Wire transfers explained: What they are and how they work?

When dealing with various global payment methods across countries and regions, your top priority is ensuring you transfer your funds securely and efficiently while keeping payment costs low. One reliable option is a wire transfer, which electronically sends money from one bank account to another. But what exactly is a wire transfer, and how does it work?

Read on to find out more about wire transfers, their benefits, speed of payment, and costs to help you decide when a wire transfer works best as your preferred payment method. We’ll also share how Airwallex supports your business in achieving an agile global payments infrastructure.

What is a wire transfer?

A wire transfer is an electronic method of moving money online between two bank accounts, either domestically or internationally. It is suitable for sending large amounts of money quickly and securely through a bank or specialised financial institution. However, wire transfers can be costly due to fees and foreign exchange costs charged by one or multiple banks involved in the process. 

Typically, wire transfers involve the sender providing their bank with details such as the recipient's name, account number, and transfer amount. The sender's bank then securely transmits payment instructions to the recipient's bank, which deposits the funds into the recipient’s designated account.

How does a wire transfer work?

Here’s a step-by-step guide to understanding how wire transfers work:

1.  The sender provides their bank with the recipient’s banking information. This information typically includes the recipient’s name, bank account number, bank branch, and SWIFT or IBAN code for international transfers.

2.  The sending bank verifies the sender’s identity and authorises the transaction. Fees may apply.

3. The sending bank transmits the payment instructions to the receiving bank through a secure system. Intermediate banks may also be involved at this stage.

4. The funds are received by the recipient’s bank and credited to the recipient’s account. The wire transfer process typically takes a few hours to a few business days.

What are the types of global wire transfers?

When it comes to moving funds, there are two main types of wire transfers: domestic and international. In Canada, as with many countries, businesses rely on these transfers to manage transactions within and beyond borders.

Several types of wire transfers are available, each with unique characteristics depending on the region or country. Common options include bank-to-bank transfers, online wire transfers, and cash office transfers. For example, the Fedwire and CHIPS systems are frequently used in the United States, while SEPA transfers are widely available in Europe. International wire transfers in Canada typically use the SWIFT network, enabling secure, cross-border transactions to over 200 countries.

Here, we’ve outlined different examples of wire transfers globally to help Canadian businesses select the most appropriate method based on factors like speed, cost, and availability. By understanding the options available, you can make informed decisions that best support your business’s unique needs.

SWIFT (Society for Worldwide Interbank Financial Telecommunication)

SWIFT is the leading platform for international wire transfers, used by over 11,000 financial institutions in more than 200 countries. It provides a secure global messaging network for transmitting payment instructions. In its 2023 annual review, SWIFT reported handling over 11.9 billion secure FIN messages, with 89% of payments reaching recipient banks within an hour.

Key features of SWIFT:

• Extensive global reach, connecting banks worldwide

• Highly secure and reliable infrastructure

• Supports a wide range of currencies and transaction types

• Enables payments to countries not covered by regional payment systems

ACH (Automated Clearing House)

ACH transfers are electronic bank-to-bank transactions processed through the Automated Clearing House network. It’s mostly used in the United States, and although ACH can also facilitate cross-border payments, its reach and speed may be more limited compared to SWIFT. According to Nacha, international ACH payments totalled US$248.36 billion in 2023.

Key features of ACH:

• Cost-effective, making them ideal for routine, high-volume transactions

• Domestic ACH transfers typically take 1-2 business days, while international ACH can take longer

• Secure and governed by strict regulations

SEPA (Single Euro Payments Area)

SEPA is the European Union's payment integration initiative. It provides seamless electronic euro-denominated credit transfers and direct debits across participating European countries. By mid-February 2024, SEPA credit transfer transactions totalled 42,579.72 million, and SEPA direct debits amounted to 21,635.42 million. In the Euro area, non-cash payments in the second half of 2022 increased by 8.8% to 65.9 billion, with the total value rising by 2.8% to €118.8 trillion.

Key features of SEPA:

• Enables fast, low-cost euro payments within the SEPA region*

• Standardised payment formats and processes

• Supports both individual and business transactions and is useful for businesses operating extensively in the Eurozone

*The SEPA region comprises the 27 European Union (EU) member states along with four non-EU countries (Iceland, Liechtenstein, Norway, and Switzerland) that have adopted the euro as their currency. These countries collectively form the SEPA zone, where standardised euro payments can be sent and received.

FPS (Faster Payments Service)

FPS is a UK-based real-time electronic payment system that provides near-instant domestic money transfers between participating bank accounts. According to Bank of Russia data, between January and March 2023, the Faster Payments System processed 1.2 billion transactions totalling ₽5.4 trillion.

Key features of FPS

• Enables fast, secure, and convenient domestic payments in the U.K.

• Transactions are typically completed within seconds

• Supports various payment types, including single immediate payments and standing orders

How long does a wire transfer take?

Global wire transfers usually take 1-8 business days to reach their destination. The table below highlights the average time spent on a wire transfer by region or country.

How safe and secure are wire transfers?

Wire transfers are one of the safest and most secure methods of transferring money, with key factors contributing to their safety and security:

Encryption and security protocols

Payment service providers and banks employ robust encryption techniques and stringent security protocols to send financial data securely during wire transfers. Technologies include Transport Layer Security (TLS) and Secure Socket Layer (SSL) encryption to safeguard payment information from unauthorised access or interception.

Identity verification

The payment service provider verifies the identity of the sender and the recipient to prevent unauthorised transactions. Verification methods include Know Your Customer procedures, which require customers to provide information to confirm their authenticity and the purpose of the wire transfer.

Regulatory oversight

In Canada, agencies like the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) monitor wire transfers for fraud prevention, money laundering, terrorist financing, and other illicit activities. This regulatory oversight helps maintain secure transactions across the financial landscape.

Irreversibility

Once you complete a wire transfer, it’s irreversible, providing a level of certainty for you and your recipient. This feature reduces the risk of payment disputes.

What are the benefits of wire transfers?

Wire transfers offer significant advantages to global eCommerce businesses due to their speed, security, and reliability in facilitating cross-border transactions.

Wire transfers are fast

Wire transfers are incredibly fast compared to other methods. Domestic transfers are completed within hours, and international transfers take one to three business days. This speed is crucial for businesses needing to make urgent payments.

Wire transfers are reliable

Once initiated and authorised, wire transfers are almost guaranteed to reach the recipient, provided all information is correct. This reliability makes them ideal for significant business transactions.

Wire transfers have a global reach

Whether paying an international supplier or receiving payments from overseas clients, wire transfers facilitate seamless global commerce, enabling your business to operate globally.

Are wire transfers expensive?

Wire transfers often incur high costs due to hefty transfer fees and large markups on foreign currency exchanges. These expenses can add up quickly, especially for businesses that frequently conduct international transactions. 

Costly wire transfer fees

Bank wire transfer fees tend to be high for several reasons inherent in the traditional banking system.

Processing wire transfers requires significant operational costs to maintain sophisticated technology, adhere to strict security protocols, and employ trained staff to handle these transactions manually.

Wire transfers also incur fees from the financial institutions involved in the process. International transfers, where multiple banks might be involved, may incur more fees.

On top of that, there are administrative costs involved in maintaining regulatory compliance requirements such as anti-money laundering (AML) and Know Your Customer (KYC) regulations that require thorough customer verification.

All of these operational and administrative costs all add up, making wire transfers — through quick and efficient — also costly.

How much are domestic wire transfer fees?

In Canada, domestic wire transfer fees vary by bank, ranging from CAD $15 to $30. For example, TD Canada Trust charges approximately $15 for incoming transfers and $30 for outgoing domestic transfers. Similarly, CIBC charges around $30 for transfers under $10,000, with fees increasing for larger amounts. RBC's outgoing transfer fees are around $35, depending on ‌transaction specifics and account type.

If a domestic wire transfer involves intermediary banks or currency exchanges, additional costs may apply, sometimes adding 2 – 6% due to exchange rate markups or processing fees from intermediary institutions.

How much are international wire transfer fees?

International wire transfer fees for Canadian banks generally range between CAD $30 and $80, with additional costs from intermediaries or receiving banks often affecting the final amount received. For example:

• TD Canada Trust charges around $40 for outgoing international wires, plus any additional intermediary fees.

• CIBC has a tiered fee system: $30 for transfers under $10,000, $50 for amounts between $10,000 and $50,000, and $80 for transfers above $50,000.

• RBC applies a fee of $35 for outgoing international wires, with an incoming fee of around $17 if the transfer amount is over $50.

• Scotiabank charges $1.99 to $15 for incoming transfers, while outgoing fees vary based on the transfer method and account type.

In addition to these fees, banks typically add a currency exchange markup of 2 – 5% to cover exchange rate fluctuations, making it essential to consider both fees and exchange rates. Alternative providers like Airwallex offer lower fees and more transparent exchange rates, which may be more cost-effective for international transfers.

Poor foreign exchange rates

Bank wire transfers often offer less competitive foreign exchange rates due to traditional banking practices. That’s because traditional banks need to cover the operational cost of maintaining currency trading desks and complying with regulations, creating higher overhead costs.

Banks may also factor in a profit margin in their exchange rates to generate revenue from currency conversions. The lack of transparency in forex rate markups and competitive practices can result in less favourable rates for bank wire transfers compared to those offered by specialised financial service providers.

On average, bank exchange rates can have a markup of up to 3% to 6% above the mid-market rate. For example, if you’re paying a supplier in the UK €500,000, a 5% markup on the exchange rate could cost you an extra €25,000.

How to navigate costly wire transfer fees and rates

To mitigate the financial drawbacks of cross-border payments like those seen in wire transfers here, consider partnering with a modern payment provider that delivers competitive and transparent pricing. Certain providers have flexible foreign exchange (FX) solutions, giving businesses like yours greater control over how they obtain FX rates, execute transactions, and manage FX risk.

Crucially, access to real-time or locked-in competitive exchange rates can help eliminate inflated markups and ensure a more favourable currency conversion. This ultimately enables your business to save on transaction costs effectively.

What banks and fintech providers deliver money wiring services?

There’s a wide range of banking and fintech providers to choose from when wiring money. In the table below, you’ll find a few global banks and fintech companies and a comparison of their wire transfer fees, exchange rates, and payout coverage.

Fees are current as of 25 October 2024. For current fees, check our fee schedule.

Manage global payments and FX rates with Airwallex

Airwallex is our powerful payment solution suite that helps you programmatically manage currency risk and fees. With fast and reliable delivery, our global payment infrastructure allows you to pay partners, suppliers, and employees in more than 150 countries and 60 currencies at market-leading rates.

Our features include:

Multi-currency accounts

• Hold funds in more than 60 currencies and make payments in the local currency of your suppliers and employees.

• Avoid unnecessary currency conversions and associated fees with like-for-like currency settlements.

Interbank FX rates

• Access market-leading foreign exchange rates, which are often better than those offered by traditional banks.

• Eliminate hidden fees and markups on currency conversions.

Fast international transfers

• Receive payments in as little as one business day.

• Avoid delays and late fees associated with slower bank transfers.

You can also simplify your workflows with batch transfers, customisable approval processes, and seamless accounting integrations.

Find out more about Airwallex's international money transfers.

FAQs

What’s the difference between a bank transfer and a wire transfer?

Bank transfers generally refer to any transfer of funds between banks, including ACH (Automated Clearing House) transfers, which are typically slower and used for smaller amounts. Wire transfers are a specific type of bank transfer known for their speed, reliability, and international coverage and are often used for larger sums.

What do I need for a wire transfer?

To initiate a wire transfer, you will need:

• The recipient’s full name and address

• The recipient’s bank account number

• The recipient's bank name and branch

• SWIFT or IBAN code for international transfers

How can I send a wire transfer quickly?

To expedite a wire transfer:

• Ensure all recipient details are accurate.

• Initiate the transfer before the bank's cut-off time.

• Opt for transfers using a multi-currency global bank account.