What is a wire transfer?
By Mariana Almeida Marques
If you have made international business payments in the past, or even transferred money to a family member that lives abroad, it is likely you have used wire transfers to do this. International payments are nothing new- but wire transfers may be a less popular term. In this article, we will discuss what are wire transfers, how they work and the pros and cons of using this payment type.
Wire transfer meaning
Wire transfer is a bank-to-bank Electronic Fund Transfer (EFT) from one individual or institution to another. This type of transfer is often used to send larger sums of money internationally, though it can also be used for domestic payments. Wire transfers don’t actually transfer money, they only transfer bank details between the issuing and acquiring bank (more on this below). You can initiate a wire transfer directly with your bank, or with non-bank partners such as Western Union.
How do wire transfers work?
When your bank initiates a wire transfer, a set of information is passed through to the Acquiring bank. Though banks may have different information requirements to process a wire transfer, these details may include: recipient’s name, address and account number; bank’s name and address; amount of cash to be transferred; reason for the transfer; routing number of SWIFT/IBAN codes. This may also depend on the country you’re sending the money to.
In a wire transfer, the payers pays the whole sum upfront at their bank, and provide the bank with all the information required. From there, the issuing bank sends a message to the acquiring bank with payment instructions, using a network such as SWIFT or Fedwire (operated by the US Federal Reserve Banks). This network ensures that the payment information is sent in a secure and fast way.
No physical money is actually moved- only the information mentioned above. When the acquiring bank receives the information, they will deposit the amount of money from their own funds into the customer account. The two banks will later settle the payment between them, and the payment is processed via a clearing house.
How long do wire transfers take?
Wire transfers are processed on the same day for domestic payments and payees may receive the money sum within just a few hours. For international transfers, it may take up to two days for the transfer to be settled as it will have to go through the national clearing house, plus a processor from the country you transferred the money to. Considering the speed at which wire transfers are processed and settled, this may be the ideal payment type for someone who needs to make a big transfer urgently.
What is the amount limit for wire transfers?
By law, there is no limit to the amount of money you can transfer via wire. However, most banks impose a daily limit, and some may impose a limit per transaction too. Daily limits may range between £50.000 to £100.000 in the UK. The amount limit may also depend on the type of bank account you have, the laws of each country and whether the transfer is domestic or international. In the US, for example, you are required to fill in a form for any transfer that is over $10.000.
Advantages and disadvantages of wire transfers
Wire transfers are an efficient and convenient way to send money abroad, no matter where you are based. You can initiate a wire transfer by visiting a branch, via phone or online, and send money to anywhere in the world. Because the limit for how much money you can send is quite high when compared to other payment types, wire transfers may be the best option if you need to transfer a large sum of money. Equally, wire transfers are cleared in real-time for domestic transfers, and the recipient can use the funds straight away. They are also known to be a safe payment method, regulated by the major financial institutions in every country.
However, like any other payment type, wire transfers come with its disadvantages too. Firstly, they are irreversible- meaning that you can’t cancel a wire transfer or get your money back if you send it to the wrong person. For this reason, you need to be extremely careful in ensuring that you add in the correct bank details and that you know the person you are sending the money to in order to avoid being scammed.
Similarly, if you use a non-bank wire transfer company to transfer your money, you may struggle to track the recipient. Lastly, wire transfers have stipulated transfer fees that can be as high as £40 per transaction in the UK, so you need to verify these fees directly with your bank before initiating the payment.
Wire transfer fees
Banks often charge a transaction fee that ranges from £0 to around £40 per transfer. This fee varies widely and depends on multiple factors, such as:
- Incoming vs outgoing: incoming transfers are cheaper (some banks like Metro Bank and Santander don’t even charge anything). This is because the payer often pays for most of the costs.
- Domestic vs International: domestic payments are cheaper, as they involve less processing and less bank operators.
- Recurring vs one-off transfers: some banks may offer discounted fees if the payer sets up recurring wire transfers
- Additional costs: such as initiation fees for wire transfers initiated via a branch or via the phone, rather than online; tracer fees, if the payer requests to track the transfer; or exchange fees for international transfers.
How Imburse can help
Imburse connects companies to the entire payments ecosystem. Through our platform, you can integrate any payment provider or technology you want in a fast, simple and cost-effective manner. This will not only save you time, money and resources, but enable you to accept a wide range of payment methods, including wire transfers for collection or pay-out. With Imburse, you can fully optimise your payments system, continue to exceed your customers’ expectations and reach new customer bases across the globe. Get in touch with our team below should you have any question or be interested in knowing more.