If, for any reason, you need to have financial transactions with an individual or a business abroad, you will need to use currency remittances. Currency remittances are the only way to send or receive money to/from outside the country.
A crucial point in this regard is the unavoidable presence of intermediaries. If we exclude carrying cash, there is no other method to send or receive a currency remittance without the involvement of an intermediary, as this process requires currency conversion, tax payment, and, of course, transferring the money from one country to another.
Currency remittances are usually sent through banks, or they can be sent using the services of international financial institutions. However, due to the current economic sanctions against Iran, banks are legally unable to exchange money with many foreign countries, and using the services of financial institutions also requires circumventing the sanctions, which carries significant risk.
In such circumstances, exchange offices have practically become the only logical and legal solution for transferring money remittances. However, just like banks, they will not perform this service for free.
In this article from Hafez Exchange, we intend to fully address the topic of money transfer costs in exchange offices and banks. If you intend to transfer money to foreign countries, we recommend you do not miss this article.
Initial Costs of Money Transfers in Banks
The initial costs of money transfers in banks are divided into several different sections, which may vary depending on the bank and specific conditions. The most important initial costs of money transfers in banks include:
Transfer Fee: This is the amount the bank charges for sending the remittance from your account to the destination bank. The transfer fee usually includes a fixed fee and a variable fee, which is determined based on the amount of the remittance.
Receiving Fee: Some banks charge a fee for receiving the remittance. This fee can be imposed by either the destination bank or the sending bank.
Currency Conversion Fee: If you need to convert the currency during the transfer process, the bank will charge a conversion fee.
Intermediary Bank Fees: In some cases, international remittances between countries without direct banking relationships may be conducted through intermediary banks. Each of these intermediaries may also deduct their separate fees from the final amount
Also read: Money transfers at exchange offices
Fixed and Variable Banking Fees
As mentioned, banks charge a fee for sending currency remittances. These fees can be either fixed or variable.
Fixed Fees: A fixed fee is a set amount that is applied to all banking transactions regardless of the remittance amount. This fixed fee is usually between $10 to $50 or its equivalent in other currencies.
Variable Fees: A variable fee is a percentage of the total remittance amount, which naturally increases as the remittance amount increases. For example, a bank may charge between 1% to 3% of the total remittance amount as a fee
Hidden Costs in International Transfers
Apart from the specified fees, there are hidden costs in the process of international transfers, which are not transparent. Some of the hidden costs for sending or receiving international remittances include:
Exchange Rate: Currency conversion by banks usually involves a slight markup over official rates, as banks and financial institutions take their commission from it. Instead of stating a specific fee, they typically increase the exchange rate slightly. The exchange rate is one of the most significant hidden costs to be aware of.
Intermediary Bank Fees: Often, your bank in the country of origin may not be able to directly connect with the desired bank in the destination country and may need the services of intermediary banks. In such cases, the intermediary bank will also deduct a fee from your remittance. This fee is one of the hidden costs that may not be transparently communicated to you.
Delay Costs: Sometimes the hidden cost of sending a remittance is related to delays in transfer. If the bank you are using has unforeseen delays in sending the remittance, it may lead to direct or indirect hidden costs. For instance, you may be penalized by the recipient due to the delay
Impact of Bank Account Type on Fees
Be aware that the type of bank account you have can also affect the costs of money transfers in banks.
VIP or Special Accounts: If you have a special or VIP bank account and are considered a premium customer, you may receive special discounts and lower fees for sending remittances.
Foreign Currency Accounts: Individuals with foreign currency accounts at banks will also incur lower fees for money transfers since they do not need to pay currency conversion fees.
Online Banking Transfers: Remittances sent through online banking services usually cost less due to fewer intermediaries involved in the process.
Initial Costs of Money Transfers in Exchange Offices
The initial cost of money transfers in exchange offices is quite similar to that in banks. Exchange offices charge a fee for converting and sending currency remittances. The total fees collected are divided into four parts: destination country’s tax, profit of the destination exchange office, and profit of the origin exchange office.
It’s important to note that the currency conversion fee is calculated separately, although some exchange offices might include it as a hidden cost. This is done by setting the remittance rate slightly higher than the official exchange rate, thus deducting their fee automatically without directly charging it.
Generally, the best exchange offices for sending money transfers are those that have the fewest hidden costs and operate with full transparency.
Differences in Fees Between Different Exchange Offices
Different exchange offices may request varying commission rates from you. Apart from fee-setting policies, factors such as intermediary banks and hidden fees also influence these rates.
Some exchange offices charge a flat fee per transaction. For instance, they might say they charge $5 for every $1000 remittance. However, most exchange offices determine their fees as a percentage of the total remittance amount.
Today, in order to attract more international customers and secure contracts with major global traders, exchange offices have competitive commission rates. Everyone strives to offer lower fees to secure more deals.
As a general guideline, a good exchange office typically charges between 2% to 5% of the total remittance amount for sending money abroad. If an exchange office offers very low percentage rates, be cautious of potential hidden costs they may deduct from you.
Choosing a reputable exchange office is crucial for international money transfers, ensuring transparency and minimizing hidden expenses
Impact of Transfer Amount on Costs
It’s important to note that the transfer amount significantly affects the costs of money transfers in exchange offices. Given that fees are often calculated as a percentage, higher transfer amounts result in higher commission percentages.
On the other hand, many exchange offices offer special discounts on larger transfer amounts to attract big clients and convince merchants to collaborate with them.
Additionally, some exchange offices have a minimum base rate that they charge for each remittance. Using the services of these types of exchange offices for transferring small amounts may not be cost-effective.
Therefore, when choosing an exchange office for your money transfer needs, consider both the percentage-based fees and any potential discounts offered for larger transfer amounts to optimize your costs effectively
Comparison of Exchange Rates Between Banks and Exchange Offices
The exchange rate at banks tends to be more stable and undergoes fewer changes. This rate is often officially determined by the central bank and is primarily used for large transactions involving significant amounts of money, especially with countries that have banking relations with Iran.
The exchange rate for bank transfers is based on official rates and varies depending on the type of currency (governmental, semi-official, free market).
In contrast, exchange rates at exchange offices usually experience more fluctuations and are based on free market tariffs, adjusted according to supply and demand. Factors such as market conditions, transfer duration, additional services, and even the geographical location of each exchange office can influence the exchange rate calculated for you
How Exchange Rates are Determined in Banks
Banks determine the exchange rate for currency transfers based on three main parameters:
- Official exchange rates announced by the central bank.
- Central bank policies regarding interest rates, inflation, and foreign exchange reserves.
- Domestic and international economic conditions
Comparison of Exchange Rate Fluctuations between Banks and Exchange Offices
Currency exchange rates in banks also experience fluctuations, but these fluctuations are generally less pronounced and occur more slowly. In contrast, exchange rates in exchange offices exhibit more intense and rapid fluctuations, reacting more sensitively to market changes.
Overall, exchange rates in banks tend to be more stable and less affected by daily market fluctuations, whereas exchange rates in exchange offices can change quickly and fluctuate according to daily market conditions
Transfer Fees in Domestic Banks
Money transfers within domestic banks are usually free of charge or have very minimal fees. However, the type of transfer can impact the fee that a bank may charge you. For instance, instant transfers (like SATNA) within the banking system may incur higher fees compared to regular transfers (like PAYA).
Transfer Time in Banks
Transfer between different accounts within the same bank is instant. For smaller transfer amounts, interbank transfers typically take only a few seconds. However, for larger amounts, transferring money from one bank to another may take several hours up to one business day.
If you opt for the “Paya” transfer method, the process can take anywhere from 1 to 24 hours, whereas using the “Satna” system (with higher fees) can transfer the desired amount between bank accounts within minutes.
Regarding international wire transfers, banks provide secure services but generally take between 5 to 7 business days for the amount to reach the destination country. However, using rapid financial transfer systems like SWIFT can expedite this transfer by several days
Factors Affecting Transfer Time in Banks and Exchange Offices
Transfer time in banks depends on various factors including:
- Type of money transfer (regular or SWIFT)
- Operating hours of the originating and destination banks
- Official holidays in the originating and destination countries
- Inter-bank payment processing and the presence of intermediary banks
Transfer time in exchange offices also depends on various factors including:
- Policies and available facilities of each exchange office
- Existence of a contractual exchange office in the destination country and city
- Type of currency and its conversion process (based on inventory and market prevalence)
- Supply and demand traffic
- Payment methods (cash, bank account transfer, etc.)
Banks typically have more structured frameworks for international money transfers and higher security measures, whereas exchange offices generally transfer foreign remittances at a faster speed
Limitations on Amounts in Banks
Some banks impose restrictions on the amount transferred between international accounts, setting minimum and maximum limits. Many banks typically do not transfer very large sums without additional verifications
Geographical and Country Limitations
Banking Services: Banking services can face significant geographical limitations, with sanctions being the most prominent example. Aside from comprehensive sanctions against Iran, there have been instances where interbank relations between two specific countries have been severed, preventing banks from facilitating transfers to those countries even in the absence of sanctions.
In other words, many geographical limitations stem from political reasons unrelated to sanctions per se.
Additionally, domestic banks in many cases do not have direct connections with banks in the destination country, necessitating the use of intermediary international banking services.
Exchange Offices: On the other hand, geographical limitations for exchange offices are less affected by political issues and they generally have more flexibility in conducting international transactions. However, not all exchange offices have branches in every city worldwide, which means they often need to collaborate with foreign exchange offices present in smaller or more remote cities to facilitate your remittances
Security of Fund Transfer in Banks and Exchange Offices
Fund transfers through reputable banks and exchange offices are guaranteed to be secure. In many exchange offices, you can even insure your remittance amount to have peace of mind regarding its security. Banks and exchange offices employ various methods to ensure the security of international remittances, which we will discuss below
Security Methods Used in Banks
Banks employ the following methods to ensure the security of fund transfers:
- Data Encryption: Banks encrypt their information using advanced technologies such as SSL/TLS to prevent unauthorized access.
- Multi-Factor Authentication (MFA): Banks use various methods like one-time passwords (OTP), fingerprint or facial recognition, and dedicated mobile apps to implement multi-factor authentication, ensuring the authenticity of sender and recipient information.
- Advanced Monitoring: Banks utilize advanced monitoring and surveillance systems to detect suspicious activities and unauthorized transactions, leveraging machine learning algorithms for this purpose.
- Software Firewalls: Banks use sophisticated firewall and intrusion detection systems to protect against cyber-attacks or systemic fraud.
All these processes are in place to ensure the security of the funds you entrust to the bank for international remittances
Security Measures in Exchange Offices
Exchange offices are smaller entities compared to banks and may not have access to robust banking infrastructures. Nevertheless, they can ensure the security of your remittance transactions.
Experienced and advanced exchange offices employ security systems such as multi-factor authentication, personal data encryption, and more to guarantee the security of your funds. Additionally, you can opt for capital insurance services to fully secure your money, ensuring no losses even in unforeseen circumstances.
To have peace of mind regarding the security of your funds, it’s advisable to collaborate with exchange offices that have a good reputation and high credibility. Exchange Hafez, for instance, is one of the units that conducts international currency remittances with complete security
Comparison of Security Risks in Banks and Exchange Offices
Banks have better security infrastructures and are subject to greater legal oversight. They utilize international standard security protocols and have greater resilience against threats. However, they also face higher percentages of threats, cyber-attacks, and banking fraud. These security measures cannot guarantee 100% safety of your money.
On the other hand, while exchange offices do not have access to the same level of security features as banks, they are exposed to fewer threats. Additionally, they can leverage the advantages of digital currencies by using cold wallets (cold storage) to protect customer information and funds effectively.
Nevertheless, exchange offices may still be vulnerable to hacker attacks and security breaches. Reliable and reputable exchange offices are prepared for such scenarios and ensure the security of your remittances
User Experience: Banks vs Exchange Offices
User experience differs between banks and exchange offices. Banks typically have more complex procedures for transferring remittances, while exchange offices have simpler administrative processes
User Process in Banks
To utilize banking services for sending international remittances, you first need to open specific bank accounts and deposit the funds intended for transfer into these accounts. Banks, due to their strict legal frameworks, are obligated to exercise caution in accepting and transferring funds. This means that the administrative procedures for verifying the identities of both the sender and the recipient will be more complex and likely take longer.
For remitting foreign currencies through banks, you must verify all your identity information and provide accurate details of the recipient’s bank account. All these processes are conducted to ensure your security and peace of mind
Ease of Using Currency Exchange Services
The process of transferring money through currency exchange offices is much simpler than banks. Exchange offices typically do not have the stringent requirements of banks, and they do not require a lot of your time and energy for money transfers. Simply provide the deposit receipt of the desired amount to the exchange office’s bank account, pay the necessary fees, and provide the recipient’s information. Your money will arrive at the destination within 1 to 2 business days
Customer Feedback on Banks and Currency Exchange Offices
Given the conditions of banking sanctions against Iran, it is difficult to compare customer feedback regarding the use of banking and currency exchange services.
However, generally speaking, customers express higher satisfaction with the ease of money transfer services provided by currency exchange offices and appreciate the greater freedom they offer. Banks, on the other hand, approach this process with more suspicion and have more stringent precautions in place. Nevertheless, this perception has led customers to feel more comfortable about the security of their money in banks compared to currency exchange offices.
Overall, customers generally have higher satisfaction with trusted and quality currency exchange offices because they offer broader services in international money transfers and are subject to fewer restrictions
Support and customer service in banks and exchanges
Banks and exchanges also have differences in terms of support and customer service, which we mention below:
Customer Service Quality in Banks
Customer service quality in banks is generally very high. Banks, especially private ones, strive significantly to compete with each other and satisfy their customers. This effort has led some banks to even establish 24-hour customer service for domestic transactions and promptly respond to customer inquiries.
However, all banking activities typically occur during office hours. While support units may address your queries at any time of day, they cannot initiate new banking services outside regular business hours. Therefore, if you have any banking tasks, you may need to wait until the next business day and the start of office hours
Customer Service Quality in Exchange Offices
Exchange offices are generally much smaller entities compared to banks and may lack extensive customer support facilities. Nevertheless, many reputable exchange offices offer 24-hour customer support services and can respond to your needs at any time.
The biggest advantage of exchange offices is their longer operating hours compared to banks, providing their services with greater time flexibility. Many established and loyal customers of exchange offices may not even need to physically visit, conducting their currency exchange transactions with just a phone call.
The private nature of exchange offices allows them to offer a wide range of services tailored to customer needs, aiming to maximize customer satisfaction and loyalty
Also read: Money transfer taxes in Canada
Comparison of Response Time and Problem Resolution
Banks are large economic entities that experience high work traffic throughout the day. Therefore, their response time may not be as quick and appropriate as it should be. In contrast, exchange offices have less traffic and can respond to your needs and questions in the customer service sector more quickly
Appropriate Times to Use Banks
Given that Iran is under heavy banking sanctions, it is generally not possible to transfer money to many countries through banks. However, there are some countries that maintain banking transactions with Iran.
Using banking services for currency transfers is more suitable when you do not intend to transfer large amounts of money. This is because banks charge lower fees, which won’t impose high costs on you. In contrast, most exchange offices have a minimum fee, making them less cost-effective for small transfers.
Moreover, for large-scale economic transactions at the governmental level, official banking services must typically be used. This is especially true for major economic interactions between governments
Appropriate Times to Use Exchange Offices
When individuals intend to transfer foreign currency for purposes such as investment, international trade, covering migration expenses, or sending money to loved ones, it is better to use exchange offices. Exchange offices do not have the banking restrictions, offer faster money transfers, and do not enforce the strict legal processes that banks do
Combining the Use of Banks and Exchange Offices to Optimize Costs
You can lower the costs of foreign currency transfers by combining the services of banks and exchange offices. For example, you can convert and obtain currency at official rates through banks, and then provide the exact dollar (or other currency) equivalent to the exchange office instead of the local currency equivalent. This way, you avoid the exchange rate discrepancies.
By doing this, you obtain your currency at a lower price and eliminate the risk of currency conversion fluctuations at the settlement date in the destination country
Conclusion
In this article by Hafez Exchange, we aimed to provide a comprehensive explanation regarding the costs of money transfers through exchange offices and banks. Each of these methods has its own advantages and limitations, and you should choose the one that best suits your conditions and needs.
We hope this information has been helpful for you
