Friday, April 6

Are Banks Skimming International Money 'Wire Transfers'?

I deal with payments from customers all over the world on a daily basis.

Many of these customers pay by sending an international bank wire payment. I have to say that sorting out messed-up wire payments is the most annoying part of my job and problems with wire transfers sent to us eat up a good portion of my workday. And I am not even in the Accounting Department.

The main problem has always been incomplete wire reference details. It is this reference that tells the recipient (in this case us) what the money is intended for. It is very helpful when you are receiving hundreds of payments every month for the same amount to know which invoice the sender intended to pay. All too often the bank has cutoff the reference entirely, not bothered to type in the reference details provided or instead of using the reference the client provided, sends some idiotic note like:
Lately, however, I have seen a growing problem with short payments. This is when the money received is less than the amount sent by the customer, and of course less than the invoice they are trying to pay.

Traditionally, to ensure that the recipient receives the correct amount, the sender would mark the wire payment as 'Charges ours' meaning that the sender would be responsible for all charges and the sending bank would bill the sender for all fees that would be charged to send the money to the recipient's bank account. The end result is that the full amount sent is received. Send $1,000 to client A's bank account. Client A receives $1,000. This is no longer the case.

Enter "Intermediary Bank Fees"

Often, a bank will need to route the money through a middle bank (Sending Bank - Middle Bank - Recipient's Bank). Of course this middle bank needs to be compensated for passing on the money. Most of the time, the middle bank has a working relationship with the sending bank, then there is no intermediary charge. The bank's fee is included as part of the sender's fee.

However, if the bank does not have a working relationship with this middle bank, then they will deduct anywhere from $5 to $45 from the payment. Essentially doubling the cost of sending the money, and this does not include any fee the recipient's bank is going to charge. So instead of a wire payment costing $30, it is really costing over $70 in many cases. So, to make sure that you are paying for all charges you should be telling the bank that you would like to pay all bank fees/bank charges separately, including those charged by Intermediary banks.

Now there is a reason why they are not interested in telling you the true cost. After all, would you spend $70 to wire $200 to anyone? It costs half as much to purchase a bank draft. Hell, even Western Union does not charge that much and PayPal is also a much cheaper valid option.

In addition to these Intermediary Bank Charges, are side agreements between banks. Take this explanation from a client who actually received a truthful explanation from his bank:

We have spoken to [our bank] with regard to the charges deducted from the payment for Fiduciary. They are the USD correspondent bank for [bank x], and there is a bank to bank agreement that [our bank] take a charge from the amount remitted, and the fact that the payment was sent as charges "OUR" has no relevance. Unfortunately there are many banks like this nowadays, some people include ancillary charges in their payment to cover for these anomalies.

I removed the specific bank names as other banks do this as well.

One thing I do not understand is why are International Bank Transfers still so messed up. I can be halfway around the world, but to get money, I only need to find an ATM. I just stick my bank card into an ATM and get local currency and my bank deducts the US equivalent from my bank account or adds it to my charge card balance, at no charge. (I understand that this is not true for all banks, but the point is that the international bank transfer infrastructure already exists for ATMs.)

Even odder is that many national banking systems allow you to make all sorts of transfers without a hassle. I lived in Finland and they have a great system for moving money. I was paying for bills electronically there already in 1998 because they had no checks. Back in the US, the only bill I pay for by check anymore is my rent.

So why does the system fall apart when it comes to international bank transfers? Is it some sort of Wild West where banks take advantage of customers as the money moves from one jurisdiction (and legal oversight) to another? Even better is that the sender almost always accuses our bank as the one that is responsible for the short payment and I get an earful from angry customers. It takes a good deal of time and effort to convince them otherwise and is hardly worth the effort given the amounts involved. I’m sure that is what the banks are banking on.


Anonymous said...

There should have been comments here, but maybe you were ahead of your time in writing what you did. I never thought to ask about the transfers I've made over the lastt 9 years, until yesterday, and now I'm shocked that I lose on average between 500 and 2000 USD on every US to Europe transfer!!!! This is war!

Anonymous said...

I work at a commercial bank and customers regularly complain to me about money disappearing from the amount sent without an explanation. I explain to them that there is an intermediary bank that takes money (sometimes), and they want to know under what circumstances and how much so that they can avoid the embarassment of a payment coming up short in the future. I have spent hours and hours trying to find the answer to that. Nobody in my bank knows. Nobody knows. I think the comment about the wild west is spot on.

Lana said...

I second these comments. I have noticed that the typical intermediary bank fee scenario involves a UK bank sender (now have seen RBC take up this scam however) who first wires to its own US affiliate who acts as the intermediary bank. Then the intermediary bank wires to the US institution.

What is frustrating is that RBC or the UK bank will tell the Canada/UK client that they didn't charge the fee. This may be technically true in that RBC-Canada or Barclays-UK did not charge it. But RBC-US or Barclays-US certainly did. Not that the branch bankers know this though!

Anonymous said...

For anyone looking to do wire transfers from the US to Canada, don't bother. I get a $2000 USD transfer once a month and I lose about $200USD that just goes missing each time.

The best options for US/CAN transfers is to open a TD Canada trust account and a TD bank account. A client can then go physically into a bank on either side and deposit directly into your account OR they can do a bank account transfer on either side.

You then need to call and have the money moved to either side and the whole process is free. No wire fees, no money lost during transfer, and both you, and the client have a record of the payment.