What's the perfect exchange rate to remit? Here is a checklist. Picture used for illustrative purposes. Image Credit: Agency

Sending money abroad may have become a routine affair for most expatriates, but the process has become cumbersome for some in terms of what to look out for, what are the best means and what is the right time to remit.

With remittances making up mostly of migrant workers and immigrants sending a portion of their earnings to families back home, there has always been a constant need to opt from a host of different ways to send your hard-earned money overseas.

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Sending money abroad may have become a routine affair for most expatriates, but the process has become cumbersome for some

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Ruthlessly competitive

Whatever be the need to remit cash, be it buying a property abroad, export/import or receiving pension in a foreign country, one can admit that when trying to decide between currency exchange providers, banks or online platforms, you realise how the industry has become ruthlessly competitive.

But the reason for such competition is validated.

Why has remittances grown intensely competitive?
Expats from the UAE remitted Dh165 billion in 2019, according to figures released by the Central Bank of the United Arab Emirates, with the majority of the remittances sent to India, followed by Pakistan, Philippines, Egypt, UK and Bangladesh.

Also, it is worth noting that among the total remitted in 2019 from the UAE, 15.6 per cent was transferred through banks and the rest via money exchange companies operating in the country.

Which brings us to our next topic, how does one choose the best means to remit.

Choosing the means

For most people regardless of whether they're based in the UAE or overseas, their bank is the first port of call when making international money transfers assuming that it’s their best option.

However, regardless of where you live in the world and what types of bank accounts you have set up, most banks offer poor exchange rates, higher margins and transaction fees, while levying a variety of hidden charges (topics we discuss in detail further below).

190628 remitances
Image Credit: Virendra Saklani/Gulf News archives

Banks too are very competitive in rates.

Some banks offer it free of transaction fees and on some days, exchange rates are better than many money exchanges. The instant transfer facilities offered by exchange houses comes with lower exchange rates and in some cases higher fees.

Before remitting cross check with some of the leading money exchanges and Xe.com for rates. Very often the bank’s rates are better.

Some banks offer it free of transaction fees and on some days, exchange rates are better than many money exchanges

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The main focus of currency exchange providers is purely to transfer money – specializing in buying and selling of currencies of different denominations.

Banks on the other hand provide a range of other services as well and their currency exchange division is not as huge compared to say their investment banking division.

Money exchanges much in demand
With low fees, better exchange rates and faster wire transfer a number of money exchanges in the GCC have proved to be a superior bet than using a bank.

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Banks are faster, convenient

Why bank transfers are still used is because it’s fast and convenient.

In recent years some UAE banks have rolled out products to compete with the much-popular exchange houses.

Dubai’s top lender Emirates NBD launched its DirectRemit product in 2014, a product doing increasingly well.

It can be used to send money to banks in key remittance countries including India, Pakistan and Philippines in as little as 60 seconds, with the service extended to the UK a year later.

Mashreq Bank also then began to offer a Quick Remit product, covering India and Pakistan – another frequently used option by UAE nationals.

A scene inside a remittance exchange shop in Satwa, Dubai. In the UAE, a number of remittance agents with direct links to the SSS network can help OFWs get a PRN, including UAE Exchange, Al Ghurair Exchange, Orient Exchange, Al Rostamani. The SSS uses a number of remittance clearing including iRemit, Ventaja and AUB, which allow for instant credit of your SSS payments. Image Credit: Courtesy, Julian de Jesus

Choosing the right exchange house

Although using your bank to transfer money requires minimal effort, as it primarily just involves adding details on the receiver’s account, there are a few pointers to keep in mind when choosing the right broker.

Rules and regulations: It is important to find out if the broker is regulated and compliant with local laws.

UAE-based exchange houses are regulated by the Central Bank of UAE and in the UK, Financial Conduct Authority is the conduct regulator of all financial firms in the country. Similarly, exchange houses in every country are regulated by a governing body.

It is important to find out if the broker is regulated and compliant with local laws.

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A broker if regulated would mention it on their website or any print communications.

It is imperative that a money exchange house should be regulated before initiating any financial transactions as a matter of safeguarding against any possible fraud.

Exchange rates and fees: Among the currency exchange companies due to stiff competition their rates differ and so it is advisable to check them in advance.

Get a quote upfront!
Some currency brokers may advertise rates which are too good to be true only to add their fees and margins to get attention.

It is therefore important to get a quote upfront and clarify if there are any fees attached before proceeding.

Time taken to transfer: One of the aspects that need to be checked is how long the transfer takes.

In some instances, money exchanges have tied up with international banks and other exchanges and so the duration can vary from a few minutes to a couple of days.

It also depends on the country where the money is to be transferred and the local regulation.

One of the aspects that need to be checked is how long the transfer takes.

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How to hunt for the best deal?

Those hunting for the best deal can compare prices on the World Bank portal (https://remittanceprices.worldbank.org/en/corridor/United-Arab-Emirates/), which analyses remittance outflows in countries including India, Pakistan and the Philippines.

Designed to compare prices when sending relatively small amounts of money – around Dh700 and Dh1800 dirhams, some of the lowest cost exchange houses on the UAE to India corridor it cites are Al Fardan Exchange, GCC Exchange, Al Ansari, Wall St Exchange, Western Union, and Emirates NBD’s DirectRemit offered by a bank.

A teller at an Al Ansari exchange branch in Karama. The new mobile branch will give labourers better access to its services. Image Credit: Pankaj Sharma/Gulf News

Similarly, it can be found on the website, what are similar platforms for remitting cash to other countries.

Knowing where to look to get the best available exchange rate
Firstly, you’ll need to know the mid-market rate (explanation below) for your currency pairing (when the value of one currency being quoted against the other).

You can get this with a Google search, use an online currency converter, or even sign up for alerts to tell you when the exchange rates change.

Compare the real, mid-market rate with the exchange rate you’ve been offered by your bank or exchange service, to see if it is fair.

(Mid-market rate is nothing but the midpoint between the buy and sell prices of two currencies or, in other words, between what the buyer is prepared to pay and what the seller is prepared to sell for (which, in this case, is between two exchanges the currencies are exchanged). This rate is also known as the interbank rate.)

The exchange rates commonly used by banks and foreign exchange services can be confusing. But it is possible to get the best available exchange rate if you know where to look.

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Let’s take an everyday example. For simplicity, say you want to send at least Dh1 to - for instance – India, hence rising the need to convert AED to INR.

Behind-the-scene process when it comes to exchanging money
The currency needs to be exchanged between two money exchanges, one in the UAE, and the other in the country you are sending money to.

The two firms need to set a rate amongst the two exchanges, which is the mid-market exchange rate. When searching on Google and other currency converters, it indicates an average of ‘1 AED = 20.56480 INR’.

Compare this with the rate that is set by the exchanges (the mid-market rate) and see if what you are getting is a good deal or inclusive of unknown charges, a topic we will discuss in detail below.

The logic is simple, if you are getting more for your dirham, than it means it’s an alright time to send money.

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Often the easiest way to find the best deal out there is to compare the final amount of money you’ll receive, after any fees and costs have been deducted.

Finding the best deal out there!
If you want to change $1,000 (Dh3,673) to euros, ask several different providers how much you’ll receive in euros at the end of the transaction.

This approach means you’ll be able to spot if hidden fees or a bad exchange rate will mean you end up with less in your pocket at the end than you ought to.

Exchange rates can be confusing as they change all the time with the markets - and exchange services and banks offer a wide range of different rates depending on their business model.

Don’t fall for a business which says it offers fee free currency exchange - in many cases this simply means that their profit has been hidden in a poor exchange rate that’s not transparent as you can’t easily see what you’re paying for your foreign currency - and it’s often more expensive too.

But remember, transfer costs also change regularly – so if you’ve been using one service for a while review other options again. Now to answer one of the most debated questions when it comes to the right time to remit.

Customers form a queue at a money remittance centre in Dubai. Image Credit: Pankaj Sharma, Gulf News

Right time to remit?

There always arises the need to look at the market to know whether it is the right time to send money. One indicator is to look at is to see how the currency you plan to exchange it with is performing in the home country.

Ideal time to send money is at higher rates
If the currency has been in constant decline over the last several weeks, with media indicating that more declines can be expected, it would make it an ideal time to send money at higher rates – given you the opportunity to make more money for less.

TIP: Given that no one can really predict future rates – just signal the likelihood or a possible trend, experts say if currency is moving favorably for you, a smart strategy is to send money when a rate reaches a new milestone.

Even if the currency is expected to drop further again, it is difficult to know for sure – given the volatility of the markets – by hanging on for another few weeks and hope you will get a better rate.

If currency is moving favorably for you, a smart strategy is to send money when a rate reaches a new milestone.

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Looking at Dirham to Indian rupee conversion, the latter currency was down significantly in late March this year and the Indian rupee crossed 20 against the dirham.

As is the trend, it was a time when people rushed to remit, because exchanges were offering good rates. The last time the rate was this best suited for remittance was in 2018.

That was also a great time for sending money from the UAE for many workers, with the dollar-pegged dirham riding high against currencies such as the Indian rupee and British pound. Last year it was not as much.

Here is another tip a number of experts offer
If you’re planning to send a large amount home and aren’t in any hurry, it can be wise to break it up into multiple transfers across several weeks or months, to avoid the risk of sending money at a time when the currency is in a short-term dip.

Over two to three instalments you would have averaged out the rate at which you send the money back.

But on the other hand, bundling up your funds into a large single transfer can result in lower transaction costs.

Regular remitters should keep track of the movement in exchange rates. This will help time your transfer more strategically, especially if you can hold off on your remittance and transfer in bulk when the exchange rate is most favorable.

Bundling up your funds into a large single transfer can result in lower transaction costs.

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Depending on the amount you’re sending, the timing of a transaction can also be important particularly if you’re sending larger amounts.

In many cases, people don’t pay much attention to what’s happening to the exchange rate and simply leave their decision to make the international money transfer to the last minute hoping for a good rate, assuming, that without all the funds available, there isn’t much they can do.

Remittances from the UAE to the Philippines go towards education, building homes and charity projects Image Credit: Shutterstock

Hidden fees, a pitfall for remitters

When sending money overseas, paying attention to the hidden charges could reap some rewards.

Many expatriates who regularly transfer funds abroad are concerned mostly about the transaction fees and have very little regard for the hidden costs.

When sending money overseas, paying attention to the hidden charges could reap some rewards.

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The global average cost of sending a $200 remittance, according to the World Bank, is a whopping 7 per cent of the amount sent.

Many authorities are concerned about the high cost of remittances
Sending small sums is often expensive. To promote transparency, some countries limit remittances to bank wires, but banks are the most expensive transfer channel, according to the World Bank.

At one point in 2019, banks charged an average of 11 per cent in transfer fees. Post offices charge on average over 7 per cent. The fees can exceed 10 per cent when the destination is in Africa or a Pacific Ocean island.

For low-income countries or those with struggling economies, remittances represent one of the largest sources of income for the native population.

In 2015, for example, Mexicans abroad sent over $24 billion back home, which was more money than the country generated from selling oil.

The aggregate cost of sending remittances in 2017 was about $30 billion, roughly equivalent to the total non-military foreign aid budget of the US.

On average, the charge for sending $200 – the benchmark used by authorities to evaluate cost – is $14.

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On average, the charge for sending $200 – the benchmark used by authorities to evaluate cost – is $14.

That is, the combination of fees (including charges from both the sender and recipient intermediaries) and the exchange rate margin typically eats up fully 7 per cent of the amount sent.

It is less expensive to send larger amounts, with the global average cost of sending $500 at just under 5 per cent, according to the World Bank.

Top remittance recipients in 2018
According to the World Bank, the top remittance recipients in 2018 were India with $79 billion, followed by China ($67 billion), Mexico ($36 billion), the Philippines ($34 billion), and Egypt ($29 billion).

Beware of “little extras”

When making a remittance, it is important to find out if there are “little extras” that the service provider is tacking into the bill.

These not so obvious add-ons can be in the form of poor exchange rates, and the so-called “fees” that apply to money transfers in certain markets.

Almost every time there’s an annoying hidden fee for almost every service worth its salt. Image Credit: Supplied

Transfer fee and the exchange rate are the two most important factors in remitting money. Remittance fee usually varies between Dh15 and Dh24, but the more important factor in getting a good deal is the exchange rate.

Apart from a transfer fee, you may also have to pay a charge known as a ‘spread’ (an extra cost built into the exchange rate, also known as a margin).

How exchange houses make their share of profits?
In the remittance business, transfer agents, currency brokers and banks make money not just from the transaction fees, but also from the exchange rate margins, the amount added onto the interbank exchange rate.

For instance, if the interbank exchange rate between UAE dirham and Indian rupee is 20.1 rupees to every dirham and the money transfer agent uses 20 instead, the provider takes a margin equivalent to 0.1 rupees on every dirham.

Here is another example to illustrate spread or margin fee.

The US dollar might be worth 50 pesos (Dh3.6) in the country you’re sending to. If you send $100 (Dh367), the recipient gets 5,000 pesos (ignoring any fees).

But if your money transfer provider takes a spread of one peso, making the dollar worth only 49 pesos, the recipient only receives 4,900 pesos (Dh353).

Another source of profit is a certain back-end fee, which, depending on where the money is being sent to, can cost 40 per cent of the transaction charge.

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A Filipino expatriate sending money home, for example, may be asked to pay Dh15 for the transaction in the UAE, but once the money is delivered, an additional Dh10 is collected (backend fee).

Beware: The sender sometimes does not realize it since it is broken up into two parts— fees charged in dirham and back-end fees charges in pesos in the Philippines.

Philippines is known to charge back-end fees
Among the popular recipient countries of remittances from the UAE, however, only the Philippines is known to charge back-end fees and the rate is usually applicable to funds transferred to a bank account.

If all these hidden fees are put together, they can eat significantly into the final payout of the intended beneficiary and back-end fees alone can affect the actual remitted funds.