Cross-border Transfer Remittance - Telegraphic Transfer Fee Analysis

This article introduces the methods and fees for transfers.

Glossary#

There is no strict definition for transfers and remittances. Nowadays, remittances usually refer to cross-border fund transfers, while transfers are completed electronically, including telegraphic transfers.

Remitting Bank = Paying Bank = Sending Bank = Outgoing Bank

Intermediary Bank = Correspondent Bank

Beneficiary Bank = Receiving Bank = Incoming Bank

Transfer Path: Paying Bank (→ Intermediary Bank) → Receiving Bank → Posting, may not pass through an intermediary bank.

Classification of Remittances#

According to different remittance methods, they can be divided into:

Demand Draft (D/D). The payee can collect the draft without being notified.
Mail Transfer (M/T). The remitter entrusts the bank to send the mail transfer authorization to the receiving bank to authorize the payment of a certain amount to the payee.
Telegraphic Transfer (T/T). The remitting bank charges a certain remittance fee, sends a telegraph or telex to the receiving bank, and instructs the payment of a certain amount to the payee.

Nowadays, demand drafts and mail transfers are less common, and telegraphic transfers are usually used. Telegraphic transfers no longer use telegrams for transmission.

Methods of Transfers#

In this section, the term "region" refers to economic regions such as the UK, Japan, the Eurozone, Hong Kong, etc., and generally coincides with "national" administrative regions.

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

There are four situations:

Transfers within the same region and the same bank.
Interbank transfers within the same region.
Interbank transfers across different regions.
Interbank transfers across different regions through correspondent banks.

Transfers within the Same Region and the Same Bank#

Transfers within the bank's system.

Fees: Check the bank's fee schedule.

Interbank Transfers within the Same Region#

Path: [Domestic] Paying Bank → [Domestic] Receiving Bank → Posting

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

Through the Local Transfer System#

Local banks often have good transfer systems that can quickly confirm transfer instructions. For example, Hong Kong's Faster Payment System (FPS, supports 2 currencies) and Real-Time Gross Settlement (RTGS) / Clearing House Automated Transfer System (CHATS, supports 4 currencies); Macau's Cross-Border Payment System; Singapore's PayNow (only supports SGD); China's central bank's clearing system (non-CNY transfers must be made at the counter); the United States' Automated Clearing House (ACH). Currency restrictions may apply.

This is the method used for transfers through China UnionPay's software.

Fees: You need to check the fee schedules of the paying bank, receiving bank, and clearing institution. Generally, there is no fee for domestic currency transfers.

General Method#

Local telegraphic transfers. If the paying bank and receiving bank have reciprocal accounts (accounts for mutual transactions), the transfer can be made directly. If not, refer to the situation of transfers through correspondent banks.

The paying bank receives instructions from the payer.
The paying bank sends instructions to the receiving bank (via a specific system such as SWIFT) to confirm the payee's information.
After the receiving bank confirms the information, both banks start processing the remittance:
The paying bank deducts the corresponding amount from the payer's account.
The receiving bank transfers the corresponding amount from the paying bank's reciprocal account to the payee's account.
The remittance is completed. The paying bank's reciprocal account balance decreases, and its liability (customer deposits) also decreases, balancing the assets and liabilities.

Fees: You need to check the fee schedules of the paying bank and receiving bank.

Interbank Transfers across Different Regions#

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

Telegraphic transfers. Path: [Domestic] Remitting Bank → [Foreign] Receiving Bank → Posting

If in a country with free capital flow, the operation is similar to general interbank transfers. International interbank transfers are usually conducted through the IBAN (International Bank Account Number) system (mainly used by European banks) or the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system (used by non-European banks).

If in a country with capital controls, such as China, whether it is an outbound or inbound remittance, sufficient relevant transaction documents need to be prepared and then go through an approval process to complete the remittance.

Fees: You need to check the fee schedules of the remitting bank and receiving bank. Transfers within the same group of banks may have preferential rates.

Interbank Transfers across Different Regions through Correspondent Banks#

Telegraphic transfers. Path: [Domestic] Remitting Bank → [Foreign] Intermediary Bank → [Foreign] Receiving Bank → Posting

If there is no reciprocal account between the paying bank and receiving bank, a correspondent bank, which has reciprocal accounts with both banks, needs to be involved.
After receiving the instructions, the correspondent bank transfers the corresponding amount from the paying bank's account to the receiving bank's account, and the other processes remain the same.
The paying bank's liability (customer deposits) decreases, and its assets (balance in the correspondent bank) also decrease, while the receiving bank's liability increases.

There may be more than one intermediary bank.

In general, the remitting bank will choose its own overseas bank (if any) as the intermediary bank. The selection of the intermediary bank also depends on the currency.

The remitter can specify the intermediary bank (but may add other intermediary banks on top of it). The receiving bank will provide suggestions for the intermediary bank based on the receiving currency, usually specifying this bank.

Fees: You need to know the remittance path and check the fee schedules of the remitting bank, receiving bank, and correspondent bank.

Telegraphic Transfer Fee Composition#

Telegraphic transfer path: Remitting Bank → Intermediary Bank → Receiving Bank → Posting

The telegraphic transfer fee composition is as follows:

Fee Item	Content
Outward Fees	Fees charged by the remitting bank, including service fees (remittance fees charged by the bank itself) and telegraph fees (fees for sending telegrams to the intermediary bank)
Correspondent Bank Fees	Commission charged by the correspondent bank, the actual amount depends on the correspondent bank. The more intermediary banks, the higher the fees
Inward Fees	Fees charged by the receiving bank
Exchange Rate Difference	The exchange rate difference earned by the bank when exchanging foreign currency, deducted during the exchange

Telegraphic Transfer Fee Allocation Methods#

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

When the inward fees are paid by the payee, some receiving banks may waive the fees.

SHA Mode#

SHA = SHARED, which means both parties share the costs. The payer pays the remittance fee, and the payee pays the fees of the intermediary bank and the receiving bank (most banks do not charge for inward remittances).

This is the default allocation method.

When using the SHA mode to remit $1000, the payer will need to pay approximately $20 in fees, the intermediary bank will deduct $20, and the payee will receive approximately $960. Many telegraphic transfers use the SHA mode, which generally has lower fees.

However, due to the uncertainty of the fees charged by intermediary banks, the actual amount received by the recipient's account is uncertain. This mode should be avoided when paying tuition fees to foreign schools.

OUR Mode#

OUR means the payer bears all costs.

When using the OUR mode to remit $1000, the payer will need to pay approximately $30-40 in fees, and the payee will receive the full $1000. In terms of overall fees, the OUR mode is generally lower than the other two modes.

It is recommended to use this mode when paying tuition fees to foreign schools.

BEN Mode#

BEN = beneficiary, which means the payee bears all costs. When using the BEN mode to remit $1000, the payer does not need to pay additional fees, but the payee needs to pay the outward fees (around $20) and the fees of the intermediary bank (around $20), and the payee will receive approximately $960.

This mode is not supported by many banks.

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

Transfer fees are related to the amount of the transfer.

The fee schedules for personal accounts and corporate accounts are different.

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

When there is a need for cross-border remittances, it is recommended to choose in the following order of priority and inquire about the required fees in advance:

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

When planning to transfer funds across borders, such as paying overseas tuition fees and accommodation fees, it is recommended to open a local bank account in advance and transfer the funds to that account for storage. When needed, transfer directly through the local interbank clearing system.

You can plan in advance for cost-effective transfer paths. For example, [Domestic] Depository Bank A → [Domestic] Bank B → [Foreign] Bank B's overseas branch C → [Foreign] Bank D, which charges fees → completion of payment. In this process, you need to hold accounts with A, B, and C, and generally ensure that the full amount is received by D.