Money Matters

Bank Remittance Explained & Its Difference vs Bank Transfer

What is Remittance?

Remittance refers to the act of sending money abroad in a safe and convenient manner.

Whether you are working, studying abroad, or living as an expat, you might need to send a portion of your foreign earnings back home to support your financial needs. You would visit your bank to inquire about the fund transfer process and learn about a procedure called foreign exchange remittance. Let’s delve into the details of this article, including its definition, types, payment methods, and more.

Remittance refers to the process of transferring or sending money from one party to another. This term commonly pertains to fund transfers across international borders. Such monetary transactions aid in supporting families across different countries.

Types of Remittance:

  • Internal Remittance: This refers to the funds you receive in your bank account from another account, either within India or abroad. For instance, if you, as a non-resident Indian (NRI) living in Canada, send money to a local account in India, this transfer is termed as an inward remittance.
  • External Remittance: When you transfer funds from your local account to an overseas account, it involves foreign currency. For instance, when parents in India send money to their international student child residing in Singapore, the money transfer service involves foreign currency for the parents.

Payment Methods for Remittance:

Now that we have explained the banking process, let’s explore the various payment methods.

  • Wire Transfer: Wire transfer stands out as one of the most widely used methods for remittance. An international money transfer usually takes around 3-5 business days or even longer. Wire transfers can be relatively costly, with some host countries charging substantial fees for this service.
  • Bank Transfer: Bank transfers are used to send money between your own bank accounts. This can be done domestically or internationally. When done internationally, it’s known as a cross-border payment, which often incurs additional charges.
  • Money Transfer Apps: Advancements in technology have led to the emergence of several apps that facilitate swift remittance. Payment through money transfer apps is straightforward, secure, and convenient, with transactions occurring almost instantly.

What is Bank Remittance?

Bank remittance refers to the transfer of money from one bank account to another, either as a gift or payment. Remittances are utilized to settle bills or invoices and can be sent through electronic payment systems, wire transfers, mail, drafts, or checks.

How Does Bank Remittance Work?

As cross-border business expands, the demand for sending remittances also grows. Bank remittances play a significant role in today’s financial ecosystem. The volume of internationally sent money has witnessed exponential growth in recent years. This increase is partly due to the gig economy and the expansion of financial technology platforms that are creating new opportunities.

But how does bank remittance work? To initiate the process, you need to pre-fund your bank account in your home country’s local currency. For instance, if you intend to send $500 from Canada to Spain, you must deposit at least $500 into your Canadian bank account.

Once the funds reach the bank in Spain, the recipient should contact their local branch or treasury department to acquire the Euro-Canadian foreign exchange rate for that day. This exchange rate is then employed by the recipient’s bank to convert the remittance into the local currency.

In most cases, particularly when the sum involved exceeds a thousand dollars, the bank will utilize a commercial exchange rate. It’s important to note that these rates are designed to optimize profits for the receiving bank, not the customer.

In some countries, remittance flows contribute significantly to their GDP (gross domestic product). In 2018 alone, migrant workers remitted $689 billion worldwide, excluding bond payments which totaled $124 trillion in the same year. Remittance services play a crucial role in boosting the economy.

Sending Bank Remittance

While sending a check is an option, wire transfer is the prevailing method for remittances. The processing time for wire transfers can range from 3 to 5 business days or even longer, especially for overseas transactions.

However, conducting some currency research before initiating an international wire transfer is advisable. You should verify whether the bank can transmit funds in your recipient’s local currency. This is particularly vital when sending money to developing countries such as the Philippines, South Africa, and Mexico, which might necessitate more developmental assistance.

Wire transfers can incur considerable costs, and some foreign countries impose high fees for this service. Alongside these charges, you should also consider the foreign exchange rate applied for the financial services provided by your bank. It’s important to note that banks typically don’t offer real-time rates; instead, they negotiate higher rates to secure an above-average return on the transaction.

In instances where an international bank cannot directly receive a remittance, an intermediary bank is often involved. This is frequently the case with international payments, as not all banks have direct relationships with each other. Money transfer operators must ensure that funds are safeguarded against fraud, money laundering, and other forms of theft.

When the funds are eventually withdrawn, they pass through an intermediary bank, which may levy a fee for their money transfer services. These fees are rarely disclosed upfront and are often billed to the sender, potentially straining business relationships.

What is a Bank Transfer?

A bank transfer is used to move money between your accounts, either locally or internationally. A local bank transfer involves depositing money into a foreign bank account.

Local bank transfers are associated with intermediary organizations that mediate between the payer (sender) and the payee (receiver) of the transfer. Similar to a credit union, intermediaries function as clearing mechanisms, safeguarding and facilitating fund transfers.

The most common intermediary process in the US is the ACH transfer. The payer initiates the payment, which is then settled by an Automated Clearing House that debits the payer’s account. However, ACH doesn’t handle international wire transfers.

Domestic wire transfers are also referred to as international ACH, eCheck, or global ACH. This category of Electronic Funds Transfer (EFT) varies in process from one country to another and is gaining popularity as the preferred international money transfer method for bulk payments.

Bank transfers can be swiftly executed on a large scale, leveraging local currency and accommodating small amounts.

The distinction between local bank transfers and wire transfers lies in the role of intermediaries or networks. Wire transfers involve direct communication between the banks on both ends of the transaction.

While local wire transfers can be relatively inexpensive, international wire transfers involve substantial amounts. Nevertheless, international wire transfers are more reliable.

What is the Difference Between Bank Remittance and Bank Transfer?

A bank transfer occurs when you move a certain amount from one account to another. Bank remittance, on the other hand, is employed for transferring funds between two distinct accounts.

Though wire transfers are consistently popular, online transfers present a primary alternative. Merging the conventional concept of money with EFT technology, online transfers typically conclude within one business day, with instant fund reception in some cases. However, they usually come at a higher cost.

Through EFT, you can make online payments using any internet-enabled device. Hence, they are also termed as internet money transfers.

Online transfers may entail certain complexities. While sending a prompt payment within the same country is feasible, international payments are more intricate.

Several providers impose substantial fees for conducting EFTs, often calculated as a percentage of the transferred amount. Additionally, akin to remittances and transfers, banks and other providers may apply unfavorable exchange rates.

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