Sending money abroad every month? Here's how to stop overpaying
For as long as cross-border transfers have existed through different forms and channels, cost has remained a persistent problem.
Even today, users could lose as much as 14.99% of the transaction amount when transferring money via banks. In fact, in 2023, international migrants lost $51 billion to fees, just about $15 billion shy of all U.S. foreign aid in the same year.
On the other hand, users who send through remittance apps only lose an average of 4.72% of the total transaction amount in fees.
The fees might not seem like a lot at the point of each transaction. But for a migrant who sends about $200 back home every month, losses quickly amount to $113.28 - $359.76 by the end of the year.
In most developing countries, these are substantial amounts that could go a long way to improve the lives of loved ones.
Why overpaying happens
With remittances, costs come in different forms and structures. Some remittance service providers offer flat-rate fees on transactions, and for some others, fees are percentage-based.
Similarly, most transactions have a two-part cost structure: the visible transfer fee and the hidden exchange rate margin.
Many users of remittance services often fail to account for the latter when sending money abroad. And this is where some advertisers recoup their money when they advertise “zero charges” to lure in users.
In the U.S-Brazil corridor, for instance, while some channels offer as low as 0% markup on exchange rates, markups in other channels go as high as 6.84%. But since providers generally don’t display exchange rate markups (the difference between the mid-market exchange rate and the exchange rate shown to users), users often fail to recognize it as part of the transaction cost.
However, it quickly adds up when merged with displayed fees and summed over time.
How to check what you're actually paying
A good check starts with comparing visible transaction fees across different providers in the chosen corridor.
Go deeper by looking up the mid-market exchange rate before initiating a transaction. Compare the rate to that offered by your preferred providers.
Platforms likeBOSS Money App provide real-time exchange rates and exchange rate comparison tables across major remittance corridors, allowing users to, at a glance, see how rates differ across providers and how much money they could save or lose with each provider.
Generally, the aim should be to go for providers with more favorable exchange rates and transaction fees.
Compare provider categories, not just brands
Beyond providers, it also makes sense to compare remittance services across provider categories, including traditional banks, legacy remittance services, and fintech remittance apps.
Still using the U.S.-Brazil corridor as a case study:
Traditional banks: Typically have some of the highest exchange rate margins, up to 5.40%. Both online and bank transfers take up to two days to get to the recipient, equally making it one of the slowest categories in the corridor.
Legacy remittance services: Exchange rate margin varies across payment method, speed, and delivery method. Faster and more convenient channels could take up to 12.84% of the total transaction amount in both fees and exchange rate margin.
Fintech remittance apps: These generally offer lower margins and faster transfers. People who use top fintech remittance service providers to send money toBrazilmay get as much as 5.25 BRL more on every dollar, while equally getting comparatively lower transaction fees and nearly instant deliveries.
Globally, money transfer apps are by far the cheaper and faster provider category for sending money abroad, while traditional providers are the costliest and slowest. However, fintech apps often have comparatively lower transfer limits, making them a less desirable option for high-volume transfers.
Practical levers beyond choosing a provider
In scenarios where a remittance sender has found what they believe to be a reliable remittance service provider in a chosen corridor, it might be more reasonable to stick with the provider for as long as it is convenient.
In such scenarios, leveraging various in-app features could help users drastically curtail overpaying.
Some features to look out for include:
Batch transfers: This feature is typically available to business accounts. It allows users to group a number of individual transactions as one transaction and enjoy the flat-rate fee for a single transaction.
Recurring/scheduled transfers: This feature allows users to take advantage of rate lock windows to lock in favorable exchange rates for later. This is especially useful for highly volatile remittance corridors, where rates can spike within minutes.
Multicurrency accounts: Owners of multicurrency accounts can convert a large sum of money once (for one flat fee), and then make recurring local payments using the local currency balance. Multicurrency or borderless accounts are especially useful for individuals who send money to a given country frequently and are looking for ways to stop overpaying.
Additionally, consider timing transfers around favorable exchange rates. In practice, this could mean subscribing to an exchange rate monitoring platform or allowing notifications on your remittance app to ensure you get real-time notifications whenever rates improve.
A simple action checklist
In a nutshell, you could save a lot of money when you take some practical steps to stop overpaying every time you send money back home to your loved ones.
By paying attention to both the visible transaction fees and fees hidden in exchange rate margins, you get to save money at your end while also ensuring that your loved ones get more for every dollar they receive.
To get started:
Check your current provider’s real cost (transaction fees + exchange rate margins),
Compare their real cost against that of 2-3 alternatives in the target corridor, while accounting for speed and delivery methods.
Switch if savings offered by an alternative provider exceed a meaningful threshold, or retain the current provider if they are better overall.
Use features like multicurrency wallets, batch transfers, and scheduled transfers to save even more money with your preferred provider.
Lastly, do due diligence to make sure that any provider you choose is provably secure and reliable, regardless of cost considerations.
