Is a Money Transfer Company Right for You?

Transferring money abroad is a necessary part of life for many people. Whether you’re an expatriate transferring money to foreign accounts, or you need to get funds to family or friends who are in another country, money transfer is a process you’ll become familiar with quickly. Many people use traditional brick-and-mortar banks for money transfers, but they often aren’t the best option. Banks have high fees, and you often will run into slow transfer times. If you’re needing to transfer money abroad with any regularity, you might look at money transfer companies as an option.

How Do Money Transfer Companies Work?

A money transfer company can work in one of two ways. First, traditional online money transfer services focus on transferring funds from one bank account to another – all without involving the banks themselves. Money transfer companies typically have lower fees than brick and mortar banks or other financial institutions.

Other money transfer companies use a peer-to-peer money transfer strategy. This option has even lower fees. In a peer to peer transfer, you’re essentially submitting a request to buy or sell different currencies. You submit your request, then are matched with another buyer or seller who fits the transfer you need. Then your funds are deposited into the appropriate transfer account. The transfers are conducted across online applications or web platforms. Because no financial institutions are directly involved in the transfer, fees are much lower in peer to peer money transfers. Additionally, you’re often able to lock in a specific exchange rate for a period of time to get the most competitive transfer option available to you.

Pros of Using a Money Transfer Company

Using a money transfer company has several benefits that you should consider. First and foremost, the fees you’ll pay with a money transfer company are significantly lower than at a traditional bank or financial institution. There are several reasons for this. When it comes to international money transfers, banks have higher costs and more regulations to address. Additionally, because they have physical locations, employees, etc. they have higher operations costs.

The vast majority of money transfer companies are online-only, which reduces the costs required for them to stay in business. They pass this savings on to users, which is why you’ll see lower fees when using a money transfer company.

Money transfer companies are also known to use the real exchange rate. It’s updated regularly, so you will always know exactly what rate you’re getting during your transfer. Banks and other financial institutions often add a mark up to their exchange rate, which means you aren’t getting the best deal.

Cons of Using a Money Transfer Company

While money transfer companies are generally the better option for international money transfer, they do have a few key drawbacks that may be deal-breakers for some people. The primary drawback is that they don’t have a physical location. If the person you are transferring money to needs to pick it up at a physical location, or you simply prefer doing financial business in person, an online-only money transfer company may not work for you. Having no physical “pick up” location also means that online money transfer companies don’t have a cash pick up option. Both parties involved in the transfer need to have a bank account.

Another drawback to money transfer companies is that some (not all) of them have minimum amounts you must transfer, and they don’t always support all currencies. Banks will have this flexibility, but you will pay for the convenience through higher fees.

Another major drawback is the KYC process that new clients must undergo. It is definitely going to be comprehensive and detailed because these companies want to make sure they are not aiding in any money laundering.

Comparing Several Companies

If you’ve decided to use a money transfer company for your international transfer needs, it’s critical that you compare several companies before committing to one. Each money transfer company has its own set of fees, different amounts of coverage, specific qualifications for transfers, security, and more. Sitting down to compare several companies is the best way to ensure you’re getting the best service and the best rate for your transfer – especially if you plan to transfer money abroad with any frequency.

What Is There to Compare?

When comparing money transfer companies, there are several things that you should look at:

  • Fees
  • Currency rates they use
  • Their transfer system (whether they have a peer to peer transfer option)
  • Security
  • Transfer qualifications (if they have a minimum transfer amount)
  • Commissions they receive
  • Currencies they support

It’s also a good idea to write out the different things you’re looking for with your transfer. You might need a money transfer company that supports specific currencies, or maybe you need 24/7 support, a mobile application, or a peer to peer transfer option. Knowing your expectations can help you eliminate money transfer companies that don’t fit the bill.

Can A Money Transfer Company Save You Money?

The short answer is – probably. In most cases, money transfer companies are significantly less expensive to use than banks. However, if you’re needing to transfer a specific currency, or to transfer funds to someone who needs a cash pick up, a bank may be your best bet.