Is it cheaper to send money via banks, online, mobile applications or exchange houses?

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 remained the most expensive type of service provider in 2022 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), which monitors remittance prices across all geographic regions of the world, indicated an average cost of 11 per cent when remitting $200 (Dh735) from banks.

(RPW covers 48 remittance sending countries and 105 receiving countries, and tracks the cost of sending remittances across banks, traditional and financial tech service providers, mobile operators, exchange houses, and post offices.)

But how high is 11 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 cost only half as much at money transfer operators like money exchange houses, at 5.2 percent when remitting $200 (Dh735), while mobile remittance applications charge a cost of 3.5 percent when remitting $200 (Dh735).

Mobile remittance applications remain the cheapest type of service provider, but they account for a small part of total transaction volumes (less than 1 percent), the World Bank gauge indicated, while inferring that most of those who remit still rely on banks regardless of higher costs.

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.

"Regardless of where you have an account, it is a pattern observed worldwide wherein banks tend to offer poorer exchange rates and also often levy hidden charges," opined Anil Pillai, a Dubai-based forex analyst.

"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."

Matter experts largely agree that banks specialise in availing several other products and services, and not as focused on exchange rates, due to which the rate is widely observed to be inconsistent with remittance house currency rates.

"Overseas transfers via bank can be fast and expedient – but it can also be an expensive option. But some UAE banks are rolling out products to compete with exchange houses," added Pillai.

Most institutions follow the ‘interbank rate’, which is the constantly fluctuating price at which banks trade currencies with each other, and then base their own rates around it.

“Thanks to relationships with correspondent partners in other countries, several banks in the UAE do not levy upfront service fees for transfers in the destination country’s local currency," said Simeon. "However, customers will very rarely find bank rates working in their favour.

“In other words, 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."

Their current exchange rate is – they usually set their own, which will often be quite a bit more than the forex market rate. Once you have this information, you can establish how much it will essentially cost you.

"Be aware, however, that personal visits to a bank may incur higher service charges when compared to international payments in the UAE made via online or phone banking," added Simeon. "So 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."

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 receiving fee is expected to be.

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, you may want to spend some time researching which will be the most beneficial to both you and your recipient but also what the do's and don'ts are. Begin researching by using money transfer tools or calculators that are freely available online.

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’d 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.