In the contemporary financial landscape of globalization, international money transfers have experienced exponential growth. Supply chains have come to rely on import-export relationships between various countries. These new business relationships have allowed modern companies to expand at unprecedented levels. Many successful businesses have an international employee base; employers need to pay their international workers in the most efficient and cost-effective manner. Enter money transfer services.
Remittance companies and money transfer services arose in response to solve inefficiencies in international bank transfers. These companies have streamlined the process of sending money abroad and offer their customers cheaper fees and better exchange rates. For the growth-oriented entrepreneur, these services are a great option for reducing expansion costs. Business owners seeking to implement international supply chains should consider using a money transfer service over a traditional bank wire.
What you need to know: The bank vs. online transfer companies
Business owners and entrepreneurs have different options for international money transfers. Sending money across borders through a corporate or business bank account is convenient but can be costly. Online banks tend to offer competitive fees. To find the right digital bank for you, check online bank comparison for benefits and features. You Banks typically provide the option to transfer money though your accounts banking portal; however, because banks do international transfers at a high margin this method is not cost effective.
An alternative route is to compare the exchange rates and fees of your bank against an online remittance service. These services specialize in international transactions, which allow them to provide the same service at a cheaper cost. The tighter margins of these services come with significant savings for business owners.
A closer look at exchange rates and fees
A closer look into the fees and exchange rates associated with banks and remittance companies provides insight into how online transfer companies can keep the entrepreneur from breaking the bank. Consider the hypothetical scenario below.
Alex is the CEO of a startup. In response to steady growth, she looks to expand her operation. Alex considers Mexico as a cost-effective option for outsourcing. In Outsourcing some of her production needs, Alex will need to pay her Mexican supplier and employees 50,000 USD each month. As an entrepreneur, She is looking to cut costs wherever possible and compares the cost to send money to Mexico between her bank and an online transfer service.
Alex’s bank offers an exchange rate of USD/ MXN 19.3451 at a fee of 22 USD for playing the middleman; a money transfer service offers the same deal but offers a rate of USD/MXN 19.3875 for a fee of 5 USD. At first glance, the difference appears negligible; however, when extrapolated over a large sum of money the math shows otherwise. At the aforementioned exchange rates, the bank allows Alex to send 967,255 MXN while the same transaction through an online transfer service sends 969,375 MXN.
The difference 2120 MXN is roughly 110 USD- Alex is able to send an additional 2120 MXN at no cost in her own currency. The savings and a significant smaller fee of the online transfer service makes this option a no brainer. As her startup continues to grow, she will need to send more business to her Mexican supplier and send more money over the border. With Alex’s growth, the financial savings of using an online remittance service become increasingly significant.
Entrepreneurs are growth oriented. Most successful entrepreneurs inevitably look to expand their business and implement international supply chains. Going global comes with many advantages and opportunity for businesses; however, scaling your business internationally comes the need to send money abroad. Business owners looking to cut costs should compare the rates and fees of their bank with those of money transfer services. A remittance service is typically able to offer their customers the same transaction at a better exchange rate and with a lower fee.