Banks or exchanges, online or mobile apps: What is the cheapest way to remit now?
UAE residents move away from bank remittances, choose cost-effective digital means instead
Dubai: For many of us, sending money abroad or receiving payments from a family member or a business partner in another country is relatively common. Whether you’re an expat, a freelancer working with an overseas company, an international student or own property abroad, you are probably familiar with the remittance process.
However, as the need for more customer-friendly international money transfer has grown, so have the number of financial start-ups offering banking alternatives, apart from the traditional means of transferring money like banks or money exchange houses. But with each avenue, how does it differ in terms of costs?
“Fees have always accounted for a large portion of the costs for remittance services. Moreover, costs for non-digital services are consistently higher than those for digital services regardless of the region where the money is being sent to,” said Matt Simeon, a UAE-based forex analyst, who analysed the latest remittance trends released by the World Bank.
Banks remittances get costlier in 2024
Banks remained the most expensive type of service provider by the middle of 2024 when it comes to remitting money back home, the latest report from World Bank noted. However, to know how much this really costs you, it warrants a comparison between what banks charge and what money exchanges charge.
The World Bank’s Remittance Prices Worldwide (RPW) tracker, which monitors remittance prices across all geographic regions of the world, indicated an average cost of 12 per cent when remitting $200 (Dh735) from banks by mid-2024, from 11.5 per cent recorded in the World Bank’s previous analysis.
(The RPW tracker covers 48 remittance sending countries and 111 receiving countries, and tracks the cost of sending remittances across banks, traditional and financial tech service providers, mobile operators, exchange houses, and post offices.)
Costs for non-digital services are consistently higher than those for digital services regardless of the region where the money is being sent to
How high is this bank remittance charge?
But how high is 12 per cent and how much of your hard-earned income is shelled out in transaction costs to the bank? Also how do these costs fare when compared against other exchange service platforms, like doing it either online or through your mobile phone.
When compared to banks, it costs less than half as much at money exchange houses, at 5.5 percent when remitting $200 (Dh735), while mobile remittance applications charge a cost of 4.4 percent when remitting the same amount – making this the cheapest type of remittance service provider.
Mobile remittance applications cost the least, but they account for a small part of total transaction volumes (less than 1 per cent), the World Bank gauge indicated, meaning most of those who remit still rely on banks despite higher costs, as they remain wary of remitting via mobile applications.
What avenues are cheaper to remit in 2024?
The World Bank analysis further indicated that over time, banks, mobile operators, and exchange houses have seen a general decline of total average costs, but until the middle of 2024, banks have been firmly above the global average, whereas exchange houses and mobile operators have remained below.
“Remitting via banks remain well above its sustainable 2030 target of 3 per cent. Digital remittances had a lower cost of 5 per cent, compared to 7 per cent for non-digital methods. This means costs are lower remitting via digital channels or money transmitters offering cash-to-cash services than banks,” it noted.
The World Bank concluded that remittances generally remains too costly due to limited competition among providers. With remittances to accelerate 2.8 per cent to $690 billion [Dh2.5 trillion] by 2025, costs can come down with more competitively priced remittance avenues.
“The top benefits of sending or receiving international payments digitally are ease of use, privacy/security, and making life easier for friends and family,” the report noted, while also flagging that 56 per cent of surveyed remittance users in the UAE expect to use digital money transfers more often in the future.
Why banks prove most reliable at remittances?
“While your trusted local bank may offer uncomplicated – even helpful – service with ordinary monthly transactions, you’ll probably find that things get a bit intricate the moment you want to send money abroad,” opined Anil Pillai, a Dubai-based forex analyst.
"Regardless of where you have an account, it is observed worldwide banks offer poorer exchange rates. So If you’re exchanging money through your bank, you’re probably not getting the best deal on exchange rates as you would through specific money transfer services.”
Both Pillai and Simeon agree that the reason for this is banks specialise in availing several other products and services, and are not as focused on exchange rates, and this is also why the rate is widely observed to be inconsistent with remittance house currency rates.
In most of these tools, you’ll also be able to access an overview of the current exchange rate, as well as a complete list of financial service providers able to assist you and the costs connected to each. You can then opt to view the list by whichever of the following is most important to you.
You could either choose to go for the ‘cheapest’ avenue first, or the means to the fastest medium – which assures a comparatively lower transfer time for your transaction. If not, you could always opt for one according to the platform’s ratings.
How much do UAE banks charge for remittances?
"Overseas transfers via bank are often fast, and some UAE banks keep rolling out products to compete with exchange houses," added Simeon. “Most UAE banks follow the ‘interbank rate’, which is the price at which banks trade currencies with each other, and then base their own rates around it.
“Thanks to ties with correspondent banks in other countries, banks in the UAE do not levy upfront service fees for transfers in the destination country’s local currency. However, customers will rarely find bank rates working in their favour, in the long run, meaning you are paying a premium for convenience.”
Banks’ service fees for international money transfers in the UAE can range from zero to Dh100, not including VAT. International bank transfers can take up to five working days. With online brokerages, however, the fees depend on exchange rate.
Meanwhile, UAE exchange houses on average charges at the most a Dh20 fee for a transfer. If you transfer Dh3,000 per month for a year, you will only pay Dh240 in fees. If you chose a bank that charges at the most Dh50 per transaction, you would spend Dh600 in fees over the course of a year.
"As personal visits to a bank may incur higher service charges when compared to international payments in the UAE made via online or phone banking, look for money transfers that only charge flat fees on your transaction. Not only will this help you budget your expenses, but it will also help save money.
“So, be sure to ask your bank what their transfer charge would be for your transaction and also, what the recipient bank’s fee is expected to be for receiving the remitted currency. If rates online turn out to be cost-effective, as trends indicate they are, opt for that if you have found it to be more reliable.”