What is an international money transfer and what process is involved?
A cross-border or international money transfer is the process of sending funds from one country to another. It enables individuals and businesses to conduct financial transactions across borders, supporting global trade and facilitating international payments. The process involves converting one currency into another and transferring the funds to the recipient in their local currency.
The typical steps involved in an international money transfer are as follows:
- Initiation: The sender starts the transfer by providing relevant details to the money transfer service provider. This includes the recipient’s name, contact information, and the amount of money to be sent.
- Currency Conversion: If the sender’s currency differs from the recipient’s currency, the money transfer service provider will convert the funds into the recipient’s currency. The conversion is based on the prevailing exchange rate at the time of the transfer, and there may be fees or a markup applied to the exchange rate.
- Transfer Instructions: The sender specifies how the funds should be delivered to the recipient. Options may include bank transfer, cash pickup, or mobile wallet transfer, depending on the services offered by the money transfer provider.
- Transfer of Funds: The money transfer service provider facilitates the transfer of funds to the recipient’s location or designated financial institution. This may involve partnerships or correspondent banking relationships to ensure the funds reach the beneficiary’s country and are made available for withdrawal or use.
- Delivery to Recipient: The recipient receives the funds through the chosen method specified by the sender. For example, if cash pickup is selected, the recipient can collect the money from a designated agent location by presenting identification and the transaction reference number.
- Confirmation: Once the funds are delivered, both the sender and recipient receive confirmation of the successful transfer. This can be in the form of a receipt, email notification, or SMS message, providing evidence that the funds have been transferred and received.
Payment service providers (PSPs) play a crucial role in the payment system ecosystem. They can be categorized into central banks, banks, and non-banks. Non-bank PSPs include various entities, such as non-bank e-money institutions, merchant and ATM acquirers, payment initiation service providers, and account information service providers. Non-banks account for a significant portion of institutions offering payment services, and the share of non-bank e-money providers has been increasing in recent years.
In addition to this, each of these entities have their own sets of rules and regulations to ensure the security of the payments ecosystem is maintained and fraudulent and illegal financing is prevented wherever possible. For this reason, both the sender and recipient may receive additional requests throughout the process and the reason why choosing a trusted money services provider is so important.
