Confused About Banking? How to Explain Wire Transfers to Anyone

Since the first money transfer was made 150 years ago, things have changed significantly in the field of international banking. Today’s fast-paced, tech-driven world has many transfer methods, but what’s the difference between a wire transfer and others?

Since the first money transfer was made 150 years ago, things have changed significantly in the field of international banking. Today’s fast-paced, tech-driven world has many transfer methods, but what’s the difference between a wire transfer and others?

wire transfer
wire transfer
wire transfer

What do ordering coffee and sending money have in common in 2023?

In the old days, ordering a coffee was as simple as “can I have a cup of coffee?” Nowadays, you have to choose among arabica, robusta, latte, doppio, cortado, lungo, cappuccino, galão, macchiato, americano, espresso, ristretto: the list goes on.

Similarly, the simple telegram money transfer that Western Union started 150 years ago branched out significantly to include wire transfers, bank transfers, online money transfers, mobile app transfers, and cryptocurrency transfers.

But that’s about all sending money and coffee have in common these days.

The banking industry is a vital component of today's global economy but is also very complex. People new to international banking may have come across certain questions that need answers when dealing with their finances, such as not knowing the differences between certain types of bank transfers, the positives and negatives of each one, and not knowing whether to use online banking instead of more traditional methods.

Therefore, in this article, we’ll elaborate on the differences between wire, bank, and online money transfers. We’ll cover the following:

  1. What is a wire transfer?

  2. What is a bank transfer?

  3. What is an online money transfer?

  4. Bank transfers vs. online money transfers vs. wire transfers

[Do you want a more cost-effective way to send money abroad? Download the Hubpay app free from Apple or Google app stores to enjoy low-cost international money transfers.]

What is a wire transfer?

A wire transfer is an electronic transfer between two individuals or businesses via the wired network of their financial institutions. Such networks include:

  1. The Society for Worldwide Interbank Financial Telecommunication (SWIFT)

  2. The Federal Reserve Wire Network (FEDWIRE) in the USA

  3. The International Bank Account Number (IBAN) in Europe.

To complete a wire transfer, the sending and receiving parties exchange transaction details, such as the recipient's name and account number.

Bank of America briefly defines wire transfers as an electronic payment service to move funds by wire through the Federal Reserve Wire Network, SWIFT, or the Clearing House Interbank Payments System.

There once was a time when paper checks were the standard method, then telegrams came along, introducing more flexibility to the process. For decades, money transfers have since become a common practice that play an important role in many people’s lives, such as for monthly remittance transfers sent to families or for house/vehicle payments.

With the introduction of the internet and other technological advancements, the money transfer landscape is now rapidly adapting to a new era by introducing Electronic Fund Transfer (EFT), which are transfers conducted via computers, wire networks, and the internet.

Several service providers besides banks offer different types of wire transfers, and in some cases, it is possible to use wire transfer services without having a bank account.

How does a wire transfer work?

An important part of how a wire transfer is processed is the Wire Transfer Number, also referred to as a “Money Transfer Control Number,” which identifies a specific financial transaction. The wire transfer number is typically only used as a secondary verification measure after the recipient has shown proper identification at the branch where they wish to collect the incoming wire.

What happens when a wire transfer is rejected?

If a wire transfer is rejected for any reason, such as a lack of funds at the sending bank or incorrect recipient information, the sender has two options:

  1. Obtaining a refund

  2. Resending the funds after addressing the issues.

Domestic and international wire transfers

We can divide wire transfers into domestic and international based on the locations of the banks concerned in the process.

International wire transfers

Money transfers between two different countries are considered international wire transfers. For example, transferring money from the UAE to India. It is common to send money in a foreign currency via wire transfer, which might take a few days to complete.

Domestic wire transfers

A domestic wire transfer is a transaction between local parties within the same country, and it’s quicker and cheaper than international wire transfers because it usually involves the same currency and banking system.

Pros and cons of wire transfers

Pros

  1. Wire transfers are quicker and easier than bank transfers

  2. It is a much safer and more reliable transfer method than writing a check

Cons

  1. There is no way to cancel a wire transfer once issued

  2. It’s difficult to confirm the recipient's identity, opening the door to certain fraud potential, like using fake IDs.

  3. [Wire transfers are expensive](https://www.bankrate.com/banking/wire-transfer-fees/#:~:text=Wires are one of the,international wire fees average %2444.) and can’t compete with online money transfers cost-wise.

What is a bank transfer?

Customers can send funds from one bank account to another, making bank transfers one of the earliest forms of international money transfers, usually used with large transfer amounts. Instead of physical money transfers, one bank transmits data to another via their respective communication network and transfers funds electronically between the two bank accounts.

Each financial institution has its own fees and set of policies regarding how and under what conditions funds can be moved between accounts.

Types of bank transfers

There are two types of bank transfers:

Domestic bank transfer

Domestic transfers take place within the same country and have local regulations organizing them. For example, ACH transfers in the United States and SEPA transfers in the European Union.

International bank transfer

When funds are transferred between bank accounts from one country to another via wire or a ”bank wire transfer,” the transaction is considered an international bank transfer.

Pros and cons of bank transfers

Pros

  1. It’s a secure way to send large amounts of money

  2. It offers a variety of ways to complete the transaction, including in person, at an ATM, via a debit card, and even online banking for some banks.

Cons

  1. It will take some time for the money to pass the clearance process at the recipient’s bank

  2. Many hours, and sometimes even several business days, are required

  3. Many details need to be clarified, such as the SWIFT code, Business Identifier Code, and routing number, which differs from bank to bank.

What is an online money transfer?

The internet has changed the money transfer process into a new seamless system known as an “online money transfer,” which can be referred to as the modern-day equivalent of wiring money.

The convenience of an online money transfer has also simplified the required information as money transfer platforms only need an email address or phone number and a bank account.

Many online money transfer platforms also provide mobile applications to ease the process and increase accessibility. Whether sending or receiving the money, they only require a mobile device with an internet connection.

Pros and cons of online money transfers

Pros

  1. The funds appear in the recipient’s account as soon as the sender confirms the payment

  2. There is no paperwork involved

  3. It operates around the clock

  4. It is user-friendly, ensuring a smooth experience.

Cons

  1. Digital platforms require some personal information about the recipient, such as the bank account number

  2. You need to pay close attention to online credentials, such as account usernames and passwords.

Bank transfers vs. online money transfers vs. wire transfers

Defining what a wire transfer is may have seemed complicated to start with, but we have now explained it in detail, along with bank and digital transfer methods.

The following section compares all three methods by the most important payment features.

Fees

Sending money overseas incurs transfer fees, which vary by transfer type. The fee consists of two main categories: transaction costs, fixed or commission-based (or a mix of the two), and an exchange rate margin.

Individual banks might have internal exchange rates that don’t favor senders. Additionally, using a wired network like SWIFT is both necessary and costly. Wire transfers and bank transfers, then, are the most expensive options. The receiving bank or credit union may impose a nominal fee, shared by the recipient and the sender, for processing the receipt of funds.

On the other hand, an online platform has better exchange rates, and the fees are only paid by the sender, as it does not use a wired network.

According to Bankrate, an online banking guide, the fees for sending a domestic wire average about $26, and international wire fees average $44. Meanwhile, traditional banks average about $15 for domestic transfers and $30 for international ones. As for online transfers, these platforms cost $0 on average for domestic transfers and $25 for international ones, according to Forbes Financial Advisor.

The best option for fees: online transfers.

Speed

The time it takes to complete a money transfer, particularly across international borders, is an important factor to consider. Online money transfer services outperform wire transfers and bank transfers, which can take up to several business days to complete, especially international transfers because they involve using a wired network like SWIFT.

The best option for speed: online transfers.

Security

Banks have been around for decades and are generally trusted, but there is always a chance of scams, such as fraud or identity theft. On the contrary, the emergence of cutting-edge security features prevents unauthorized access to a user’s account.

Nowadays, banks, wire transfers, and online payment platforms are exposed to cyber attacks. According to Business Insider, cyber attacks boosted banks' cybersecurity spending in 2022. Simultaneously, technology advancement enabled financial institutions to take efficient precautions to protect themselves against cyber criminals.

The best option for security: all are equal if we follow precautions.

Transparency

Users are rarely aware of the full extent of fees, with the final cost of the transfer only becoming clear after it has been completed. This is especially true for bank transfers and wire transfers, which rely on the exchange rate margin to make a profit.

The lack of transparency in banking services is a big issue. According to The White House, earlier this year, President Biden called on all agencies at a White House Competition Council meeting to reduce or eliminate hidden fees for everything, including banking services.

Additionally, the Consumer Financial Protection Bureau issued guidelines assisting banks to avoid charging illegal hidden fees on different banking practices.

Online money transfers provide better transparency and exchange rates since the majority of online money transfer platforms specifically declare all fees and charges related to a transfer or any other activity. Moreover, all the operations are performed under the user’s approval and supervision.

The best option for transparency: online transfers.

Process

Most users would rather have a simpler, more streamlined process that requires minimal entries. There is some added complexity when sending money internationally via bank or wire transfer. For example, transferring money from the UAE to Pakistan via an online mobile application like Hubpay is quite simple compared to bank or wire transfers.

Senders usually have to specify more information about recipients, like the beneficiary bank, intermediary bank, IBAN or SWIFT codes, and other details. Meanwhile, online money transfers are different since they don't require much information and offer shortcuts to repeat payments.

The best option for the process: online transfers.

Hubpay: A modern online payment platform with traditional benefits

One of the leading online money transfer platforms in the UAE is Hubpay, which provides a user-friendly and download-free mobile app with reasonable exchange rates. Users from the UAE can send money in AED, and recipients can receive it in their local currency.

Hubpay also includes electronic payment features such as International bill payment, which you can use in the United Arab Emirates and abroad via the app, and without a credit card or Visa.

Many people avoid online money transfers because they fear losing their mobile phones or falling victim to cybercrime. Therefore, they prefer traditional methods to be on the safe side. Hubpay addresses this issue by implementing two security measures, one-time password (OTP) and biometrics through facial recognition. This way, no one can access the account, even if the smartphone is lost or stolen.

Additionally, thanks to Hubpay’s international mobile recharge service, users can stay in touch with loved ones without worrying about service interruption. The Hubpay app lets you top up your mobile phone balance in several countries worldwide.

Today , many expats in the UAE now use Hubpay to transfer remittance funds. They work hard and look for side hustles in Dubai to increase their income and transfer money to their families back home.

In short, Hubpay combines the pros of old-school methods (i.e. great customer service, ease-of-use) with online capabilities, giving users the best of both worlds.

Takeaways

  • Money transfers vary in transparency, security, fees, speed, and processes

  • Online money transfers are a convenient option compared to wire, and bank transfers

  • Wire transfers usually involve a network of financial institutions during the process

  • Hubpay users can send money abroad quickly, affordably, and securely

[Do you want a more cost-effective way to send money abroad? Download the Hubpay app free from Apple or Google Play stores to enjoy low-cost international money transfers.]

Hubpay Limited is incorporated (registration number 000004051) under the laws of the Abu Dhabi Global Market (ADGM). We are licensed and regulated by the Financial Services Regulatory Authority (FSRA) for Providing Money Services under Financial Services Permission number 190024. Address: 15-116, WeWork, Al Khatem Tower, ADGM Square, Al Maryah Island, Abu Dhabi, 46617, AE

Hubpay Limited is incorporated (registration number 000004051) under the laws of the Abu Dhabi Global Market (ADGM). We are licensed and regulated by the Financial Services Regulatory Authority (FSRA) for Providing Money Services under Financial Services Permission number 190024. Address: 15-116, WeWork, Al Khatem Tower, ADGM Square, Al Maryah Island, Abu Dhabi, 46617, AE

Hubpay Limited is incorporated (registration number 000004051) under the laws of the Abu Dhabi Global Market (ADGM). We are licensed and regulated by the Financial Services Regulatory Authority (FSRA) for Providing Money Services under Financial Services Permission number 190024. Address: 15-116, WeWork, Al Khatem Tower, ADGM Square, Al Maryah Island, Abu Dhabi, 46617, AE