5 Ways To Save Money On Cross-border Remittances

In an increasingly interconnected world, the ability to quickly and cheaply transfer money across borders is more than a convenience; it’s a necessity. 

Whether you are a student studying abroad, a family helping loved ones back home, or you run a company handling international transactions, the stakes are high, and every penny counts. 

This article will help you navigate the maze of exchange rates, transfer fees, and hidden charges. We will explore the complexities of cross-border money transfers and discuss the challenges and how to overcome them.

So, let’s get started.

What Are Cross-Border Remittances?

International money transfers or remittances are money people working away from their home country send back to their families. It’s a simple idea but has a big impact, especially in India.

According to the World Bank, India’s inward remittances grew 12.3% to $125 billion in 2023. India remains the top recipient of remittances globally, followed by Mexico ($67 billion) and China ($50 billion). People from India who live and work in other countries send money back home, which benefits India’s economy. 

Importance of Remittance on the Global Economy

Money transfers back home significantly impact companies with international business and Indian students studying abroad. 

Remittances can help companies grow globally. For example, a business in India dealing with clients overseas can benefit from efficient remittance systems. They can reduce transaction times, ensure timely payments, and improve cash flow, which is crucial for maintaining a healthy business and expanding to new markets.

They are essential for Indian students studying in foreign countries. They help cover living expenses, tuition fees, and other costs. However, recent changes in tax laws mean that any money sent abroad for purposes other than education or health will face a higher tax rate. This can make it more expensive for families to support their children studying overseas.

Companies and students rely on remittances to effectively manage their finances across borders. It’s a vital part of the global economy that connects businesses, families, and students worldwide.

How is Cross-Border Remittance Cost Calculated?

The fees for cross-border payments can fluctuate based on factors such as the transaction amount, payment method, transfer destination, and prevailing exchange rates. Typically, these charges fall within 0.3% to 20% of the transaction amount.

• Transfer Amount: The size of the remittance can affect the cost, with some services charging a percentage of the total amount.

• Service Fees: Fixed fees may be applied by the service provider for processing the transaction.

• Exchange Rate Margin: The difference between the market exchange rate and the rate offered to customers.

• Payment Method: Costs may vary depending on the remittance mode- whether through the bank, digital money transfer services or platforms, or cash transfers.

• Urgency: Expedited transfers can incur additional charges.

For example, according to the World Bank, the global average cost of sending $200 from one country to another was about $12.50 in early 2023, which is approximately 6.25%. In India, the average cost of cross-border remittance is about 6.2% of the transaction’s value. 

To reduce the expenses associated with remittances globally, comparing different service providers to find the most cost-effective option for your needs is always a good idea.

The challenges associated with Cross-border Transfers

• Multiple Intermediaries: Money passes through several banks and services, and multiple checks for ensuring  Know Your Customer/Anti Money Laundering guidelines potentially taking a fee.

• Currency Conversion: Fluctuating exchange rates can reduce the value of the money being sent.

• Lack of Standard Regulations: Each country has its systems and regulatory authorities to protect consumers and their data, prevent fraud, and curb illegal activities related to cross-border payments. Complying with international laws and regulations can be complex and costly.

• Speed: While several countries, such as Singapore, Mexico, the UK, and Australia, have successfully implemented real-time cross-border payment systems, many developing countries, like India, still encounter delays.

• Message Formats- Cross-border retail payments rely heavily on the SWIFT MT103 messaging format, which is reliable but has limitations in carrying detailed information. 

The key challenge lies in interoperability. Faster payments reduce transaction time, but translation becomes necessary without compatible systems and messages. This process is time-consuming and raises the risk of errors.

India proposes Reducing the cost of cross-border Transfers

During the 13th WTO ministerial conference in Abu Dhabi, India suggested a work plan to reduce the costs of sending money to other countries. 

The proposal emphasizes making these transfers faster, cheaper, and more transparent for Least Developed Countries (LDCs) and developing nations. Also boosting international trade.

Why It Matters:

Big Savings: Sending money internationally currently costs quite a bit. India’s idea is to bring these costs down, which could save people a lot of money.

Supporting Families: Many people in India work in different countries and send money back home. Lower costs mean more money for their families.

Aligning With UN SDG Global Targets: India reaffirms its commitment to the UN SDG Goal of reducing transaction costs of remittances to less than 3% and eliminating remittance corridors with costs higher than 5% by 2030. 

Digital Push: India also encourages digital systems for these money transfers because they’re usually cheaper than traditional methods.

India’s move at the WTO is a big deal because it could help not just Indians, but people worldwide who need to send money to their loved ones. It’s about making life a little easier for everyone.

Tips and solutions for cross-border transfers

Compare Providers: Like shopping, compare different services to find the best rates and lowest fees.

Use Digital Platforms: Online services often have lower fees than traditional banks.

Plan Ahead: Avoid rush fees by sending money ahead of time when you can.

Send Larger Amounts Less Often: Fewer, larger transactions can reduce costs compared to many small ones.

Stay Informed on Exchange Rates: Knowing the best time to send money can save you a lot on conversion rates.

How Does Reduction in Cross-Border Transfers Impact Our Lives?

India’s initiative to reduce cross-border transfer costs is a game-changer, especially for individuals and businesses involved in international transactions. Here’s how it could impact our lives:

More Money Home: For the millions of Indians working abroad, lower transfer costs mean more of their hard-earned money can reach their families back home.

Boost to Economy: Remittances are a significant part of India’s GDP, and reduced costs could increase the total remittances received, giving the economy a healthy boost.

Encourages Formal Channels: By making formal channels cheaper, people are less likely to use informal, unregulated methods to send money, which are often riskier.

Supports Students Abroad: Indian students studying overseas will benefit from lower costs when receiving money for tuition or living expenses.

Business Growth: Indian businesses with international dealings can save on transaction costs, making them more competitive globally.

Digital Advancement: The push for digital solutions like UPI in cross-border payments could simplify transactions, making them faster and more user-friendly.

Overall, this initiative aims to make cross-border money transfers more accessible and affordable, positively affecting the lives of many by enhancing financial inclusion and supporting economic development.

The Bottom Line

At the WTO conference, India focused on cost-effective cross-border remittances promoting sustainable development worldwide. Achieving this goal is crucial for reducing inequality within and among countries, which aligns with the WTO’s development agenda.

Saving money on remittances is crucial for maximizing the value of cross-border transfers. Adopting digital solutions and standardized information sharing across borders can significantly expedite payment processing.

By researching the best transfer rates, avoiding high fees, and choosing the right time to send money, individuals can ensure their hard-earned money goes further.