agent.

Let’s start with a “big picture” – there are 250+ million consumers worldwide who regularly send money home and that number keeps growing fueled by ever expanded migration:

Source: https://www.weforum.org/agenda/2020/01/iom-global-migration-report-international-migrants-2020/

As a result, the transfer volume of remittances has exploded over the last decades:

Remittances volume 1970-2017

Great News if you are a consumer: over the last few decades, the prices for sending money internationally have declined dramatically, 30% in the last decade alone:

The USA is by far the world’s largest originator of international money transfers:

Source: Pew Research

The bigger recipient countries vary significantly in absolute vs. relative measure of incoming transfers on their economies:

Consumers of money transfers are in luck with a variety of choices and lavish promotions. They also get much better protection by the government from unscrupulous money transmitters and misleading advertising if you ever feel wronged. Overall, US consumers have relatively few complaints about money transfer services:

complaints-by-service-cfpb-august-2016
Source: http://www.consumerfinance.gov/data-research/research-reports/monthly-complaint-report-vol-14/

So you could make a relatively safe assumption that when sending money to India, Philippines, Mexico, or China with any top provider, consumers get a reasonable price and service. “Best” way to transfer money largely depends on the following factors:

  1. your personal preference among cost, speed, availability, and customer service
  2. the amount of payment
  3. method of sending and receiving money
  4. timing – shall you wait a month to time a higher exchange rate?
  5. for destinations with multiple receiving currencies, like China or Philippines, your receiver’s preference for the destination currency (renminbi, pesos, dollars).

Money Transfer Providers

Across remittance companies, there are 4 distinct groups:

  • Industry leaders (also known as incumbents): Western Union, Finablr, MoneyGram, Ria Money Transfer, Golden Crown. These companies were started in the 20th century, offer a variety of send-receive money transfer methods, but still derive most of their revenues from cash transfers.
  • Digital providers: Xoom, WorldRemit, TransferWise, Remitly, Azimo. By definition, these companies offer only digital transfers and were mostly started between 2006-2012.
  • Smaller offline providers – there are thousands of those all over the world offering cash transfers.
  • Banks – usually the largest banks offer such service (e.g., top 10% of the US banks), mostly via wire transfers.
  • Blockchain-based: includes a variety of cryptocurrency-based networks the likes of Bitcoin, Ripple, Libra. This area is still under experimentation at this point.
Last-year-volume-till-Q2-2021

Price-wise, each provider has its own unique approach depending on the corridor and send-receive method. There is no general rule that some group of companies is always cheaper than the other. It could also vary significantly across corridors. In our blog, we are focusing on the four largest destinations from the USA (based on 2017 data):

Top 5 remittance destinations from USA in 2015
Source: http://www.pewglobal.org/interactives/remittance-map/

Taking USA-to-India as an example, you could see in the table below that some of the industry leaders are less expensive than some of the more recent players, so-called “Fintech” providers:

USD-to-INR-1500-bank-to-bank-Nov-4-2019

Hence, no one provider is ” the best” for ALL of us since our preferences, as consumers, are so unique. Some of us could tolerate bad and slow service if it saves us 5% while others are happy to spend 3-5-10x more with their favorite cash agent to send money instantly:

Inter-American Dialogue Survey - Feedback 2016

To illustrate, let’s compare 2 popular destinations from the USA for transferring money: Mexico and India, both are the world’s top-5 remittance corridors:

Top 10 Remittance Corridors 2015
Source: https://openknowledge.worldbank.org/bitstream/handle/10986/23743/9781464803192.pdf?sequence=3&isAllowed=y

They both include large consumer sub-segments with distinctive preferences. But there are 4 fundamental characteristics differentiating consumers who transfer money to India:

  1. a higher degree of trust of technology to handle important aspects of their lives such as finances
  2. higher price-sensitivity
  3. investing more effort to research information before making a decision
  4. more willingness to change providers.

As a result, consumers transferring money to Mexico predominantly use cash agents while the majority of those sending money to India use digital channels (a provider’s website or mobile app). Such different consumer behavior ensures that the USA-to-India corridor also attracts more competition from startups AND all providers have to compete more aggressively on price.

Now compare a table below for transferring money from the USA to Mexico with the previous table for sending money from the USA to India. See if you notice a few major differences:

USD to MXN $500 bank-to-bank Nov 4 2019

Hopefully, you noticed that the same providers are mostly charging much lower FX markups to India than to Mexico. Why is that? It is because of Indian consumers being more price-sensitive and less loyal to a particular provider. Money transfer firms know that and keep their prices lower. Now, let’s look at a similar chart for money transfers from the US to China:

USD-to-CNY-1000-bank-to-bank-Nov-4-2019

You notice that the same providers are charging less for transfers to China than to Mexico but more than to India.

For destinations with dual currencies (China and Philippines), choosing the best option is even more complicated. For example, PayPal is one of the cheapest providers for international money transfers from USA to “friends and family” who are ok to keep money in USD. For such service, PayPal is charging around 0.5%. However, for larger transaction to businesses, PayPal could be charging fees plus a relatively high FX markup.

So it is clear that, as a consumer, you should base your analysis on the information specific to your destination and method of sending-receiving money. Now, let’s review each factor in depth.

What is more important to me: cost, speed, availability or customer service?

As you saw in the above comparison tables, depending on the destination, each provider could have different advantages. Some could deliver your funds faster but charge more for it, another provider could be cheaper but might not have your preferred method of sending-receiving money. Prioritizing your own preferences among cost, speed, availability, and customer service would help you in deciding which provider is the best for you and avoid disappointments like this

Would I get a better deal if I transfer more money?

Similar to other products and services you buy, purchasing larger quantities (transferring more money) usually results in a smaller margin. Let’s compare sending $500 and $2,900 to the Philippines:

USD-to-PHP-500-bank-to-bank-Nov-4-2019
USD-to-PHP-2900-bank-to-bank-Nov-4-2019

You probably noticed that some providers have similar margins for either amount, but usually sending larger amounts results in lower cost.

Which provider has the best exchange rate?

It is related to how money transmitters charge for their services: if it is only based on the FX markup (the difference between the exchange rate that provider gets on the interbank market vs. the exchange rate that you get from a provider), then the margin should remain the same regardless of the amount. But if a provider also charges a fixed fee, then the less you transfer the higher percentage of the transfer amount that fee becomes.

Another complication is that while providers usually charge the same FX markups for any transfer amount (WellsFargo is an exception), each provider has a radically different FX markup approach across destinations. Some providers are even applying different FX markups for different sending-receiving methods. For example, for transferring money from the USA to Mexico, MoneyGram applies different FX markups for sending a) cash, b) online-to-cash, c) online-to-bank.

As we discussed, each destination has its unique FX markup ranges across providers, some are wider, some more narrow. To see more examples of such differences, compare the two graphs below for FX markups for India and Philippines (pay attention to the range in FX markup):

FX Markups India till Oct 2019
FX-Markups-Philippines-till-Oct-2019

As expected, India enjoys a much lower range of FX markups than the Philippines, again, due to a more aggressive price comparison behavior by the Indian customers.

As another complication, many money transfer providers charge radically different markup day-to-day. So if a customer uses the same provider without comparing prices, it could 2-3x less or more in fees depending on the day:

Xoom-FX-Markup-Mexico-till-Oct-2019

Which provider has the best fees?

Some providers, like Western Union and MoneyGram, are also confusing consumers with a complicated fee structure.   There are 2 types of fees: fixed amount and variable percentage. Unfortunately, the same provider could use a different approach depending on the amount or a transfer method. For example, Western Union, for certain destinations and sending-receiving methods, could charge a fixed fee for small amounts, then a relative percentage for a larger amount, and then a fixed fee again if you transfer even more. To make matters even more complicated, some providers, like Western Union and MoneyGram, are also frequently changing their fees.

What is better: sending cash or linking a bank account or card?

There are lots of ways to transfer and receive money. In order to simplify this already complicated guide, let’s discuss the 3 most popular ones:

  • cash
  • bank account
  • debit card (never use your credit card to send money – more on this later)

Globally, cash remains the most popular method to transfer and receive money across countries:

Many consumers still feel that it is more certain to send money this way since they personally hand bills to a cash agent. Many of you, our readers, might know your cash agent by name, and over the years, have developed a close personal relationship with him or her. Some of those people also provide you with groceries, snacks, medicine, and you really like their service. This method also gets your money to the destination faster since a provider doesn’t have to verify your funds’ availability.

However, this method is also the most expensive because a money transmitter has to compensate cash agents, plus spend money on terminals, training, and other types of support. In short, never transfer cash if you can avoid it. Whether to receive cash or not is a bit more complicated question. Some providers charge more for receiving funds in cash than to a bank account, some charge the same.

If you have never sent money online, via a website or mobile app, you should definitely try. Most of the well-known providers have both, and the setup shall only take a few minutes. Once you link your bank account, you might be surprised how easy it is and how much time it saves you. This way, all your past transfers are available for your review at any time, plus your future repeat transfers shall take less than a minute to complete since you don’t have to enter the same information again. Between linking a bank account or a debit card, a bank account is usually the least expensive method because providers don’t have to pay a larger card transaction fee.

Finally, on the subject of transfer-receive methods, you should never use a credit card for transferring money. Not only some providers would charge you more for using a credit vs. a debit card, but your credit card could also apply various charges.

LunarCalendar

When is the right time to send money to India, the Philippines, Mexico, or China?

Are you wondering if you shall wait for a rupee, renminbi, or peso to increase in value or for a dollar to fall? Trying to time the best exchange rate is unbelievably difficult if not impossible. If anybody gives you advice on this topic while not making millions trading on the same information, it might be a sign that you should not follow such recommendations.

Still not convinced? Look at the graph below for changes across rupee, renminbi, and pesos over the last five years – do you see any logic in your currency’s short- or long-term movements?

Should I send dollars to China and the Philippines or renminbi/pesos?

This should have been an easier question to decide. Since money transmitters don’t have to purchase currency, they could supposedly pass those savings onto you. See the proof in the tables below for transfers to China and Philippines:.

In Summary…

Hopefully, you found this overview helpful and feel more confident in how to find the best way when transferring money. Next, click on a specific guide for your destination: India, Philippines, Mexico, or China. If we missed anything, please leave a comment.

We will be keeping this post regularly updated, so come back soon!

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