Wire Transfers Explained
Wire transfers are considered to be the fastest and safest method of transferring money internationally, facilitating the quick and secure transfer of funds around the globe. These electronic bank-to-bank transfers can be initiated directly from a bank or from a specialist foreign exchange provider like Fexco International Payments.
Referred to as simply a ‘Wire’ in the United States, the wire transfer may also be referred to as a Telegraphic Transfer or TT. Wire transfers may also be known under different names depending on the context in which they are used: for instance in the UK banking system, domestic wire transfers are known as CHAPS payments (Clearing House Automated Payments System).
Types of wire transfers
Wire transfers are generally a quick and convenient method of transferring funds from one bank account to another. If recipients do not have a bank account, a cash transfer option with a retail money transfer company is often used. Apart from higher charges for this service, there are security concerns surrounding the anonymity of the parties in the transaction. Very often the receiver may not be required to produce identification, leading to concerns about the potential for fraud and impersonation.
International wire transfers are executed through SWIFT (Society for Worldwide Interbank Financial Telecommunications). SWIFT facilitates the transfer of financial messages and acts as a watchdog for the creation and maintenance of financial messaging standards.
Financial institutions are assigned bank identifier codes which are used to route wire transfers. These alpha-numeric codes vary worldwide. For example, European banks use a different type of code (BIC) from the US (where an ABA is used). The 9-digit ABA routing number together with a bank account number is primarily used to send wire transfers within the US. In contrast, BIC codes are between 8 and 11 characters in length.
What is a BIC and IBAN code?
BIC codes typically incorporate a short summary of the name of the financial institution together with its location. For example, Deutsche Bank in Munich has a SWIFT code DEUTDEMMxxx because:
• DEUT identifies Deutsche Bank
• DE is the country code for Germany
• MM is the location code for Munich
Where an 11-digit BIC is used, the receiving bank may have assigned extended codes to branches allowing payment to be directed to a specific bank branch.
For receiving banks within the EU, an IBAN (International Bank Account Number) is also required. This identifies the beneficiary’s bank account and includes the information needed by the receiving bank to apply the funds automatically. Although originally formulated to approve payments within the European Union, the IBAN is now also used throughout many countries in the developing world, particularly in the Middle East and the Caribbean.
Cost and delivery
The price of bank wire transfers varies greatly, depending on the bank and its location. In some countries, the fee associated with the service can be very high. In the United States for example wire transfers can cost as much as $50 and receiving banks may also charge a fee for accepting wires. Sender fees are paid on top of the amount being sent, while recipient fees may also be deducted from the principal on the receiving end. This is very different from SEPA payments in Europe which are treated as domestic payments and cost €1 or less per transaction with no recipient fees.
Wire transfers are delivered in a relatively short timeframe but the length of time can vary slightly depending on time zone differences. The progress of a wire transfer may also be affected by bank cut-off times (banks typically send their wires in bulk at set cut-off times during the day, rather than transferring each individual wire separately). All financial institutions using the SWIFT network can also offer payment messaging to senders and payees for transparency on all transactions – this can aid delivery and simplify reconciliations.
Security and fraud
It is important to note that, as with all payment types, wire transfers are not immune to fraud or unscrupulous practice by scammers. Businesses of all sizes that purchase goods from suppliers can be vulnerable to scams. The typical wire scam scenario is that a business that has a long-standing relationship with its supplier receives an email from the supplier asking them to wire payments to a new bank account. Neither the customer nor the supplier is aware that the supplier’s email has actually been hacked and the new bank account belongs to a fraudster. The fraudulent email request replicates the legitimate supplier’s email so that the unsuspecting customer assumes that the change is legitimate. The best way to prevent this type of fraud is to educate staff performing accounts payable functions about security and to double-check any change of supplier account details by speaking with the supplier directly.
Wire transfers with Fexco FCP
Fexco Corporate Payments provides cheap, fast and secure money transfers for business and personal clients. Depending on the currency used, wire payments take between 1 to 2 days (with same-day payments available in some currencies). Contact us today and discover how Fexco Corporate payments can help you with your payment needs or register for a free account with no obligation to trade.