What Is a Remittance Transfer & How Does it Work?

Australia By Abigail Walker April 5, 2021

What is a remittance transfer?

A remittance transfer is an international electronic money transfer that has become invaluable for friends and family to send money to those across borders quickly and easily.

As the global economy continues to grow and job opportunities move across borders, individuals have to follow. Rather than move their entire family out of the country, many follow international opportunities that can best support their loved ones back home.

But finding a reliable, fast way to get that money home can be challenging. That’s where remittances come in.

Migrant workers often send their paychecks home to their families using remittance transfers. It’s a simple transaction that is not only convenient but fast. Wives, husbands, parents, and children don’t have to wait weeks, or even months for their loved ones to return. They can have near instant access to the money they need to buy food, pay bills, and get medical care.

If you’re looking for reliable ways to make international money transfers to your family back home, here’s everything you need to know about remittance transfers.

What is a remittance transfer provider?

A remittance transfer provider is a company that regularly sends money from its customers to businesses and people in other countries. These are banks, credit unions, or financial service institutions that complete more than 100 remittance transfers per year.

Although the regulations will change from country to country, here are some things you can expect from your remittance transfer provider:

  • Ability to cancel payment, within a certain time limit, with the expectation that the full amount will be returned to them.
  • Should something go wrong in the transfer, such as loved ones not receiving the full amount back home, the remittance transfer provider must conduct a full investigation.
  • A full disclosure by the remittance transfer provider of details such as fees, exchange rates, and the final amount their loved ones should expect to receive when the payment is cleared.

If you’re new to remittance transfers or just got a job in a new country and want to find the best way to send money back to your family, make sure to find a trusted remittance transfer provider. While the regulations may differ based on the country, you can feel safe knowing that your family will get the money you worked hard for as fast as possible.

How to send a remittance transfer

Remittances can be sent in three main ways. Each option differs slightly in terms of benefits, but all will ensure that your money is delivered to your family and loved ones. Because agents at remittance transfer providers understand how important these transfers are, they will work with you to find the best choice based on your circumstances and needs. Feel free to ask questions and get advice on the best one for you.

1. Money transfer services

Money transfer services are offered by providers like Western Union. While bank transfers can be cumbersome for international payments, remittance transfer providers simplify each step of the process. Rather than looking for the right bank, dealing with currency conversion fees and waiting days for the funds to clear, money transfer services send money quickly

As an added benefit, it’s easy to walk to the nearest provider location, pay in cash and not have to deal with processing through bank accounts. With Western Union, a recipient can visit their nearest location almost anywhere in the world, and get the remittance transfer directly from the agent.

If convenience and flexibility are your top priority for remittance transfers, money transfer services will usually be your best option.

2. Banks or credit unions

Banks also provide remittance transfers, but some migrant workers find it difficult to locate their bank in new countries, so they prefer to use other financial service institutions for the sake of convenience, like Western Union.

3. Cheques and money orders

The last option is to send money via cheque or money order. Of the two, money orders will clear faster and allow your family and loved ones to receive the money. Cheques may take longer for the funds to be available. Both are a great option if you want to avoid steep fees and don’t need the convenience of speedy delivery.

Because banks, credit unions, and financial services institutions often charge a percentage fee based on the amount of money sent, cheques and money orders may be the best option for single, large remittance transfers. Basically, the more you send, the more you spend. Conversely, money orders only require a flat fee, and cheques can often be sent for free, saving you money on larger transactions.

However, for most people, especially migrant workers, remittances are sent in smaller, routine amounts. In that case, digital payments made through a remittance transfer provider is a safer option. Sending large sums of money through the post poses a large risk. International mail takes longer and has more opportunities to get lost, delayed, or stolen.

What are the fees associated with remittance transfers?

Almost every remittance transfer will include fees with each provider requiring their own set of fees. Be sure to ask the agent for a list of all associated costs before you start your remittance transfer. The following are possible fees you may incur:

Sending remittance fees

Some institutions will require a flat fee to send the remittance transfer. Regardless of the amount of money you send, and where it’s going, this is a fixed amount the provider will charge for the service. This is usually charged to the sender before the transaction is initiated.

Other institutions may require a percentage fee, commonly called a spread. This is essentially a currency exchange cost charged to the sender before the remittance transfer is sent. Remittance service providers may also charge a fee based on the principal amount.

For example, imagine you send 100 AUD from Australia to Mexico. At that time of sending, 1 AUD was equal to 10 MXN. Without the percentage fee, your recipient expects to receive 1,000 pesos. With the spread, however, they only receive 900 MXN.

Receiving remittance fees

On top of the fees associated with sending remittances, there may also be receiving fees to prepare for. This may include fees from the bank or financial institution where your recipient picks up their money. They may be flat fees or percentage fees, just like the sender’s fees. Often, these fees can be reduced, or eliminated by sending money to and from the same institution.

If the bank you use to send the remittance to your family doesn’t have an established banking network with your bank back home, it may need to transfer through a third-party bank that both are connected to. That may add extra costs and fees. The easiest way to avoid added costs like this is to send and receive money using the same provider.

Remittance vs. bank transfer: what’s the difference?

One frequently asked question that customers ask is: what is the difference between a remittance transfer and a bank transfer? The answer can be broken down into three main considerations:

Transfer speed

In most cases, a remittance transfer can be made in a matter of minutes. Essentially, it’s an instant payment. International bank transfers can take up to 5 days but usually require at least 24 hours. If time is of the essence, a remittance may be a better option.

Transfer price

While the price can vary, a remittance transfer usually only incurs one fee for the sender (either the flat fee or the spread). Bank transfers usually require both a flat fee and a percentage of the amount sent. If you’re sending large sums of money, banks may be more expensive in the long term.

Transfer convenience

Generally, banks will not allow you to turn transfers into cash. They typically only allow you to send money to the receiver’s account. Remittances, on the other hand, can be transferred to cash that your recipient can pick up immediately.

Both options have competitive exchange rates, so it really comes down to how much money you need to send and how quickly.

Send a remittance transfer with Western Union

As the world economy grows, Western Union is there to be your partner for sending and receiving money around the globe. When you need convenient ways to send money to your loved ones back home, Western Union is here to help. With our money transfer services, you can send money to over 200 countries and territories.

Sign up now to send money quickly or visit our FAQ page to learn more.