How much extra do online platforms charge for remittances?
Most residents currently opt to remit money online, but rates vary with each platform
Your Money Editor
Most residents currently opt to remit money online, but rates — in particular currency markups — vary with each service provider, but how much is too much — and is it time to switch your platform?
The options for sending money abroad have multiplied but each platform has its own perks and risks. Non-bank remittance platforms could offer a better forex mark-up but may charge a higher service fee.
Long denominated in cash, remittances are going digital since the pandemic made headlines same time last year — and money transfer companies squeezed four years of digital growth into just two months.
Globally, remittances carry an average 7 per cent transaction fee, more than twice the target of 3 per cent specified in the Sustainable Development Goals. Even central banks worldwide are evaluating new technologies and has been accepting entries from financial technology (FinTech) firms working on new tech in the remittance space.
There is a difference in regulations and charges when you receive money from another country than sending funds abroad. Outward remittances are tightly controlled by central banks globally.
Forex mark-up
Inward remittances are not as tightly controlled. The sender can use any service as long the money is coming into the bank account. For inbound transfers, most banks don’t charge a fee. However, they have a forex mark-up. It is the difference between the prevailing currency exchange rates and the bank’s rates. Newer companies such as Transferwise charge a fraction of what banks do.
The remittance charges are high due to costs that banks incur. They use traditional transfer mechanism which go by terms like SWIFT, Ripple or UAE Funds Transfer System (UAEFTS) in the UAE.
The banks use such mechanisms to park money with foreign banks in their accounts. If someone from India sends money to the US, the bank there will deduct money from the account.
That money depreciates due to exchange rates and doesn’t earn any interest, which is a cost to the bank. Experts caution that customers need to watch out for the forex mark-up. If you consider overall charges, including forex mark-up, a sender will end up paying 2 to 4 per cent of the transfer amount through banks.
In some cases, using platforms other than banks could work out cheaper even though they use the same banks for remittances. However, as they transfer larger amounts, banks offer them lower mark-ups.
Non-bank platforms
While these rates are lesser compared to banks in the region, which go up to 5 per cent for foreign remittances — it was competitive compared to alternatives like OFX, MoneyGram or WorldRemit.
Among other platforms, the rate was competitively priced at OFX — as of March 1. The receiver would get $1,312 (Dh4,822), after being levied a transfer fee of about Dh50, among other card and transaction-related charges.
Occasionally, third-party banks may deduct a fee from your transfer before paying your recipient. Non-bank platforms could offer a better forex markup but may charge a higher service fee. Before you remit money abroad, look at the service fee as well as the forex mark-up. Once you add up the two, it will give you a clearer picture of which mode is cheaper.