Since the dawn of man, societies have exchanged money, or some variation of money, for goods and services. While banks have always existed in some shape or form, official banks are a relatively young institution that trace their official genesis to Florence, with the Medici banking family in the 17th century. One of the main services banking offered was security; they not only kept their client’s money safe physically from raiders, thieves, or the elements, but also allowed people to travel to various places and not have to carry their gold or silver on their person at all times.
As the practice of banking became more commonplace and centralized, the network between banks across the world flourished and the ease with which a person could draw on their line of credit increased as a result. This phenomenon was amplified due to industrialization and globalization. During these periods, new methods of money transfer sprung forth that not only increased the speed with which one could move money, but also dramatically improved security.
In 1872, the very first wire transfer took place across the Western Union’s telegraph network. Due to the convenience and the express rate at which money could be sent, the practice flourished rapidly
In 1872, the very first wire transfer took place across the Western Union’s telegraph network. Due to the convenience and the express rate at which money could be sent, the practice flourished rapidly. Since this time, wire transfers have become the most popular way of transferring money across the globe, with most every bank giving its customers access to wire transfers via the bank. For years this was a fine solution, but in the post internet age, dozens of private companies have also stepped in to try and offer the same services sans the financial institutions, and all that comes along with them.
If you did not grow up in this technological age, the concept of moving your money with the click of the button may seem a bit scary. You may find yourself asking, “Could the money just disappear? What’s to prevent hackers or someone with ill intent from somehow intercepting it?” or, “I have so many options, but what are the safest? Are wire transfers even secure, especially internationally?” While the vast majority of wire transfers are quite safe, every method of money transference comes with its fair share of trade offs, so if the options seem overwhelming, do not fret. Below we will discuss the optimal ways to transfer money internationally and the security, or lack there of, behind these various methods.
There are three main methods of international wire transfers: transfer in person, transfer online or transfer via an alternative transfer service. If you decide to send money via option 1 or 2, it is important that you are aware of SWIFT, the Society for Worldwide Interbank Financial Transactions, and the ramifications it has on the transfer process.
Originally, banks would use Telex as their message system for wire transfers which lead to quite a few problems due to it being sluggish and insecure. It was made even more so because there was no standardized code system. This was especially troublesome for international transfers where sender and receiver errors often occurred because of misinterpretations of financial requests. SWIFT was created as a formalized messaging system that could securely and easily send financial messages to banks within the SWIFT network. While this was revolutionary when it was first created, SWIFT is now outdated due to increased regulations and the need for correspondent accounts.
With SWIFT regulations, if a bank does not have a correspondent account, it has to find a third-party bank to connect the two. This third party bank is also required to go through a series of checks and verifications and in order to prevent fraud or money laundering. As you might imagine, these checks take time, chiefly because hundreds of thousands of wire transfers occur on a daily basis. This matter is only worsened when considering the sheer scale of the economic world because not all banks are even connected by a third party. In many cases, a SWIFT message may have to pass through several banks in order to find one that has a corresponding relationship with the intended destination.
As a result, as the order gets transferred from bank to bank, there is a distinct lack of ownership or ability to track the progress of the order. This process takes longer and grows more expensive with each additional bank that gets involved since each has to go through the security process and also take its fee. These fees add up quickly, especially if the wire is international and requires a currency exchange
Know Your Customer helped banks know who their customers were, what their financial activity was and where their money was going; and while it helped prevent crime and secure wire transfers, it also increased the time and cost for each transfer.
SWIFT was even further worsened when Know Your Customer (KYC) Regulations were instituted and made common practice by financial institutions. KYC was put in place for two reasons: firstly, to help prevent money laundering and other forms of corruption by criminal syndicates, secondly, to protect the reputation of financial institutions and to a lesser extent, its clients. Know Your Customer helped banks know who their customers were, what their financial activity was and where their money was going; and while it helped prevent crime and secure wire transfers, it also increased the time and cost for each transfer. The increase in regulation coupled with emerging third party wire transfer alternatives caused correspondent relationships to become less and less important to financial institutions.
According to the Economist, “Banks are driven by fear: fines for aiding financial crime have shot up, in both amount and number. A decade ago banks were paying fines in America, the most punitive country, of tens of millions of dollars a year between them; now they are paying billions. In 2014 France’s BNP Paribas stumped up $8.9bn for violating sanctions on Sudan, Iran and Cuba. Deutsche has been fined several times, including $630m in connection with Russian money-laundering. In some countries a complete shut-out from correspondent banking looms.”
In order to send a wire transfer funds need to be transferred between the banks and then into the recipient’s account. Therefore, in the United States, both parties require separate bank accounts. Under federal regulations, banks require that you verify your identity and share your physical address prior to opening an account. Further pushes for regulation, such as Know Your Customer, have lengthened these processes and requirements. While it may seem like more hoops to jump through, this lack of anonymity is intended to limit potential thieving, crime, or money laundering.
Title 3 of the Patriot Act required that financial institutions comply with certain requirements when it came to identifying who their customer was. For individuals, these requirements are much more lax and less invasive. Generally, it is required that an individual simply show a government issued identification card or a passport. For businesses, however, they might be requested to show any of the following: a partnership agreement, a government issued business license, certified articles of incorporation, a financial statement, information from a consumer reporting agency or a information from public databases.
Title 3 of the Patriot Act required that financial institutions comply with certain requirements when it came to identifying who their customer was.
In order to find out even more about their customer, banks also might ask customers for information such as the source of the funds, purpose of the account, one’s occupation, description of their business and a whole host of other questions that vary from bank to bank. These types of regulations increase security of banks and help maintain their reputations by detecting potentially fraudulent customers before they can actually commit any type of crimes.
It makes sense why these regulations are much more stringent for businesses since the vast majority of business accounts hold more money and perform more transactions. KYC precautions make it harder for potential thieves to pull off scams or somehow rerouting the payment through obfuscation, ensuring that your money is secure.
Now that we’ve covered the basics of the SWIFT network, let’s discuss your options for international wire transfers, the steps required, and security for each.
If you prefer to do things face-to-face, you can go to your bank to send out an international wire transfer. In order to do so, you will need to provide the teller with the following:
Once you have provided this information, you will likely have to pay a processing fee which typically costs around $50, although in some cases it can be more or less. On top of that, there will be an exchange rate fee, plus a percentage of the transfer amount that ranges between .1% to 1% of the total transfer, as well as the possibility of a fee from the receiving bank. Remember with SWIFT and correspondent accounts, this may result in multiple fees as the order passes through several banks. Fees are different for certain banks, so be sure to shop around for the best price.
If you would rather not leave your house, the vast majority of banks allow you to make wire transfers online. Before you begin, however, be sure to double-check what your online transfer limit is. In most cases the standard daily limit is $5000. If you desire to send more than this, you will most likely have to speak with someone on the phone and request an increase to the limit, which may require additional security verifications.
After this, the process is fairly identical to the in person method. You will have to fill in the following information:
Remember, there will be fees involved throughout the process. Once this is done, you should receive an estimate for how long the process should take to reach completion. Generally it is one to three business days, although it can vary.
While uncommon, wire transfer scams have occurred with thieves controlling a bank account and siphoning money for a few days, but these types of scams generally involve you being propositioned to give up your information and being deceived by who the email or message is from. 99% of the time, these are user error in some shape or form and not hackers breaking into your account.
If a person asks you to send money, carefully consider whom it is you are transferring this money to. Be wise and do not act rashly or impulsively if something seems fishy or too good to be true.
If a person asks you to send money, carefully consider whom it is you are transferring this money to. Be wise and do not act rashly or impulsively if something seems fishy or too good to be true. Be safe with your information, do not send your bank account numbers, social etc. over email or on an unsecure website.
the vast majority of risk incurred with wire transfers is sending money. Once the money is in the recipient’s account, it’s there. No loss is incurred on your side and there is no way for anyone to steal from your coffers. While using banks is considered to be relatively secure, the SWIFT network has been known to ‘lose’ transfers before.
If you want to avoid some of the hidden fees or slow times of SWIFT transfers, there are various alternatives to traditional banks. Every one of these services will likely offer different exchange rates. In case you did not already know, exchange rates are fluid and change on a daily basis. Google has a currency converter that allows you to convert currency and see the true exchange rate. Be sure to compare the service you are using’s exchange rates with the standard exchange rate in order to get the best deal. A little bit of research can save you money.
Automated Clearing House (ACH) transfers can be used domestically, but are not ideal for international transfers. The money moves from bank to bank, but can take multiple days and is not very secure.
MoneyGram or Western Union money transfers are a form of wires, but are not the most reliable. Their fees may vary and are sometimes hidden. On top of that, transfers can be very slow, ranging from 5-8 business days. The same-day transfers they offer are quite costly.
These types of transfers are one of the more insecure methods due to lack of information required. Potential fraudsters need just a checking account number and a bank routing number to pull off an ACH fraud scam. This information is generally gleaned through phishing emails that trick the customer into downloading malicious software. Again though, these scams generally require user error to succeed.
Transfer Operators like MoneyGram and Western Union are known to be safer, yet their screening disciplines can falter as well. This paired with the fact that they often drop cash off at certain locations can pose serious problems. While this is a rarity, imagine sending cash to another country only for the false recipient to reach the destination and claim it.
There are a variety of payment methods that you can download from your phone that work directly with your bank. Services like Venmo, Square Cash, PayPal, and Square Cash are not technically wires, but can transfer money electronically. Apps are easy and inexpensive, but note that each one has different fees, rates, times and international transfer policies. Many of these also have a limit due to KYC regulations.
is one such service that helps protect their customer by providing updates through every step of the process and accountability end-to-end. Veem’s Connected Payment Platform verifies both sender and receiver on their network which enhances security and reduces fraud. Their multi-rail technology merges the best of traditional systems with the flexibility and speed of modern blockchain.
These alternatives are said to be the most secure type of wire transfer. Companies like Veem offer full accountability and ownership, while also providing an intuitive service with higher traceability. The backbone of multi-rail transfer services is a technology that was developed for security and privacy alone.
In summation, if you are considering an international wire transfer, you generally do not need to worry about your money disappearing as long as you are smart. That said, each service has different levels of accountability end-to-end, so if being able to monitor your transactions is important to you as a business owner or customer, then seek services that do not deal with SWIFT and its various regulations. When considering different methods of wire transfer or alternative solutions, keep in mind fees, transfer rates and time. There is a service that will work perfectly for you and help you get your money from A to B safely.
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