Idea
Global Banking Transfer - Differences between Global Wire Transfers and Local Transfers
by
iFAST Global Bank
Telegraphic Transfer
Telegraphic transfer, currently one of the few available international remittance methods across countries and currencies, relies on the Swift network. Telegraphic transfers incur high transaction costs, typically including fees from the originating bank, telegraph fees, intermediary bank fees, and receiving bank fees. Since telegraphic transfers do not directly reach the recipient bank, some transfers may require intermediaries, resulting in processing times spanning several business days.
Local Transfers
Various countries and regions establish local transfer networks with low or no transaction fees and relatively fast processing times. However, these networks usually support interbank transactions within the country or region and often have limited currency support. Examples of local transfer networks include Faster Payment System (FPS) in Hong Kong, Super-Internet-Bank in mainland China, Faster Payments Service (FPS) in the UK, Single Euro Payments Area (SEPA) in the EU, FedWire and ACH in the US, and MEPS in Singapore.
Many individuals are accustomed to convenient transfers through local mobile banking, which offer 24/7 rapid processing and fee exemptions. However, they find cross-border remittances challenging, as banks impose fees and require waiting periods spanning multiple business days. This discrepancy arises from the differing operational mechanisms between cross-border telegraphic transfers and local interbank transfers.
1. Telegraphic Transfers vs. Cross-Border Remittances
Telegraphic transfers essentially represent a method of interbank remittance. While not restricted to cross-border bank transfers, telegraphic transfers can also be used for interbank transfers domestically. However, with the development of local transfer systems, domestic banks tend to avoid this method.
Telegraphic transfers involve using electronic information systems (telegraph, networks) for remittance. Therefore, telegraphic transfers rely on an information transmission system. Initially, traditional communication methods like telegraph and telephone were used. Subsequently, with technological advancements, financial information systems like Swift, linking various banks, emerged. Through Swift, bank clients can transmit remittance information to the recipient bank (Swift transmits only information, not funds. Fund settlement relies on other clearing channels). This explains the "telegraph fees" in the fees for cross-border telegraphic transfers, representing the cost of transmitting information via Swift.
When designing Swift, a mechanism for information intermediation was incorporated. Even if the two banks involved in the remittance are not directly connected, an intermediary bank connected to both can facilitate the transfer. Naturally, the intermediary bank charges a certain fee, known as the intermediary bank fee.
Furthermore, since Swift is solely an information transmission network, banks involved in remittance must settle funds. Consequently, both the originating and recipient banks charge certain fees for remittances.
These four fees constitute the primary costs for users conducting telegraphic transfers. Users need to select the fee payment method when remitting funds. There are three payment methods for telegraphic transfer fees:
SHA: Both parties share the fee, with the recipient's fee deducted from the remittance amount, and the sender's fee deducted from their balance.
BEN: The recipient bears the fee, with the entire fee deducted from the remittance amount.
OUR: The sender bears the fee, with the fee deducted from the sender's balance. The recipient typically receives the remittance amount.
Fee Type | Remitter Bank Fee | Intermediary Bank Fee | Beneficiary Bank Fee |
SHA Shared | Paid by Remitter | Paid by Beneficiary | Paid by Beneficiary |
BEN Beneficiary | Paid by Beneficiary | Paid by Beneficiary | Paid by Beneficiary |
OUR Remitter | Paid by Remitter | Paid by Remitter | Paid by Beneficiary |
While telegraphic transfer fees are often relatively high, the advantage lies in its widespread global support, with many banks offering this method.
2. Local Interbank Transfer Systems
Due to the fee and time limitations of telegraphic transfers, local governments or interbank entities often lead local interbank transfer systems within countries and regions. These systems typically offer advantages such as fast transfers, low or no fees (except in the case of the US). Therefore, they are commonly used for local bank transfers.
1.UK: Faster Payments Service (FPS)
FPS is the UK's rapid transfer system. Besides banks, other institutions may also participate in FPS. The system provides 24/7 transfers, with banks potentially charging minimal fees. Transactions are either real-time or processed within minutes.
FPS requires providing a Sort Code to identify the bank and a bank account number to designate the user's account. Currently, FPS only supports transfers in GBP.
2. EU: Single Euro Payments Area (SEPA)
Similar systems are available in the EU, providing rapid and immediate payment support within the EU and certain non-EU countries.
Currently, SEPA transfers require providing an IBAN to identify the recipient's account and bank information. SEPA currently supports payments in euros.
3. United States: FedWire and ACH
There are two main domestic transfer systems accessible to users in the United States: FedWire and ACH. FedWire is the network responsible for fund settlement in the United States, while ACH can be seen as another payment network built on top of FedWire.
The difference between these two payment networks lies in the speed and cost. FedWire offers faster processing times but with higher fees, whereas ACH transactions are slower, often taking 1 to 3 business days, but come with lower or no fees.
Currently, users need to provide the ABA Number (Routing Number) to identify the destination bank. They also need to specify the account number and type to differentiate between different accounts.
4. Hong Kong: Faster Payment System (FPS)
The Faster Payment System (FPS) was introduced by the Hong Kong Monetary Authority in 2018 as an interbank transfer system for banks and third-party payment service providers in Hong Kong. FPS offers 24-hour payment support, and most banks do not charge fees for FPS transfers, with real-time settlement supported.
FPS supports various identifiers for transfer accounts, including phone numbers, HKID numbers, email addresses, FPS IDs, and bank account numbers. Users need to configure their FPS within the system provided by their bank. Currently, FPS only supports transfers in Hong Kong dollars and Chinese yuan.
5. Mainland China: Super-Internet-Bank
Super-Internet-Bank was launched by the People's Bank of China on August 30, 2010, as the second generation of online banking systems to enhance interbank payments and transactions within mainland China. With Super-Internet-Bank, banks can facilitate cross-bank transfers quickly and without fees, along with additional features such as cross-bank loan repayments and balance inquiries.
This functionality is available to all bank accounts opened within mainland China. Cross-bank transfers within mainland China are typically completed using bank card numbers issued by UnionPay. Currently, Super-Internet-Bank transfers within mainland China generally support Chinese yuan only.
iFAST Global Bank is a member of the Financial Services Compensation Scheme (FSCS).
iFAST Global Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Our Financial Services Register number is 716167. We are registered in England and Wales, our company number is 4797759.
Please note that the provided details serve as general information and should not be considered as financial advice or endorsements. We strongly advise customers to diligently carry out their own research and consider seeking expert guidance for tailored financial choices.
