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As the gig economy continues to evolve, companies find more and more need to send payments to partners overseas. Due to this, local bank transfers are quickly becoming the international money transfer method of choice.
Online marketplaces, affiliate systems, and advertising networks regularly send mass payment batches to their partners. Local bank transfers can be executed quickly and at scale while having the advantage of low fees and local currency.
What is a Local Bank Transfer?
A local bank transfer refers to transferring funds electronically from one bank account to another within the same country or region. It is also a cross-border payment method where a deposit is made into a foreign bank account. A local bank transfer is also known as an international ACH or Global ACH.
A type of EFT (electronic funds transfer), the convention and process by which local bank transfer payments are made varies from country to country.
Local bank transfers are typically used for various purposes, including salary payments, partner commissions, business transactions, and more. They’re faster and more cost effective than traditional methods like writing and mailing checks or physical cash. The advent of mobile and online banking has created even more convenience, allowing users to initiate transfers from anywhere in the world.
How does a Local Bank Transfer Work?
The sender provides the necessary data to initiate a local bank transfer, like the recipient’s bank account details, bank name, and branch information. The sender’s bank will transfer the funds to the recipient’s account.
Local bank transfers involve an intermediary bank or financial institution which operates between the transfer’s payer (or the originator) and the payee (or the receiver) of the payment. The intermediary acts as a clearing mechanism and helps process and settle the funds transfer.
An ACH transfer is the standard process involving an intermediary in the United States. The payer issues the payment and then ‘cleared’ and settled by the Automated Clearing House before funds are accessible in the payee’s account. Unfortunately, the domestic ACH system can’t settle international bank transfers.
Many other regions around the world also have clearing mechanisms that function like an ACH transfer. Europe has developed the Single European Payments Area (SEPA). SEPA uses local bank transfers with similar ease to domestic ACH transfers. India has several local bank transfers and foreign exchange mechanisms, including the NPCI, ECS, and, more recently, the NACH.
Scenario Example of a Local Bank Transfer
Let’s say there’s a company called ABC, Inc. based in the United States, and they need to make a payment of $4,000 to their international partner, XYZ Ltd., located in the United Kingdom. Both companies have bank accounts in their respective countries. Here is how a bank transfer might unfold:
- ABC’s finance department prepares the payment details and gathers all the necessary data from XYZ, including the recipient’s bank account number, SWIFT/BIC code, bank name, and any other necessary details.
- AP initiates the local bank transfer through their online banking platform or by visiting their bank branch.
- They enter XYZ’s bank account details, including their bank name, account number, and SWIFT code. The transfer amount of $4,000 is entered, and any applicable fees are also taken into account. All data is reviewed to ensure accuracy.
- Any necessary authorization, such as a secure token or an OTP, is provided.
- The bank of ABC, Inc. processed the local bank transfer and debits $4,000 from the company’s account.
- The bank then converts the USD to GBP )British Pounds) based on the prevailing exchange rate.
- The request is sent electronically to the recipient’s bank using the SWIFT network.
- XYZ’s bank receives the transfer request and verifies the recipient account data.
- The bank then credits the converted GBP to XYZ’s account.
- XYZ receives a notification from their bank and can now access the funds.
In this scenario, ABC, Inc. is using a local bank transfer to make an international payment to its partner, XYZ, Ltd. This involves initiating the transfer through their local bank in the United States, providing the necessary data, and relying on the international banking network to facilitate the conversion and deliver the funds.
Local Bank Transfers vs. International Wire Transfers
The difference between local bank transfers and international wire transfers is the role of the network or intermediary. Global wire transfers utilize a direct link between the banks on both sides of the transfer. While local transfers can be completed relatively cheaply, international wire transfers tend to carry hefty fees. While international wire transfers are more expensive than local bank transfers, they tend to be more reliable and faster.
Here are a few key areas in which they differ:
| Local Bank Transfer | International Wire Transfer | |
|---|---|---|
| Scope | Sending money within the same country, usually between two bank accounts held at domestic banks. | Sending money between bank accounts held in two different countries. |
| Cost | Some banks provide a free to low-cost service, particularly within the same banking network. | Higher fees than local, including charges for conversion, intermediary bank costs, and service fees. |
| Processing Time | Same day to a few business days. | Ranges from a few business days to over a week, depending on verification. |
| Documents and Requirements | Account details and some additional info for security purposes. | AML and KYC laws, ID documents, the purpose of payment, and details about the relationship. |
| Currency Conversion | Conducted on local currency of sender and recipient’s accounts. | Involves currency conversion, where banks may apply their own exchange rates. |
How Much Do Local Bank Transfers Cost?
The cost of a local bank transfer can vary depending on the bank and the specific type of transfer. Here are some common scenarios to evaluate costs:
In the Same Bank
Many banks will provide free or low-cost transfers between accounts that are held within the same bank. These are often included as part of the services offered to the customer upon sign-up.
Different Banks in the Same Country
Some banks will charge a nominal fee for transferring funds between different banks within the same country. The charges can range from a few dollars to a set percentage of the transferred amount.
Online Transfers
Some banks provide online banking services that enable a business to make transfers electronically. Usually, online transfers within the same country are either free, or involve much lower fees than in-person transfers.
Over-the-Counter
Paper-based transfers happen when you visit a bank branch. There are typically higher fees associated with this service compared to the other methods. These fees will vary depending on the bank you use and the amount being transferred.
How Much Do International Wire Transfers Cost?
The cost of an international wire transfer will vary depending on the bank or financial institution involved, as well as the specific terms and conditions of the transaction. Common factors that affect the cost of international wire transfers include:
- Sending Bank Fees: The bank where the wire transfer is initiated may charge a processing fee, which varies depending on the bank type and account you hold.
- Intermediary Fees: Correspondent banks may charge fees for handling the transfer on behalf of the other two banks, which vary depending on the specific transfer agreement between parties.
- Receiving Bank Fees: The recipient’s bank may charge fees for receiving an international wire transfer. These will either be deducted from the transfer amount or charged separately.
- Currency Conversion: Additional fees may be associated with the exchange rate if the transfer requires a currency conversion. Banks will often apply a margin or markup to the mid-market rate, resulting in more charges.
Fees for an international wire transfer can vary significantly between countries and banks. Some will offer flat fees for global transfer, while others charge a percentage of the transferred amount.
How Long Do Local Bank Transfers Take?
Local bank transfers (cross-border electronic transactions) often take longer than domestic bank transfers. A local bank transfer usually processes within one to three business days but can take more time, depending on the countries and banks involved. For example, local bank transfer transactions with China can take up to five business days.
The processing time for local bank transfers varies depending on several factors like the country, payment processing system in use, and bank involved. Generally speaking, local bank transfers are processed within the same business day. However, there are exceptional dn variations based on things like:
- Weekends and Holidays: Transfers started on weekends or public holidays will not be processed until the next business day. Banking holidays in sending and receiving countries may also affect processing times.
- Cut-off Times: Banks usually have a cut-off time for processing transfers. If you initiate a transfer after this time, it will not be processed until the next business day.
- Interbank Transfers: The transfer between different banks may take slightly longer than transfers within the same institution. The transfer may need to pass through interbank clearing systems, which can introduce additional processing times.
- Processing Policies: Each bank has its own internal policies and procedures for handling local bank transfers. These policies affect the speed of processing, including factors like security checks and manual review processes.
While local bank transfers are typically faster compared to international payment options, it’s important to note that processing times will still vary. To get the most accurate data about an expected timeframe, it’s best to contact the bank directly. They can provide specific details based on your circumstances and the country where the transfer occurs.
How Long Do International Wire Transfers Take?
The time it takes to complete an international wire transfer depends on several factors, like the country of origin, the bank involved, the destination, and the currency. Generally speaking, it can take anywhere from three to five business days for an international wire transfer to reach its recipient. However, in some cases, it may take a little longer. This is especially the case if there are intermediaries involved.
A few factors that affect how long international wire transfers take include:
- Banking Holidays: Banking holidays in either the sending or receiving country can delay transfers. Transfers that are initiated on weekends or public holidays may not be processed until the next business day.
- Cut-off Times: Most banks typically have cut-off times for processing wire transfers. If you try to send a transfer after this time during the day, it may not be processed until the next business day. Businesses should be particularly wary of this rule on Fridays and Saturdays, as many banks are closed on Sundays, delaying payment even further.
- Time Zone Differences: International wire transfers may need to pass through multiple banks in different time zones. This can add to overall processing times, as global banks operate on different hours and business days.
- Compliance and Verification: International wire transfers are always subject to regulatory requirements and anti-money laundering (AML) measures. Some banks may need to conduct additional checks and verification procedures. This can most certainly prolong the processing times.
It’s best to contact the bank directly for the most accurate time frame.
Understanding SWIFT and Local Bank Transfers
SWIFT is short for the Society for Worldwide Interbank Financial Telecommunication. SWIFT is a messaging network used by banks and other financial institutions worldwide to securely and reliably exchange financial data. These details include instructions for international money transfers.
The SWIFT network provides a standardized format for communication and facilitates the transfer of funds across different banks and countries. When it comes to global transfers, SWIFT is most commonly used for wire transfers between banks in two different countries. This is typically how it works:
- Sender’s Bank: The sender initiates the transfer at their local bank. The bank then collects all of the necessary data, like the recipient’s banking information, the SWIFT/BIC code, and the amount to be transferred.
- SWIFT Messaging: The sender’s bank uses SWIFT to send a payment instruction message (MT103) to the recipient’s bank. This message will include all relevant data for the transfer, like the sender’s and receiver’s information, the amount, and any additional details.
- Correspondent Bank: If the sender’s and recipient’s banks do not have a direct relationship, an intermediary bank must step in to facilitate the transfer. Payment instructions will pass through one or more correspondent banks to move the transfer along.
- Recipient’s Bank: The recipient’s bank will receive the payment instructions via the SWIFT network. They credit the recipient’s account with the transferred funds based on the provided instruction.
The time it takes to send an international wire through SWIFT will vary. Since the transfer typically involves several steps, it can take anywhere from one to five business days.
Why You Need Local Bank Transfer as an International Payment Method
Local bank transfers make paying vendors and partners a lot easier and have many advantages over other options. If you run a large business, you may find it highly beneficial. Here are a few reasons why using a local bank transfer, eCheck, as an international payment method works well:
Cost-Effectiveness
Local bank transfers are often the most cost-effective way to send money globally. Especially since routing funds is often a free option for account holders, they are typically more affordable than international wire transfers and help a business avoid conversion costs.
Global Reach
Many businesses, especially internet-based digital economy brands, and large corporations, rely on products or services from people outside the country. International suppliers, partners, and independent contractors like receiving cross-border payments through a payment system that handles local transactions. Local bank transfers can reach pretty much anyone worldwide.
If you use this service to pay your suppliers or partners, you can automate the global payments workflow. The result is reducing accounts payable workload by up to 80%.
Instead of having multiple banks in different countries to make payments to, you can automate and consolidate your global payments into a single batch. With accounts payable automation, you or your staff can focus on growing your business.
Convenience
Local bank transfers are a convenient way to send money worldwide. This is especially the case if you have a local bank account in the destination country. A business can initiate transfers online or through the local bank branch, making it a fairly straightforward process. Additionally, if you receive regular payments or send money consistently in the destination country, having a local bank account will streamline transactions.
Save Money and Time
Mass payments can save money and time. Rather than requiring a staff of accounts payable specialists to process payments, your payments can be grouped into one payment run.
Your business will leverage the efficiency of automation. Besides the time it takes to process invoices and execute payments, extra steps are required for global payments. A robust end-to-end mass payment solution takes the manual steps out of your accounts payable workflow, helping to save money and time.
Faster Processing Times
Compared to international wire transfers, local bank transfers are much faster. They do not involve cross-border or intermediary banks, which means funds can be credited to the recipient’s account more quickly. This can also be beneficial if you need to make time-sensitive payments or require immediate access to the transferred funds.
Local Currency Transactions
Local bank transfers enable a business to send funds in the recipient’s local currency. This can be advantageous to both parties, as the sender avoids currency conversion fees, and the recipient can receive funds directly, without having to convert them.
Lower Risks and Fewer Errors
International wire transfers, especially those that involve SWIFT, can be a complex process with multiple steps and a multitude of details. The use of local bank transfers reduces the chances of human errors or complications that may occur in cross-border transactions. A company’s transfer remains within the familiar, local, and regulated government by utilizing local bank systems.
Pros and Cons of Local Bank Transfers
Local bank transfers have advantages and disadvantages, although the pros outweigh the cons. For SEPA payments in euro (EUR), transaction fee pricing is regulated to be the same as domestic transfers. The U.S. doesn’t have similar online banking regulations for local bank transfers.
Pros
The pros of local bank transfers are:
- Safety and security of the transaction to a local bank account at the receiving bank
- Less risky than an international wire transfer
- Costs are much lower than bank wire transfer fees
- Recipients are paid quicker in their local currency
- Payer exchange rate fees from US dollars (USD) to local currency are reasonable
- Local bank transfers can be used for global mass payments
Cons
- A local bank transfer can take several business days to reach the recipient’s bank account.
- Often slower than international wire transfers
- It may be somewhat less reliable than international wire transfers.
- Intermediary banks and electronic transfer fees may be charged to the payer and payee.
Summing It Up
Before sending money across borders, it’s worth every business to consider all the alternative international payment methods. There are many factors that can affect the speed of the payment and the amount the recipient finally receives.
Money transfer services and specialized remittance service providers also offer competitive rates and lower fees compared to traditional banks. Before choosing a final method, make sure to compare fees and exchange rates across different providers and platforms.
Local bank transfers are one of the most convenient and cost-effective methods for transferring funds within the same country. Given the ability to initiate transfers online or through local bank branches, these types of transfers provide ease of use and accessibility for individuals and businesses alike.
The processing time for local bank transfers is efficient, with most being completed within the same business day. However, factors such as cut-off times, weekends, and holidays impact the processing timeframe.
Despite these considerations, local bank transfers remain reliable for fast and secure transactions. Always consult with your bank to better understand exact fees, processing times, and policies.
By leveraging the benefits of local bank transfers, companies can streamline finances, save on costs, and ensure the smooth movement of global funds.
Digital industries have emerged as engagement and monetization leaders in the past two years. Post-pandemic companies are looking for modern partner payment solutions to help them scale.
As the world continues diving deep into the virtual world, best-in-class businesses prioritize automation to attract and retain partners from these four industries. Click here to read our latest ebook: The Four Industries of Global Partner Payments.
