RBI Issues Circular On Levying Unfair Interest Charges On Customers

The first thing to check before transferring money abroad is the total cost. The upfront fee is often easy to spot but there can be hidden fees elsewhere. This can catch consumers off guard if they don’t know where to look.

The technology influx and ease of international communication has transformed people into global citizens today. The world has indeed become more accessible in terms of professional and academic work opportunities. Indians actively travel abroad for studies and jobs. They tend to even settle abroad if the situation permits. While working in a foreign land, you may encounter the need to transfer money to your family back home. For global money transfer, it’s important to find a good exchange rate and an efficient banking service at your disposal.

Banking abroad can be an expensive affair. The primary reason here is the lack of credible information surrounding the process of money transfer abroad. You often believe in hearsay and may end up spending a lot more than usual to avail money transfer services. Visiting a bank and standing in long queues can sometimes feel too daunting. Companies like Globalise and Wise are working to reduce transaction fees and provide better exchange rates for remittances.

Concept of transferring money abroad

“Bank fees for transferring money abroad can include a margin on the exchange rate and a fixed transfer fee. These costs can accumulate, so one must have clarity on what the associated charges from the bank might be. It is important to work with the bank to get a good exchange rate to reduce the cost of an overseas transfer,” said Viraj Nanda, CEO at Globalise.

The first thing to check before transferring money abroad is the total cost. The upfront fee is often easy to spot but there can be hidden fees elsewhere. This can catch consumers off guard if they don’t know where to look. Sending money overseas will generally incur two costs:

– The upfront fee (the advertised cost): Fees vary but can often be portrayed as low-fee or even “free international transfers”. But be aware that the upfront fee may not represent the total cost of the transfer.

– The exchange rate (the hidden cost):  When you look up an exchange rate, you are shown one figure: the mid-market exchange rate. This is the mid-point between the “buy” and “sell” rates on the global currency markets. The mid-market rate is considered the most fair and the “real” exchange rate.

“Banks and currency exchange services are not obliged to use the mid-market exchange rate. In fact, many don’t. You will often find that a margin, usually between 2-6% has been added to the exchange rate which translates into a hidden fee as banks and other providers don’t disclose that to consumers. This means that consumers don’t know they’re unknowingly spending more than they should,” said Rashmi Satpute, country manager – India at Wise.

Up to £150 billion is lost globally in hidden fees on foreign currency transfers yearly, which is an enormous problem and this is primarily due to the low awareness about costs associated with FX transactions (transaction fee and marked up exchange rate).

Satpute further advised, “At Wise, we don’t add a markup to the exchange rate. Instead, we offer the mid-market rate and a low, transparent fee. My three tips for anyone sending money abroad and comparing providers is to firstly look at the true cost of the transfer (including the exchange rate and upfront fee), how fast the transfer will be – will the transfer take days, hours or a few seconds and is the recipient guaranteed to receive the whole amount or will they have to pay any receiving fees at the other end?”

How to avoid banking frauds?

Scams can occur for various reasons and the common thread for all victims is a lack of awareness and understanding of what could be a scam whether that’s sending money through a bank or an online remittance platform. As per Satpute, the most common money transfer scams always include at least one of the following:

– A request from someone you’ve never met.
– Someone in a crisis that you can’t tell anyone else about.
– A money transfer being the only form of payment accepted.
– Paying money to get more money back.

Customers can avoid becoming a victim of a money transfer scam by following a few basic tips:

– Never send money to strangers. Under any circumstances.
– Be wary of unsolicited email. Your email, financial and other service providers will never email you to confirm personal info or passwords.
– Go with your gut. Con artists deal in pressure and threats. When in doubt, slow down. A quick online search can often confirm your suspicions.

Choose the platform carefully

“For sending money to a foreign recipient, the beneficiary details on the transaction should be correct to avoid any errors. Globalise is working with many banks to set up Globalise as a beneficiary on their systems to make it easy for customers to initiate a transaction and avoid errors,” Nanda pointed.

Many banks, such as Axis, IndusInd and Kotak, also offer online remittance platforms that are easy to use. Customers should use these where possible, as they also limit errors in processing as compared to paper-based transactions.

Most reputable online providers will firstly be regulated and hold licenses in the country they operate in. They will also have up to date security measures in place to make sure customer data and information is secure when sending an international money transfer.

“For example, in terms of online security, Wise protects customers data from fraud and theft and also uses 2FA, giving customers extra protection. This means that when customers log in, they go through two levels of verification to access their account. Wise also encrypts sensitive customer data and creates secure connections with the website browser when customers are providing their personal details and identification,” Satpute explained.

Curbing down the cost

With platforms like Wise, Indians now have the option to transfer money at comparatively lesser rates than traditional banks too.

“In India, customers can send money to 44 countries at a price that is on average 2x cheaper than banks and other providers like PayPal. For new users who’ve submitted the right documentation, getting verified takes about 3-4 hours and on average, most transfers from India are completed within 24 hours,” Satpute asserted.

Wise can be convenient for Indian customers because as they claim to offer a 100% fully online experience from verification to the setting up and completion of transfers, which means there is no need for customers to leave their homes or worry about carrying about money documentation to physical branches.

RBI regulations for money transfer

Global transfers by Indian residents are governed by the Foreign Exchange Management Act (FEMA), instituted by the RBI. Under FEMA, the Liberalised Remittance Scheme permits each resident individual to remit $250,000 per year.

Further, Nanda states, “Individuals can only transfer money globally for a specific list of transactions, including investment in foreign equities. RBI also stipulates that remittances for certain types of transactions (capital account transactions), which includes overseas investments, can only be executed by specific financial institutions, such as banks.”