Remitting money abroad? Do your research to avoid getting fleeced on cost

Select a player that offers complete transparency on both the transaction fee and the exchange rate it is going to levy

If you are transferring money abroad for the first time, say, to pay your son’s college tuition fee, you would have many questions regarding the player you can trust, costs involved, and so on. Especially if the amount you are going to transfer is large, you should wake up early and do thorough research on the pros and cons of various players in this segment.

Multiple options 

Three options are primarily available today for remitting money abroad: banks, non-banking financial companies (NBFCs) like Western Union, Thomas Cook, etc and online platforms like Wise, Bookmyforex, etc.

If the amount is large, you may want to use a player you can trust. Banks score highly both on trust and familiarity. “When you go to a bank, the bank itself processes the transaction to send the money overseas. Banks are Authorised Dealer 1 category and only they (barring entities like Thomas Cook for specific categories) are authorised to execute the transaction of sending money overseas,” says Amitabh Bhatnagar, EVP and Head- Trade & Forex ,Debit Cards, Diplomatic missions segment- Branch and Business Banking, RBL Bank. Most remittances, irrespective of the channel they are coming through, go to a bank, which handles the necessary paperwork and processing at the back end.

In recent times, online platforms have emerged as major players in the outward segment as they offer better costs to customers.

Evaluate the cost carefully

After trust, cost, and transparency around it, is the critical factor you should use to decide which player to go with.

“The player you choose must tell you clearly the fee it is going to charge for the transaction. It should also tell you the exchange rate it will apply. There should be complete clarity on the amount you pay and the amount that is received by the entity at the other end,” says Venkatesh Saha, head of APAC & Middle East Expansion, Wise (formerly known as TransferWise).

Cost of outward remittance has two components. One is the transaction fee that every service provider charges. The other, more critical component, is the mark-up on foreign exchange rate.

According to industry sources, banks’ transaction fee can range from Rs 1,200-3,000. Bookmyforex charges Rs 750 as transaction fee (of which they are waiving Rs 250 at present).

“For banks, the markup on exchange rate can range from 1.5-3 per cent on a fast-moving currency like the dollar, euro, pound, Canadian dollars. And it can rise to 4-6 per cent for countries where banks do not have the nostro remittance facility. We charge a markup of 0.4 per cent on fast moving currencies and our markup rarely exceeds 0.8 per cent,” says Sudarshan Motwani, founder and chief executive officer, BookMyForex.

Wise charges as follows. “Larger the amount transferred, lower is the fee. On average, it will be 1.7-1.8 per cent for amounts above Rs 5 lakh. If it is a smaller amount, say Rs 50,000, we charge around 2 per cent,” says Saha. As for the exchange rate, he says: “We will give you the exchange rate you see on Google.”

To know whether you are getting the correct rate, look up the interbank rate online for the currency pair you are interested in. Compare it with the exchange rate you are being offered. This will give you an estimate of the mark-up you are being charged.

Be aware of the rules

Under the Liberalised Remittance Scheme (LRS), a person can send $250,000 abroad each financial year. There is another limit of $25,000 that you should be aware of. “Until $25,000, Form A2 can be self-populated and it does not require a signature. Beyond $25,000, a wet signature is required,” says Motwani. Once you have signed this form, you are free to send up to $250,000.

Things to watch out for

While remitting money abroad, provide accurate information to avoid falling afoul of the Foreign Exchange Management Act (FEMA). It is also important to read all documents properly and fill them up yourself (instead of leaving this task to others).     

Start early and evaluate the various players available to you. If you leave this task for the last moment, you are likely to go with the wrong player and get fleeced on cost.

Before you initiate the transaction, get complete clarity on the amount you need to pay to ensure that a specific amount is received at the other end. In some cases, the bank at the other end may also deduct charges, so the amount transferred to the recipient may be less than you expected. “If you are transferring money to a service provider in a foreign country, and it receives less than the required amount, it will not offer you its service. You will then have to carry out a second transaction and incur all the costs once again for transferring a paltry amount,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.

Procedure for remitting money using an online platform

• Visit the website and create a profile
• You will be asked to upload certain documents, which can vary depending on the purpose for which you are transferring money
• If you are transferring money to a relative for his day-to-day expenses, you will just be asked for proof of identity and proof of residence (PAN card, Aadhaar card or driving licence)
• If you are remitting money to an educational institution, you will have to submit a copy of the admission ticket and student visa
• Once the documents have been verified, some players ask for a refundable advance of around 2 per cent, so that they can book a rate for you
• You can then complete the transaction in the next two working days
• If you do the transaction within treasury hours (10 AM to 3 PM), you are likely to receive confirmation of transfer by next morning