Wire Transfers

A wire transfer is a method of delivering funds electronically from one entity to another, whether bank-to-bank or person-to-person or organisation-to-individual. Usually, the transfer is a single transaction rather than a bulk payment or transfer to multiple entities. Those transactions are usually effected by such entities as Automated Clearing House or ACH.

A wire transfer can be used for account deposits, trade contract payments or currency exchange, though the latter is a specialised area and presents many risks and potential illegal activity.

Process

When needing to wire funds, the sender presents funds to a sending agency, usually through funds on deposit with a bank or a credit card to a retail transfer agency. The receiving entity is identified along with receipt method; if the receiving entity is a bank, the information must include the International Bank Account Number for international transfers or Bank Identification Code for domestic transfers. These numbers are not the same as bank branch codes.

In a bank-to-bank transfer, if the receiving bank is the same as the sending bank, the transaction usually takes only two to three business days. If the receiving bank is different from the sending bank, additional steps may be required through intermediary or correspondence banks, and the process could take up to ten business days or longer, depending on locations and intermediaries.

The sending bank does not immediately effect the transfer of funds to the receiving entity. It first sends a secure message to the receiving bank. The receiving bank will send instructions for transmission, and once the sending bank receives and complies with those instructions, the money is sent.

The sending bank will, however, immediately reserve the funds in the sending account, though, to ensure the transaction will remain possible.

In a retail entity transfer, the process takes less time. The sender presents a payment method, usually cash or a credit card, and submits the full name of the receiver and the exact location or address of the office or retail branch to which it should be sent. The receiver should present valid ID to the receiving location, signs for the funds and receives them.

Costs

Costs of a wire transfer differ by entity and intermediaries. Usually, a domestic transfer costs incurred are only from the sending agency, paid by the sender, and the receiving agency, paid by the receiver.

Costs can vary by institution or entity, distance and locations of transmittal and receipt. If currency differences exist, additional fees may be incurred at each step to exchange the sent currency into the receiving currency; these exchange fees can incur at each step if currencies change at each correspondence point.

Banks

Each country or currency-reference location can charge a reasonable fee for domestic or international wire transfers.

However, correspondence banks—intermediaries—also take fees during the transfer process, often without notification or permission. Correspondence banks are required when the two bookend entities do not have direct or network affiliation.

For example, Bank A, the sending entity, does not have an associated contract or agreement with Bank B, the receiving entity. Therefore, Bank A must find a corresponding bank that does have an agreement or a series of banks through which the transfer can be made. Each intermediary takes its cost from the transferred balance which reduces the total amount received. No notification is given regarding these additional transfer fees.

Single European Payments Area

Initially comprising only the 27 countries of the European Union, the Single European Payments Area, (SEPA) expanded to include other European countries for wire transfer and commerce-related funds transfers.

Wire transfers within the SEPA countries charge a lesser rate for domestic transfers than international transfers, although currency exchange fees may still apply.

United States

US banks often charge the highest wire transfer fees, regardless of receiving bank location. Domestic rates fare lower than international rates, but all larger transactions are followed closely, and the process is highly regulated.

Retail Transfers

Wire transfers are possible through more than just banks. If the receiver does not have a bank account locally, a bank-to-bank transfer may not be possible or convenient. In those cases, using a retail wire transfer entity may be the better method.

Retail organisations that transfer money electronic include Western Union and MoneyGram, to name only a few.

The retailer charges only for sending the money—not receiving it, and transmittal fees are often tiered to the amount sent.

Domestic wire transfers can take only a few hours, depending on hours of operation at the receiving location. International transfers can take longer, depending on the receiving country and distance.

When transferring funds internationally, currency exchange fees are often incurred and are deducted from the received funds or are paid by the sender prior to transmittal.

Because wire transfers through retail organisations have historically been used to launder money, international transfers are often routinely investigated by law enforcement agencies.