If you have been doing business internationally, whether as a small business owner with customers and suppliers overseas, or as a private investor with properties or other form of asset outside of India, then you must have fully understood by now that the cost of transferring money is nothing but marginal.

Transferring money internationally through a bank account will cost, on average 2-5 per cent on the dollar (or Rupee, or whichever currency is used). This figure is true for almost everywhere on the globe – in the UK it may be closer to the 2% mark, while in the USA it may be closer to the 3%. The immediate reaction of people who have never looked into the ins and outs of international money transfers is that this number seem inflated, and that their bank charges only £20 or $30 per transfer, with a “no commissions” policy on all transfers; the truth cannot be further from it, and this misconception is well rooted and embodied in the public’s mind through shoddy advertising.

In fact, the most substantial part of an international money transfer cost is the exchange rate being provided. Banks make their money through offering exchange rates which embed a hefty margin into them. For example USD 10,000 is worth INR 685,955 (rate for March 18, 2019) but most banks will not pay more than INR 669,000 for USD 10,000, representing a loss of 3% of the total sum exchanged. Banks don’t bother making sure their customers are aware of this embedded markup, and so, people who conduct business internationally can easily end up paying unproportional amounts money for a service which is pretty simple, straightforward, and has alternatives which are much cheaper.

What are these alternative means of overseas payments? There are designated companies that focus exclusively on international money transfers and are able to offer much better fees than banks. These services operate almost on a global level and easy to sign up with if you are a resident of the USA, UK, Australia or the EU (signing up with an Indian residency is more difficult). They will send money from these countries in their domestic currency and transfer it to India in Rupee.

Which such companies exist on the market? Based on authority website MoneyTransferComparison’s online companies chart the market leaders with highest transaction value, such as Transferwise, Currencyfair, Currencies Direct, OFX and World First, are all happy to deal with inbound to India transfers but will not on-board Indian clients who want to transfer abroad. This policy is driven by higher-risk vs. smaller reward of dealing with Indian clients, as these companies normally focus on higher-value transfers and corporate accounts.

It’s true that the solution proposed here is not effort free and definitely requires whomever uses it to take a leap of faith by transferring significant sums of money to commercial companies but please keep in mind all the leading companies are regulated to handle client’s funds, in the same fashion would a stock broker or any other financial service provider would be regulated.

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June 2021