When preparing to move abroad, there are a lot of moving parts, and many of them require sending money overseas. When you attempt a cross-border payment, you’ll likely find the process is a lot more involved than you expected. Knowing what to expect when doing cross-border transfer will help you send the payment in plenty of time and be ready for any complications that may arise.
A Note About Currency Conversion
Before I continue, I want to talk about the currency conversion process. There are different ways you can exchange your American dollars for the currency used in your new country. Each one of these methods have their pros and cons. You can call your bank and see if they can process the exchange for you. If they can, expect to pay a conversion fee for the service.
Another option is using an online currency exchange which allows you to digitally exchange your U.S. dollars for the currency you need. Whichever you choose, it’s crucial that you first calculate the conversion to see how much American money you need to exchange to get the amount you need. For example, as of the writing of this article, one U.S. dollar is equal to 0.92 euros. If you need 1,000 euros, you will need to exchange $1,085.14 U.S. dollars (plus the fee charged) to get that amount.
What Are Cross-Border Payments?
Cross-border payments are transactions sent between two parties who are located in different countries. These payments can be processed through banks or money transfer services. They require the sender’s money to be exchanged into the receiver’s currency. Knowing how to properly send a cross-border payment is important because of the potential complications that can arise if you’re not prepared.
Challenges of Cross-Border Payments
Many potential challenges come with cross-border payments. Let’s look at some of the more common complications that arise.
High Fees
As I’ve already mentioned above, one of the biggest challenges of cross-border payments is the fees associated with the process. When you process a payment like this, you’ll be subject to currency conversion fees as well as payment processing fees. These fees can vary greatly from each financial institution, so you need to shop around and find the best option.
In general, online money services tend to charge lower fees than your local bank will. However, it’s still important to look at multiple options before choosing the service you’ll use for your cross-border payment.
Time
Cross-border payments can take a long time compared to domestic payments. On average, a cross-border payment processed through a bank transfer will take between two and five days to get to the recipient. Wire transfers are usually quicker but can still take one to three days. In addition, further delays can come up based on factors like time zones and incorrect processing information.
If you aren’t prepared for the extended processing time required for your cross-border transfer, you may not send your payment early enough to get it to the recipient on time. If you’re paying for things like healthcare, rental deposits, or other vital services, a delayed payment could cause issues with your moving plans.
Security
The unfortunate truth is that cross-border payments are more susceptible to security breaches than domestic payments are. Every country has its own security regulations and guidelines, so payments can be more at risk of being hacked if they go into a country that has more lenient security processes than America does.
If a cross-border transfer does get hacked, there isn’t a guarantee that your bank will be able to get the money back. This loss can end up being very costly for you, especially if you are sending a larger sum of money. Of course, your financial provider wants to keep your funds safe as much as you do, so they’ll do all they can to keep your transfer out of a hacker’s hands. The risk is just higher for these transactions compared to domestic ones.
Transparency
A common complaint about cross-border transfers is that they lack transparency throughout the process. Depending on how you process your payment, you may not receive any form of tracking information for the payment. You may send the payment and not realize it was rejected or lost until you reach out to the receiver to check the status of your account. This hurdle can be stressful for many who are sending important payments to another country.
Not only that, but the lack of transparency can also leave you more susceptible to hidden costs and fees that you weren’t expecting during the payment process. It can sometimes be hard to get all of the information about the fees required for your payment. Again, this is why it’s so important to do your research before choosing a financial institution to send your transfer through.
Types of Payment Solutions
There are three main types of cross-border payment solutions that people opt for. I’ll explain each of the three below to help you make the right choice for your transfer.
PayPal
One option that has grown in popularity recently is sending cross-border transfers through PayPal. Here’s a quick rundown on how this option works:
- Fees: PayPal charges variable fees for cross-border transactions. These fees usually include a percentage of the transferred amount plus a fixed fee.
- Time: PayPal transfers are usually quick, and you can even send an almost instant payment for an added fee.
PayPal is an okay option if you’re sending smaller payment amounts and both you and the recipient already have established PayPal accounts. However, it’s not my favorite due to limits on the amount of money that can be made available for newer accounts, which can lead to a delay in the recipient getting all of their funds.
ACH Payments
Many people opt to send cross-border transfers through ACH payments, which are processed through the bank account. An ACH payment looks like this:
- Fees: Fees for ACH payments are typically lower than wire transfers, making them a popular option for regular transfers.
- Time: ACH transfers are among the slowest transfers because they’re batch processed. Expect an ACH transfer to take two to four days to get to the recipient.
Wire Transfer
Wire transfers are heavily regulated and widely accepted as a means for large sums of money being sent between countries. Let’s look at the details:
- Fees: Wire transfers often have high fees, which can vary greatly depending on the amount of the payment and the banks involved.
- Time: Wire transfers are known for being quick and are usually processed in one to two days.
It’s important to note that wire transfers can be done in person at your bank, at wiring financial institutions, or through online transfer services. The fees you pay will vary based on which option you choose. For example, the fees you pay online through Wise will be much lower than what you pay at your personal bank or a wiring company like Western Union.
How to Send a Cross-Border Payment
Ready to send your first cross-border payment? Here’s a step-by-step walkthrough to help you get your money to the recipient in another country.
Choose a Money Transfer Service
The first thing you need to do is choose which money transfer service you want to use to send your funds. As I’ve mentioned already, not all services are created equal, so it’s important to do your research and choose the service that works best for your situation. Compare the fees included and the timeline provided, along with information on security measures and transparency, to pick the service you’ll use.
Check Exchange Rates
Before you initiate your payment, check the exchange rate between U.S. dollars and the currency of the recipient. Online currency convertors can give you updated information on the rates. These rates fluctuate constantly, so don’t assume that the rate you saw last week is still accurate today. Account for the rate when determining how much money to send so you don’t send too much or too little.
Gather the Recipient’s Information
To send a cross-border transfer, you need to have the right information for the recipient. Make sure you have their bank account information, including the following:
- The account holder’s name, as it appears on the account
- Account number
- Bank name and branch, if applicable
- The bank’s SWIFT or IBAN code
- Taxpayer Information
Execute the Transaction
Now it’s time to make the transaction. The following steps will execute a flawless cross-border transfer:
- Purchase: You will initiate the transfer by providing your payment information, such as your bank account and routing numbers or your credit or debit card.
- Routing and Processing: Your payment information is encrypted and sent to your bank for authorization.
- Payment Verification: The payment is verified and then approved based on the parameters set by the involved banks. At this point, it’s verified that you have the available funds for the transfer.
- Confirmation: Once the payment is approved, the money will be debited from your account. It’s important to note that the recipient hasn’t yet been credited the funds at this stage.
- Fulfillment and Settlement: The transaction receives approval and then goes through the processing period. Depending on the method you choose, this can take anywhere from one to five days on average. Once the processing is complete, the recipient is credited the funds, and your transfer is officially complete.
Keep in mind that there is a possibility of additional charges as the transfer is completed, such as receiving fees from the recipient’s bank or international charges from certain countries. If you follow these steps and our guidance, you’ll be able to send a cross-border transfer securely and efficiently.
Use Wise for Sending Money Overseas
When it comes to cross-border transfers, there’s only one service that I trust with mine: Wise. Wise is dedicated to safe and secure international money transfers that are affordable, easy to navigate, and incredibly transparent.
One of the things I love most about Wise is that it does the currency exchange for you. You don’t need to do any math or even look up the current exchange rates because Wise handles all of that for you automatically. Simply enter the amount you’re sending in U.S. dollars, and it will tell you how much the recipient will receive after fees. If you need to send a specific dollar amount, put that amount into the “recipient gets” field and Wise will tell you how much you need to send to account for fees.
How to Transfer Your Money
Simply enter the amount you’re sending and pay for it in U.S. dollars with your bank account, debit card, or credit card. Then enter your recipient information and determine the payout method you want to use. Wise will handle the transfer and the U.S. dollars you send will be received by the recipient in their currency. It’s that easy!
You can send money via a credit or debit card, wire transfer, or ACH transfer. Wise will let you know upfront what the fee is for each option, plus their fee for the service to give you a transparent amount. There are never any hidden fees. On average, Wise transfers are completed within three business days, and you’ll get an estimated arrival date when you complete the transaction.
Wise takes all the confusion and guesswork out of cross-border transfers. If you’re moving to another country or need to send a payment overseas for another reason, using Wise is an affordable and safe way to get it done without any extra work.
Wrap Up
Cross-border transfers are often a necessary part of preparing to move overseas. Understanding the potential concerns of these transfers and how to process one successfully will help you avoid any unexpected complications when sending money to a recipient in another country.