Wire transfer or credit transfer is a method of electronic funds transfer from one person
or institution to another.
A wire transfer can be made from one bank account to another bank account or through
a transfer of cash at a cash office.
Different wire transfer systems and operators provide a variety of options relative to the
immediacy and finality of settlement and the cost, value, and volume of transactions.
Central bank wire transfer systems, such as the Federal Reserve's FedWire system in the
United States are more likely to be real time gross settlement systems.
RTGS systems provide the quickest availability of funds because they provide immediate "real-time"
and final "irrevocable" settlement by posting the gross entry against electronic accounts
of the wire transfer system operator.
Other systems such as CHIPS provide net settlement on a periodic basis.
More immediate settlement systems tend to process higher monetary value time-critical
transactions, have higher transaction costs, and a smaller volume of payments.
A faster settlement process allows less time for currency fluctuations while money is in
transit.
History Wire transfers originated in the 19th century,
sent over telegraph lines.
This process gave them their name wire as telegraphs were transmitted over wires.
Process Bank wire transfers are often the cheapest
method for transferring funds between bank accounts.
A bank wire transfer is effected as follows: The entity wishing to do a transfer approaches
a bank and gives the bank the order to transfer a certain amount of money.
IBAN and BIC codes are given as well so the bank knows where the money needs to be sent.
The sending bank transmits a message, via a secure system, to the receiving bank, requesting
that it effect payment according to the instructions given.
The message also includes settlement instructions.
The actual transfer is not instantaneous: funds may take several hours or even days
to move from the sender's account to the receiver's account.
Either the banks involved must hold a reciprocal account with each other, or the payment must
be sent to a bank with such an account, a correspondent bank, for further benefit to
the ultimate recipient.
Banks collect payment for the service from the sender as well as from the recipient.
The sending bank typically collects a fee separate from the funds being transferred,
while the receiving bank and intermediate banks through which the transfer travels deduct
fees from the money being transferred so that the recipient receives less than what the
sender sent.
Regulation and price Since 2009 the European Union Regulation No
924/2009 controls cross-border payments in the European Union.
In the new regulation Article 1 states that an IBAN/BIC transfer within Single Euro Payments
Area must not cost more than a national transfer, no matter which currency is used.
The receiving bank can charge for exchanging to local currency.
Prior to this, in 2002 the European Union relegated the regulation of fees a bank may
charge for payments in euro between European Union member states down to the domestic level,
resulting in very low or no fees for electronic transfers within the Eurozone.
In 2005, Iceland, Liechtenstein, and Norway joined the EU regulation on electronic transfers.
However, this regulation was superseded by the Single Euro Payments Area, consisting
of 32 European countries.
In the United States, domestic wire transfers are governed by Federal Regulation J and by
Article 4A of the Uniform Commercial Code.
US wire transfers are costly, for example, as of November 2011 the Bank Of America charged
$25 to send a wire and $12 to receive one within the U.S.
For international transfer, it charged $35–$45 outgoing, $16 incoming.
However, fees may vary from bank to bank.
Credit Unions charge a little less.
For example, Delta Community Credit Union has an outgoing fee of $15 for domestic wires,
and varying fees for international wires.
However, they do not have an incoming wire fee.
ACH transfers are much less expensive or even free of charge as part of online banking packages.
Security With bank-to-bank wire transfer, each account
holder must have a proven identity.
Chargeback is unlikely, although wires can be recalled.
Information contained in wires is transmitted securely through encrypted communications
methods.
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 costly.
Wire transfers done through cash offices are essentially anonymous and are designed for
transfer between persons who trust each other.
It is unsafe to send money by wire to an unknown person to collect at a cash office: the receiver
of the money may, after collecting it, simply disappear.
This scam has been used often, especially in the so-called 419 scams which often nominate
Western Union for collection.
International transfers involving the United States are subject to monitoring by the Office
of Foreign Assets Control, which monitors information provided in the text of the wire
and then decides whether, according to the US Government's federal regulations and political
positions, money is being transferred to terrorist groups, or countries or entities under sanction
by the United States government.
If a financial institution suspects that funds are being sent from or to one of these entities,
it must block the transfer and freeze the funds.
SWIFT or IBAN wire transfers are not completely free of vulnerabilities.
Every intermediate bank that handles a wire transaction can take a fee directly out of
the wire payload without the account holder's knowledge or consent.
In many places, there is no legislation or technical means to protect customers from
this practice.
If bank S is the sending bank, and bank R is the receiving bank, and banks I1, I2 and
I3 are intermediary banks, the client may only have a contract with bank S and/or R,
but banks I1, I2 and I3 can take money from the wire without any direct arrangement with
the client.
Clients are sometimes taken by surprise when less money arrives at bank R. Contrast this
with cheques, where the amount transferred is guaranteed in full, and fees can be charged
only at endpoint banks.
Europe offers some partial protection from this practice by prohibiting European intermediate
banks from taking a fee out of the amount being transferred, even for transatlantic
transfers.
However, it's still common practice for a European brokerage firm to state that they
charge no transfer fee, and then contract their bank to take an unpublished fee from
the amount transferred as a means to compensate their bank with their clients' assets.
E.g.
CMC Markets implements this policy in partnership with Natwest.
EU privacy law may be breached by some USA operators such as SWIFT, so EU users are sometimes
required by their service provider to make an explicit declaration that seeks to circumvent
EU privacy regulations.
Methods Retail money transfers
One of the largest companies that offer wire transfer is Western Union, which allows individuals
to transfer or receive money without an account with Western Union or any financial institution.
Concern and controversy about Western Union transfers have increased in recent years,
because of the increased monitoring of money-laundering transactions, as well as concern about terrorist
groups using the service, particularly in the wake of the September 11, 2001 attacks.
Although Western Union keeps information about senders and receivers, some transactions can
be done essentially anonymously, for the receiver is not always required to show identification.
There are other companies in Market like RIA Financial Services, MoneyGram and [VFX Financial
PLC] and [LCC Money Transfer]].
Another option for consumers and businesses transferring money internationally is to use
specialised brokerage houses for their international money transfer needs.
Many of these specialised brokerage houses can transfer money at better exchange rates
compared to banks, thus saving up to 4%.
These providers can offer a range of currency exchange products like Spot Contracts, Forward
Contracts and Regular payments.
However, not all of such providers are regulated by appropriate government body.
For example, in the UK, even though such companies are regulated by Financial Services Authority,
not all of them fall under FSA scrutiny.
International Most international transfers are executed
through SWIFT, a co-operative society founded in 1974 by seven international banks, which
operate a global network to facilitate the transfer of financial messages.
Using these messages, banks can exchange data for the transfer of funds between financial
institutions.
SWIFT's headquarters are in La Hulpe, on the outskirts of Brussels, Belgium.
The society also acts as a United Nations–sanctioned international standards body for the creation
and maintenance of financial-messaging standards.
See SWIFT Standards.
Each financial institution is assigned an ISO 9362 code, also called a Bank Identifier
Code or SWIFT Code.
These codes are generally eight characters long.
For example: Deutsche Bank is an international bank with its head office in Frankfurt, Germany,
the SWIFT Code for which is DEUTDEFF: DEUT identifies Deutsche Bank.
DE is the country code for Germany.
FF is the code for Frankfurt.
Using an extended code of 11 digits allows the payment to be directed to a specific office.
For example: DEUTDEFF500 would direct the payment to an office of Deutsche Bank in Bad
Homburg.
SWIFT deviate slightly from the standard though by using position nine for a Logical Terminal
ID, making their extended codes 12 digits long.
European banks making transfers within the European Union also use the International
Bank Account Number, or IBAN.
International Prepaid Cards International prepaid cards are an alternative
way for transferring funds.
Companies can provide a debit card for worldwide employees payments.
The recipients don’t need to have a bank account and can use the card in places that
a debit card is accepted at Point-of-Sale or online and may withdraw funds in local
currency at an ATM.
United States of America Banks in the United States use SWIFT to send
messages to notify banks in other countries that a payment has been made.
Banks use the CHIPS or Fedwire system to actually effect the payment.
Domestic bank-to-bank transfers are conducted through the Fedwire system, which uses the
Federal Reserve System and its assignment of routing transit number, which uniquely
identify each bank.
Other electronic transfers Other forms of electronic transfers include,
for example, Electronic funds transfer system.
This is the system one uses when one gives one's bank account number and routing information
to someone owed money and that party transfers the money from one's account.
It is also the system used in some payments made via a bank's online bill payment service.
EFTS transfers differ from wire transfers in important legal ways.
An EFTS payment is essentially an electronic personal check, whereas a wire transfer is
more like an electronic cashier's check.
In the United States, such EFTS transfers are often called "ACH transfers," because
they take place through the Automated Clearing House.
One important way ACH transfers differ from wire transfer is that the recipient can initiate
it.
There are of course restrictions, but this is the way people often set up automatic bill
payment with utility companies, for example.
See also
References