Navigating the Challenges of International Foreign Exchange Transfers Through Traditional Banks

Living in Taiwan and regularly transferring my New Taiwan Dollar to GBP, I am well acquainted with the challenges of foreign exchange transfers. While there are several methods to transfer money from Taiwan to the UK, they all come with unique setbacks — notably high fees and a lack of transparency. The older generation often relies solely on bank wire transfers, a method fraught with complications. Let’s dissect the traditional banking method to better understand its pros and cons.

Understanding the Traditional Banking Method

SWIFT Transfers

• Global Network: Taiwanese and UK banks predominantly utilize the SWIFT network for international money transfers, which has become a standard over time.

Fee Structure

• Sender Bank Fees: Typically range from 1000 to 1500 TWD (30 to 50 USD), albeit this can fluctuate between banks.
• Intermediary Bank Fees: These fees arise when intermediary banks facilitate the transaction due to the absence of a direct relationship between the sending and receiving banks.
• Recipient Bank Fees: The UK bank might charge a fee of around 15 to 30 GBP for receiving the transfer.
• Exchange Rate Margin: Banks often profit from offering less favourable exchange rates than the market rate.

What is SWIFT banking system?

Features of SWIFT

Security: SWIFT allows banks to communicate securely and standardly, aiding international transfers.

SWIFT Codes: Unique identifiers that help in routing the transactions appropriately.

Why do we need intermediary banks and SWIFT:

Limited Direct Relationships: Smaller banks often have limited direct relationships with banks worldwide, so they use intermediary (or correspondent) banks to facilitate international transfers.

Liquidity and Currency Needs: Intermediary banks can provide liquidity and handle currency exchanges, which smaller banks may be unable to do efficiently.

The Downfalls: Complexity and Lack of Transparency

Pain Points

A. High Fees, Complexity and Lack of Transparency: It’s often unclear how much the recipient will receive due to fluctuating exchange rates and hidden fees.

1. Percentage-Based Fees: Banks sometimes charge a percentage of the transfer amount. This means the more significant the amount, the higher the fee
2. Service Charges: Specific service charges can be associated with international transfers, which are levied to cover the operational costs associated with maintaining systems and services to facilitate such transfers
3. Handling Fees: Some banks charge handling fees for processing the paperwork and other administrative tasks involved in international transfer
4. Recipient Fees: The bank receiving the international transfer (the recipient bank) may also levy charges, which will be deducted from the amount being received.
5. Additional Fees for Using Intermediary Banks: If intermediary banks are involved, they might impose their fees, reducing the amount eventually reaching the recipient

B. Unfavorable Exchange Rates: Banks tend to add a markup to the mid-market rate, thereby inflating the transfer cost.

C. Slower Transfer Speeds: Traditional services often take several days to complete a transfer.

D. Limited Accessibility and Convenience: Whether it’s restricted business hours or complicated online systems, bank transfers can be inconvenient.

E. Intermediary Banks: Their involvement can lead to additional fees and complications.

Exploring Alternatives

Money Transfer Services

• Companies such as Wise (formerly known as TransferWise), Remitly, and Western Union offer more competitive rates than banks.
• Service Fee: These platforms usually charge a service fee, which can be a flat fee or a percentage of the transfer amount. The fee structure can be seen on their respective websites.
• Exchange Rate Margin: These services offer more favourable exchange rates than banks. However, they still might apply a margin on the exchange rate.

Peer-to-Peer (P2P) Transfers

• Platforms like PayPal and Payoneer also facilitate international transfers, albeit potentially with less favourable exchange rates.
• Transaction Fees: P2P platforms usually charge a transaction fee, which can be a percentage of the transferred amount.
• Exchange Rate Margin: These platforms might apply a substantial margin on the exchange rate.

Cryptocurrency Transfers

• Utilizing Cryptocurrencies like Bitcoin can be an option, but comes with its share of risks and regulatory challenges.
• Transaction Fees: Cryptocurrency exchanges charge transaction fees (gas fee), which vary widely, and sometimes need to pay the extra reward to the miner to speed up.
• Exchange Rate Variations: The cryptocurrency markets can be highly volatile, depending on different Decentralized or Centralized Exchange, introducing an element of risk in the exchange rate.

A Comparative Look

• Bank Transfers: Often more costly and involve various fees.
• Money Transfer Services: Generally cheaper, with more favourable exchange rates.
• P2P & Cryptocurrency Transfers: Can have a broad range of costs, influenced by volatile market conditions.

While modern solutions offer improvements, they still need to fully address the complexity and transparency issues pervasive in the industry today. Cryptocurrencies hint at a potential future with a user-friendly and widely accepted financial system as an alternative to traditional banking. Yet, the path to this future is still mired in volatility and uncertainty. As it stands, finding a straightforward method to transfer foreign currencies still needs to be discovered.