This article introduces the methods and fees of transfers.
Definition of Terms
There is no strict definition of transfers and remittances. Currently, remittances usually refer to cross-border fund transfers, while transfers refer to fund transfers completed electronically, including telegraphic transfers.
Remitting Bank = Remittance Bank = Paying Bank = Outgoing Bank
Intermediary Bank = Correspondent Bank
Beneficiary Bank = Receiving Bank = Incoming Bank
Transfer Path: Paying Bank (→ Intermediary Bank) → Receiving Bank → Account Entry, may not pass through an intermediary bank.
Classification of Remittances
According to different remittance methods, they can be classified as:
- Demand Draft (D/D). The payee can collect the draft and withdraw the funds without notification.
- Mail Transfer (M/T). The remitter entrusts the bank to send the remittance authorization to the receiving bank to authorize the payment of a certain amount to the payee.
- Telegraphic Transfer (T/T). The remitting bank charges the remitter a certain remittance fee and sends a telegraph or telex to the receiving bank to instruct the payment of a certain amount to the payee.
Currently, 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., which generally coincide 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 scenarios:
- Transfers within the same region and 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 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 → Account Entry
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); and the United States' Automated Clearing House (ACH). Currency restrictions may apply.
This method is used for transfers within China through the UnionPay app.
Fees: Check the fee schedules of the paying bank, receiving bank, and clearing institution. Generally, there is no fee for domestic currency transfers.
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 scenario of using a correspondent bank.
- The paying bank receives instructions from the remitter.
- 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 remitter'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 is reduced, and the bank's liability (customer deposits) is also reduced, balancing the assets and liabilities.
Fees: 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 → Account Entry
If in a country with free capital flow, the operation is similar to the general method of interbank transfers. International interbank transfers are usually conducted through the International Bank Account Number (IBAN, mainly used by European banks) or the Society for Worldwide Interbank Financial Telecommunication (SWIFT, used by non-European banks).
If in a country with capital controls, such as China, both outbound and inbound transfers require sufficient transaction documents and approval processes to be completed.
Fees: Check the fee schedules of the remitting bank and receiving bank. Transfers within the same group of banks may have discounts.
Interbank Transfers across Different Regions through Correspondent Banks
Telegraphic transfers. Path: [Domestic] Remitting Bank → [Foreign] Intermediary Bank → [Foreign] Receiving Bank → Account Entry
- If there is no reciprocal account between the paying bank and receiving bank, a third-party bank, i.e., a correspondent bank, with reciprocal accounts opened by both parties is required.
- After receiving the instructions, the receiving bank and correspondent bank will transfer the corresponding amount from the paying bank's account to the receiving bank's account, following the same process as before.
- The paying bank's liability (customer deposits) and assets (balance in the correspondent bank) are reduced, and the receiving bank's liability is increased.
There may be more than one intermediary bank.
In general, the remitting bank will choose its own overseas bank (if available) as the intermediary bank. The selection of the intermediary bank also depends on the currency.
The remitter can specify the intermediary bank (but additional intermediary banks may be added). The receiving bank will provide suggestions for the intermediary bank based on the receiving currency, usually specifying this bank.
Fees: It is necessary to know the remittance path and check the fee schedules of the remitting bank, receiving bank, and correspondent bank.
Components of Telegraphic Transfer Fees
Telegraphic Transfer Path: Remitting Bank → Intermediary Bank → Receiving Bank → Account Entry
The components of telegraphic transfer fees are as follows:
|Outward Fees||Fees charged by the remitting bank, including service fees (remittance fees charged by the bank) and telegram fees (fees for sending telegrams to the intermediary bank)|
|Agent 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|
Allocation of Telegraphic Transfer Fees
- SHA: The remitter pays the local fees, and the payee pays the overseas bank fees. The payee will receive the remittance balance after deducting the overseas bank fees.
- OUR: The remitter pays all local and overseas bank fees. The payee will receive the full amount remitted 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 payee pays the inward fees, some receiving banks may exempt the fees.
SHA = SHARED, which means both parties share the fees. The payer pays the remittance fees, and the payee pays the fees of the intermediary bank and receiving bank (most banks do not charge fees for inward transfers).
This is the default sharing mode.
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 means the payer bears all fees.
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 = beneficiary, which means the payee bears all fees. 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 intermediary bank fees (around $20), and the payee will receive approximately $960.
This mode is not supported by many banks.
Recommendations and Tips
In addition to checking the fee schedules to understand the specific fees, 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 a cross-border remittance is needed, it is recommended to choose the following in order of priority and inquire about the required fees in advance:
- Cross-border transfers within the same group of banks
- Other telegraphic transfers with lower fees
When it is expected 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.
It is possible to plan in advance for a cost-effective transfer path. For example, [Domestic] Depository Bank A → [Domestic] Bank B → [Foreign] Bank B's overseas branch C → [Foreign] Bank D that charges fees → Complete the payment. In this process, accounts with A, B, and C are required. It is generally necessary to ensure that the full amount is received in account D from C.