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Which is cheaper? To send money via banks, online, mobile apps or exchange houses? Picture used for illustrative purposes. Image Credit: Photo Virendra Saklani/Gulf News

Dubai: For many of us, sending money abroad or receiving payments from a client or a family member in another country is relatively common. Whether you’re an expat, a freelancer with foreign clients, 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.

Banks are comparatively costlier

Banks remain the most expensive type of service provider in 2020 when it comes to remitting money back home, a World Bank gauge indicates. 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 10.73 per cent of the amount you transfer, when it comes to remitting money from banks.

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

But how high are the charges?

But how high is 10.7 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. Let’s find out.

When mobiles are used to fund the transaction and as the means to disburse, it was found that the medium has been the least costly instrument consistently, the RPW index further revealed.

In addition, the year-on-year decline in the average cost of sending via mobile money was 25 percentage points, while the same for receiving via mobile money was recorded as 146 percentage point in the fourth quarter of 2020 – which is evidently quite significant.

Bank account transfers get cheaper

However, it was interesting to note that bank account transfers, when used as the instrument to fund the transaction, have experienced a 17 percentage point decline in average cost between fourth quarter of 2019 and the same quarter a year later.

One good news is that the World Bank report also showed how during the last quarter of 2020, the global average cost worldwide for sending remittances was 6.51 per cent of your transaction amount, an average that has remained below 7 per cent threshold set by the World bank, since the first quarter of 2019.

Particularly in the past decade the cost of remitting has been declining worldwide, with the RPW index indicating a decline of 3.16 percentage points since the first quarter of 2009, when the figure was recorded at 9.67 per cent – well above the threshold limit.

Which country offers the least cost?

While costs for sending remittances to Indonesia, Turkey, India and Mexico were recorded below 7 per cent, over the last quarter the Middle East region experienced the largest decrease in the world from 7.51 per cent to 6.58 per cent, the report further revealed.

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Picture used for illustrative purposes.

Why banks aren’t always the way to go

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, matter experts still reiterate that banks tend to offer poorer exchange rates and are also often levy hidden charges.

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.

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.

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

How much do UAE banks charge?

Most UAE banks charge up to a 4 per cent margin on the interbank rate when they send your money overseas, which could cost you hundreds depending on the size of transfer.

With banks you pay a flat fee instead of a percent of a total: Most banks charge customers a small percentage of the international money transfer as a fee for the services.

They can charge as much as three to four percent and label it a ‘processing fee’ for exchanging and transferring money overseas. These small fees might not seem like much, but they add up.

If you have to pull an extra four per cent out of your salary every month, you could be losing thousands yearly. This is important for those living off loans or credit in this pandemic.

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.

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.

Here’s an example
For example, in the UAE, exchange houses on average charges a Dh12 fee on any transfer. If you transfer Dh3,000 per month for a year, you will only pay Dh144 in fees.

If you chose a bank that charged four per cent per transaction, you would spend Dh1,440 in fees over the course of a year. With those savings, you could buy a plane ticket home.

New remittance entrants in the UAE

The high costs, inconvenience and time wasted are a few of the pain points that come with international money transfers. Fortunately, there are a growing number of financial start-ups that are offering much more affordable alternatives to banks for sending money abroad in the UAE, which have a growing reputation worldwide.

The UAE has seen increased focus on these issues with the recent entry of financial technology firms in the payments and remittances space. In 2019, Britain's TransferWise, an option that’s currently turning into a popular option among remitters, received a license from Abu Dhabi Global Market, the emirate's financial free zone.

Industry analysts say TransferWise's entry in the region has been good news for customers, with the move also allowing local financial technology firms to piggyback on this new development by either offering their own digital services or potentially partnering with TransferWise.

Analysis has shown that TransferWise has proven to be up to eight times cheaper than normal banks. They do charge a fee for their services, based on a number of factors, but are observed to be comparatively more upfront about this as soon as you initialise your transaction.

While TransferWise assures you that they aim to move your money as quickly as possible, the speed with which it reaches your recipient’s account depends on where they are, how you pay and what time you do your transaction.

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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, 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.