Cross-border Transfer Remittance - Wire Transfer Fee Analysis

This article introduces the methods of transferring money and their associated fees.

Terminology Explanation#

There is no strict definition between transfer and remittance. Currently, remittance usually refers to cross-border funds transfer; while transfer is the electronic completion of fund transfer, including wire transfers.

Remitting Bank = Paying Bank = Outgoing Bank

Intermediary Bank = Correspondent Bank

Receiving Bank = Incoming Bank = Payee Bank

Transfer Path: Paying Bank (→ Intermediary Bank) → Receiving Bank → Account Credit, which may not go through the intermediary bank.

Classification of Remittances#

Based on different methods of remittance, they can be classified into:

Demand Draft (D/D). A demand draft is collected by the payee in person without notifying the payee for collection.
Mail Transfer (M/T). The remitter entrusts the bank to send a mail transfer authorization to the receiving bank to authorize the payment of a certain amount to the payee.
Telegraphic Transfer (T/T). The bank charges the remitting party a certain remittance fee, sends a telegram or telex to the receiving bank, instructing the payment of a certain amount to the payee.

Currently, demand drafts and mail transfers are relatively rare, and telegraphic transfers are commonly used; moreover, telegraphic transfers are no longer transmitted via early telegrams.

Methods of Transfer#

In this section, regions refer to economic areas such as the UK, Japan, Eurozone, Hong Kong, etc., generally overlapping with "country" level administrative regions.

Generally speaking, transfers within the same bank, interbank transfer systems within the region, and transfers within the same group of banks across regions are faster and more cost-effective.

There are four situations:

Within the same regional bank
Interbank within the same region
Interbank across different regions
Interbank across different regions via an intermediary bank

Within the Same Regional Bank#

Transfer within the bank system.

Fees: Check the fee schedule of the bank.

Interbank within the Same Region#

Path: [Domestic] Paying Bank → [Domestic] Receiving Bank → Account Credit

Transfers can be made through the local transfer system or local telegraphic transfer.

Through Regional Transfer System#

Local banks often have good transfer systems that can quickly confirm transfer instructions. For example, Hong Kong Faster Payment System (FPS, supports 2 currencies), Real-Time Gross Settlement (RTGS / CHATS, supports 4 currencies); Macau Easy Transfer; Singapore PayNow (supports only SGD); CN central bank's clearing system (non-CNY must be transferred at the counter); US ACH. Generally, there will be currency restrictions.

Transferring through the software of Cloud Flash Payment in CN is this method.

Fees: Need to check the fee schedule of the receiving bank, sending bank, and clearing institution. Generally, there are no fees for domestic currency transfers.

General Method#

Local telegraphic transfer. The paying bank and receiving bank have reciprocal accounts with each other; if not, refer to the situation through an intermediary bank.

The paying bank receives the payer's instruction;
The paying bank sends instructions to the receiving bank (through a specific system, such as SWIFT) to confirm the payee's information;
After the receiving bank confirms the information, both banks begin processing the remittance:
The paying bank reduces the corresponding amount from the payer's account;
The receiving bank transfers the corresponding amount from the paying bank's reciprocal account at the receiving bank to the payee's account;
The remittance is complete. The balance in the paying bank's reciprocal account at the receiving bank decreases, and the liabilities (the bank's liabilities are the deposits of customers) in its own bank also decrease accordingly, balancing assets and liabilities, completing the transaction;

Fees: Need to check the fee schedule of the receiving bank and sending bank.

Interbank Across Different Regions#

Due to different legal constraints on banks in different regions, even if two banks have the same name and belong to the same group, they are essentially two separate banks.

Telegraphic transfer. Path: [Domestic] Remitting Bank → [Foreign] Receiving Bank → Account Credit

If in a country with free capital flow, the operation is basically the same as general interbank transfers; international interbank remittances are generally conducted through IBAN (International Bank Account Number, mainly used by European banks) or SWIFT (Society for Worldwide Interbank Financial Telecommunication, which involves non-European banks).

If in a country with capital controls, such as CN, whether remitting or receiving, it is necessary to prepare sufficient relevant transaction documents for reporting and then go through a certain approval process to complete the remittance.

Fees: Need to check the fee schedule of the receiving bank and sending bank. Transfers within the same group of banks may have discounts.

Interbank Across Different Regions via an Intermediary Bank#

Telegraphic transfer. Path: [Domestic] Remitting Bank → [Foreign] Intermediary Bank → [Foreign] Receiving Bank → Account Credit

If there is no reciprocal account between the paying and receiving banks, it is necessary to go through a third-party bank that both parties have established a reciprocal account with, i.e., correspondent bank;
After the receiving bank and correspondent bank receive the instructions, the correspondent bank will transfer the corresponding amount from the paying bank's account to the receiving bank's account, while other processes remain unchanged;
The liabilities (customer deposits) of the paying bank decrease, and the assets (balance at the correspondent bank) also decrease, while the receiving bank's situation is the opposite.

There may be more than one intermediary bank.

Generally, the remitting bank will choose its overseas bank (if any) as the intermediary bank. The choice of intermediary bank is also related to the currency.

The remitter can specify the intermediary bank (but may add other intermediary banks on this basis). The receiving bank will suggest an intermediary bank based on the receiving currency, generally designating this bank.

Fees: Need to know the remittance path and check the fee schedule of the remitting bank, receiving bank, and intermediary bank.

Composition of Telegraphic Transfer Fees#

Telegraphic transfer path: Remitting Bank → Intermediary Bank → Receiving Bank → Account Credit

The composition of telegraphic transfer fees is as follows.

Fee Item	Content
Outgoing Fee	The fee charged by the remitting bank, including service charge (the remittance fee charged by the bank itself) and telegram fee (the fee for sending telegrams to the intermediary bank)
Intermediary Bank Fee	The commission charged by the intermediary bank, the actual amount depends on the intermediary bank. The more intermediary banks involved, the higher the fee
Incoming Fee	The fee charged by the receiving bank
Exchange Rate Spread	The exchange rate difference earned by the bank when exchanging foreign currency, deducted during currency exchange

Allocation of Telegraphic Transfer Fees#

SHA: The remitter pays local fees, and the payee pays overseas bank fees. The payee will receive the remittance balance after deducting overseas bank fees.
OUR: The remitter pays all local and overseas bank fees. The payee will receive the full amount sent by the remitting bank.
BEN: The payee pays all local and overseas bank fees. The payee will receive the remittance balance after deducting the above fees.

When the incoming fee is paid by the payee, some receiving banks may waive it.

SHA Mode#

SHA = SHARED, meaning both parties share the fees, the payer bears the outgoing service charge, and the payee bears the intermediary bank fees and receiving bank fees (most banks do not charge for incoming transfers).

This is the default sharing method.

Using SHA mode to remit 1000 USD, the payer may need to pay about 20 USD in service charges, the intermediary bank deducts 20 USD, and the payee actually receives 960 USD. Many telegraphic transfers use SHA mode, which generally has lower fees.

However, due to the unclear situation of intermediary bank fees, the actual amount reaching the other party's account is uncertain, so it is advisable to avoid using this method when paying tuition fees to foreign schools.

OUR Mode#

OUR means the payer bears all fees.

Using OUR mode to remit 1000 USD, the payer may need to pay about 30-40 USD in service charges, and the payee actually receives 1000 USD. In terms of overall fees, OUR mode is generally lower than the first two modes in most cases.

It is best for international students to choose this mode when paying tuition fees to foreign schools.

BEN Mode#

BEN = beneficiary, meaning the payee bears all fees. Using BEN mode to remit 1000 USD, the payer does not need to pay additional fees, but the payee needs to pay the outgoing fees (around 20 USD) and intermediary bank fees (around 20 USD), and the payee actually receives around 960 USD.

Many banks do not support this mode.

In addition to checking the fee schedule to understand specific charges, you can also ask others who have used the same transfer path about the specific fees.

Transfer fees are related to the size of the transfer amount.

The fee schedules for personal accounts and corporate accounts differ.

Some banks will provide the transfer path and detailed fees after the remittance is completed.

When cross-border remittance is needed, it is recommended to choose according to the following priority and check the required fees in advance:

Cross-border transfers within the same group of banks
Other telegraphic transfers with relatively low fees

When expecting to allocate funds across borders, such as paying overseas tuition or accommodation fees, it is advisable to open a local bank account in advance and first remit to that account. When needed, transfer directly through the local bank's interbank clearing system.

You can plan a cost-effective transfer path in advance. For example, [Domestic] Depository Bank A → [Domestic] Bank B → [Foreign] Bank B's overseas branch C → [Foreign] Bank D that charges fees → complete payment. In this process, you need to hold accounts at A, B, and C. It is generally necessary to ensure that the amount from C to D is fully credited.