Understanding Wire Transfers: how it works

What are wire transfers?

Telegraphic transfer (T/T), more commonly known as wire transfer, is a method of transferring funds electronically from one bank account to another domestically or internationally. However, wire transfer is commonly referred to as the transfer of funds between banks and across countries, which is facilitated by the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

In addition, Mail Transfer (M/T) and Demand Draft (D/D) are also methods of international trade payments. M/T involves the bank sending the remittance instruction via mail to the receiving bank, which then notifies the recipient to collect the payment. On the other hand, the key difference between D/D and T/T is that the remitter needs to personally deliver the bank draft to the recipient, who can then present the draft at the bank to receive the funds.

Among the three traditional ways of remittance, wire transfer is the most convenient and swift.  As long as the remitter can provide the name of the recipient bank, the bank’s unique SWIFT code, branch address, and account number, funds can be wire transferred to banks worldwide. However, wire transfers incur multiple transaction fees that vary for each bank based on the transfer amount and the bank’s daily foreign exchange (FX) rates.

Types of transfer: pre-T/T and post-T/T

There are two common types of transfer: Pre-T/T (Telegraphic Transfer) and Post-T/T. These payment methods are commonly used in international trade. Pre-T/T refers to the buyer transferring the payment to the seller's bank account before the shipment of goods. This guarantees the payment and sellers can receive the goods on time. On the other hand, Post-T/T involves the buyer securing the payment to the seller after the shipment of goods. Both methods are prevalent in international trade, and the buyer and sellers can select the method that best fits their agreement and contract terms.

The principles of cross-border wire transfers — remittance and receipt between international and local banks

Cross-border wire transfers play a vital role in facilitating business transactions, but not all banks and financial institutions have direct connections, hence the need to communicate through the SWIFT network. Additionally, banks require correspondent banks as intermediaries to assist customers in transferring funds to the local banks.

So, how do cross-border wire transfers work? Simply put, the payer provides wire transfer instructions like recipient's name, SWIFT code, transfer amount, and other relevant details through their local bank or online banking platform. The bank then verifies the balance in the payer's account and proceeds to authenticate and authorise the transfer. Subsequently, the bank forwards the wire transfer instructions to the correspondent bank, which then transfers the funds to the receiving bank and the recipient receives the payment.

It's important to note that the entire process may take several business days to complete. With correspondent banks and SWIFT involved, different banks may charge varying transaction fees, which will be discussed in the next section.

How much are the transaction fees for remittance?  And are there any hidden fees?

There is usually a remittance fee ranging from HK$50 to HK$200 for wire transfers through banks. The fee may vary depending on the transfer method. Online wire transfers generally have lower fees compared to physical branches, but some banks may waive the fees as a means to attract customers.

Apart from the standard remittance fee, it is important to be mindful of additional fees and hidden charges. These may include correspondent bank fees ranging from approximately HK$100 to HK$300. Charges may also apply for services such as checking the remittance status, cancellation, or adding remarks to the remittance instructions, with fees ranging from HK$100 to HK$200.

Who bears the remittance fees?  The receiver or the sender? 

There are several fees involved during the remittance process, and you have the flexibility to decide whether the sender or the receiver will bear these fees. When filling out the remittance application form, you will typically come across the following commonly available options:

• SHA: The remitter will pay the remittance fees charged by the remitting bank, and the recipient will cover the fees charged by the intermediary bank and the receiving bank.

• BEN: The beneficiary will be responsible for paying all domestic and international fees associated with the transfer.

• OUR: The remitter will be responsible for paying all domestic and international fees related to the transfer.

• Full payment: This option ensures that the entire remittance is transferred to the receiving bank. However, if the bank charges an inward remittance fee, the recipient is still responsible for the remittance fee

Differences between wire transfers and fund transfers

Wire transfers and fund transfers are both common methods of remittance. The former can also refer to local bank transfers, but it is typically understood as large-sum transfers between banks or across countries. Cross-border wire transfers involve correspondent banks and the SWIFT system, which result in higher transaction fees. Since banks set their own FX, the transfer is more costly for the remitter and also takes longer.

On the other hand, fund transfers are more commonly used for transferring funds between banks or within the same bank in the same country. For example, in 2018, the Hong Kong Monetary Authority (HKMA) introduced the Faster Payment System (FPS). This allows individuals to perform person-to-person (P2P) transfers across banks, top up Stored Value Facilities and make instant payments for online shopping with Hong Kong Dollars (HKD) and Chinese Yuan (CNY) anywhere, anytime.

Can I cancel a wire transfer?

Yes, wire transfers can be canceled. 

While it is possible, canceling a wire transfer may incur fees, and the wire transfer fee is typically non-refundable. Essentially, the bank will promptly return the funds back to the designated account if they have not yet been debited upon receiving a cancellation request. However, some banks specify that once the wire transfer instruction has been submitted, any cancellation is subject to the approval of the correspondent bank or receiving bank.

Information required for processing wire transfers

The information required for a wire transfer includes:

• Name of payer, account number, remittance currency, and amount

• Name of the receiving bank, SWIFT code, and transaction destination

• Name of the recipient's account, account number, and address

• Party responsible for the transfer fees

How long does it take for wire transfer to be credited?

International wire transfers through traditional banks typically take around 1 to 5 business days to complete. If the wire transfer is within the same bank or its branches, it can be processed instantly.

Domestic wire transfers methods — traditional banks vs. virtual banks

Both traditional banks and virtual banks offer convenient domestic wire transfer and fund transfer services. The main distinction between the two lies in the fact that traditional banks are physical institutions with branches, offering face-to-face services. They have a good reputation, are reliable, and typically offer more than 10 major currencies.

Virtual banks are also regulated by the HKMA, but they operate exclusively online and lack physical branches. If customers encounter any issues with wire transfers, they need to inquire through the bank's official website or mobile application. Some virtual banks have noticeably fewer currency options for wire transfers and offer services only for HKD, CNY and US dollars (USD), which ultimately impacts the quality and convenience of the services.

General charges, transaction fees, and other hidden fees for wire transfers

There is usually a traction fee ranging from HK$50 to HK$200 for wire transfers through banks. The fee may vary depending on the transfer method. Online wire transfers generally have lower fees compared to physical branches, but some banks may waive the fees as a means to attract customers.

Apart from the standard transaction fee, it is important to be mindful of additional fees and hidden charges. These may include correspondent bank fees ranging from approximately HK$100 to HK$300. Charges may also apply for services such as checking the remittance status, cancellation, or adding remarks to the remittance instructions, with fees ranging from HK$100 to HK$200. 

Non-local remittances involve more complex procedures, and if multiple SWIFT codes are required, some banks may charge an additional wire transfer fee of approximately HK$100. It is advisable to inquire with the bank about all applicable fees before initiating the wire transfer to ensure a secure and transparent transaction.

A comparison of wire transfer cut-off times for major banks

Each major bank has different cut-off times for fund transfers through their online platforms or branch offices. Some banks may even have different cut-off times for specific currencies.  Here are the cut-off times for major traditional banks:

• HSBC Bank Online Banking - Monday to Friday: 5:55 PM, Saturday: 11:55 PM

• Hang Seng Bank - E-banking with USD/EUR/GBP, Monday to Friday: 6:00 PM; Branches - Monday to Friday: 5:00 PM

• Bank of China:  Major currencies - Monday to Friday: 6:00 PM;  Remittance of CNY to Mainland China via SWIFT - Monday to Friday: 3:30 PM

• Bank of East Asia: E-banking - Monday to Friday: 4:30 PM; CNY - 4:00 PM

• Citibank: Monday to Friday: 4:30 PM

(*Data as of 20 January 2024. Please note that all information is for reference only and subject to the official websites of the respective banks.)

Why do bank transfers take longer?

For cross-border bank transfers, banks generally need to involve one to three correspondent banks as intermediaries to assist with the transfer. Coupled with different time zones and varying cut-off times among different banks, it is challenging for banks to transfer funds across the border instantly.

Can I open an overseas account with the same name and transfer funds to it?

Yes, you can. 

Many international banks have branches or subsidiaries worldwide and offer services for opening overseas accounts. As the remitter, all you need to do is open an overseas account with the same name, and you can wire transfer funds to the overseas account with the same name. However, it's important to note that some banks may have minimum balance requirements or charge fees for opening an account. It is advisable to inquire with the respective banks for further details before opening an account.

Remittances through money changers

In addition to traditional banks and virtual banks, money changers also offer overseas remittance services, often emphasising competitive FX rates and reduced transaction fees. However, the reputation of money changers can vary, and there have been occasional reports of frozen funds when remitting to mainland China through unlicensed money changers.

If you still choose to use money changers for remittance, it is crucial to select reputable and well-established ones. It is recommended to carefully check if the money changer's name in both Chinese and English, the transaction date, FX, currency type and amount are listed on the receipt. It is also advisable for both the remitter and money changers to sign the receipt for added security. Furthermore, for large remittance amounts, there may be additional fees and longer processing times. It is recommended to inquire and understand the details before initiating the remittance.

An innovative remittance method that combines the cutting-edge financial technologies — Airwallex

Traditional banks, virtual banks, and money changers each have their own advantages and disadvantages when it comes to wire transfers. However, specialized remittance companies like Airwallex offer secure, fast, and transparent wire transfer services without any hidden fees. Airwallex supports over 30 currencies for transfers to more than 130 countries and regions, including USD, British Pound (GBP), CNY, Euro (EUR), Japanese Yen (JPY), South Korean Won (KRW), and more. With Airwallex, there's no need to worry about unfavorable FX. The platform offers real-time competitive rates, with no minimum transaction amount required. Remitters only need to open an Airwallex Business Account and pay fees as low as 0.2% of the interbank rate (with no additional remittance fees or correspondent bank charges). The funds can be debited the same day with no hidden charges.

As for security, Airwallex operates under the regulation of the Customs and Excise Department of the Government of the Hong Kong Special Administrative Region and holds a Money Service Operators (MSO) license (MSO License No. 16-09-01929). The company is also registered or authorized by regulatory bodies in countries like the United States, the United Kingdom, Australia, Canada, Malaysia, New Zealand, Singapore, and others. 

Airwallex is as reliable as traditional banks and much safer than typical money changers that offer wire transfer services. It has gained significant recognition and popularity in the market, providing remitters with an innovative remittance method that combines cutting-edge financial technology.