Best way to remit now, save money: Banks or exchanges, online or mobile apps?
What mode of remittance do you think is the best? New World Bank report sheds light
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 transfers 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 at the start 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 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 at the start of 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.)
The 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 per cent when remitting $200 (Dh735), while mobile remittance applications charge a cost of 4.4 per cent 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 percent), 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 start 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.
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 that 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.
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, the bottom line is before sending money abroad, be sure to ask your bank what their transfer charge would be for your transaction and also, and more importantly, what the recipient bank’s fee is expected to be for receiving the remitted currency.
Checklist when sending money abroad
If you’re about to send money abroad for the first time, it may have sounded simple in theory, in reality there are quite a number of factors to keep in mind to do this successfully.
Here’s a list of some of the most important questions you would need answered, before embarking on the process of remitting money back home or wherever you would want to.
• Are you transferring to another currency?
• What is the current exchange rate between these currencies?
• Do you want to send a large or small sum of money?
• How speedily do you want the person on the other side to receive the money?
• Is it a once-off payment or a recurring one?
• What fees will you have to pay?
• What will the final costs be after all the fees and exchange rate?
• How safe will your money be?
Before sending your money using the first, most convenient option, research which will be the most beneficial to both you and your recipient but also be mindful of what the do's and don'ts are. Begin researching by using money transfer tools or calculators that are freely available online.
How to check if you’re getting the best rate
A common comprehensive platform is the World Bank’s global cost calculator. You can use this tool by simply selecting the country you’ll be sending money to, enter the amount you would like to send and hit the ‘compare’ button.
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.