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What is a wire transfer, and is it the best choice for sending your money?
15-10-2020 | treasuryXL | XE |
At its simplest, the term “wire transfer” refers to the electronic transfer of money from one person to another, typically using a bank.
But this doesn’t mean wire transfer is just another term for “money transfer”. There are stark differences between money transfers and wire transfers.
Unlike online money transfers, wire transfers primarily use networks like the Society for Worldwide Interbank Financial Telecommunication (SWIFT) or Fedwire to transfer funds between banks. To make wire transfer (and why it’s different from online money transfer) crystal clear to you, let’s peek into the basics, such as how to wire money to someone, how fast it is, and whether it’s convenient (and to what degree).
What does it mean to “wire” money?
To wire money simply means to electronically transfer it from a sender’s bank account to the recipient’s one. You can use it to send money to a business or to another person, whether he or she is living on the other side of your street, or across the globe. It’s an alternative option for transferring money domestically or overseas to sending a money order or a check.
The term dates back to the late 1800s, when the necessary banking information was transmitted through telegraph wires. Though the transfer now happens electronically, the name has stuck.
Types of wire transfer
Wire transfers are of two types, domestic and international.
Domestic wire transfers take place within the same country.
International wire transfer is used to wire money between two different countries.
How does a bank wire transfer work?
First, you’ll need to go to your bank to conduct the wire transfer. You may be able to do this online or over the phone, but you’ll likely have to go in person. You’ll need to provide them with the following information:
The recipient’s name
The recipient’s BIC code (Bank Identifier Code) or SWIFT code
The recipient’s IBAN code (International Bank Account Number)
The recipient’s routing number (for domestic wire transfer)
The amount of money to be wired to the recipient
Next, you’ll have to deposit the money you want to wire, along with a separate transaction fee to be determined by the sending bank.
The sending bank then requests the receiving bank, via Fedwire or the SWIFT system, to credit the recipient’s account with the wired funds. One or more intermediary banks may also be involved in the process to facilitate the transfer (which likely means additional intermediary fees).
There’s no actual transfer of money. Once all banks have received the necessary information, the money is deducted from your bank account and added to the recipient’s bank account. And voilà—you’ve got your wire transfer process sorted!
How long does a wire transfer take?
Now that you know how to send a wire transfer, and have gathered all required information, setting up and initiating one is only a matter of minutes.
Depending on how soon you submit your request, banks within the US may process your wire transfer on the same day. International wire transfers take longer, but not more than 4-5 business days (at least, not usually).
There’s a specific reason why the processing time is different in both of these cases. In the case of domestic wire transfers, Fedwire or another real-time wire processing system clears the payments within a day. But since international wire transfers involve a domestic clearing house as well as a foreign processing system, these take an extra day or two.
How much does a wire transfer cost?
Bank wires are usually on the more expensive side than other types of electronic fund transfers. You may have to pay anywhere between $15 and $50 USD per transaction.
The bank levies a wire transfer fee, depending on the norms they follow and the transfer amount. At some banks, making wire transfers in-person or over the phone may cost more than wire transfers made through the bank’s website.
Of course, the fee also depends on whether the wire is domestic or international, and incoming or outgoing. Outgoing international wires are at the higher end of this price range, while incoming domestic wires are usually free to the recipient.
For example, the fees for international wire transfers going out of the US generally range from $45 to $50. At the same time, outgoing domestic transfers (if you’re in the US, and you wire money to someone else’s bank account within the US) usually cost between $25 and $30.
Some banks may also charge fees if you’re receiving wired money, though other banks may not. This fee may be between $8 and $10 for incoming transfers, or within the higher range of $15 to $20 at some banks.
Is wiring money safe?
Speaking of bank wires, these are less prone to risks of fraud than checks are. If a check bounces, several weeks may pass before you come to know that the payment was bad.
In contrast, you can’t initiate a wire transfer unless you have sufficient funds in your bank account, so it’s quite safe.
Is it more convenient than money transfers?
Uh, no. First of all, compared to money transfer, a wire transfer can cost you an arm and leg, as we’ve discussed above.
Secondly, with money transfer, you can complete the entire process from the comfort of your home, or from anywhere you are, as long as there’s an internet connection. But to send or receive a wire transfer, you have to contact your bank, or even go there in person during business hours. So you need to gather more information than a typical money transfer requires, take more time out of your day, and pay more in fees.
Yes, you can use a wire transfer to quickly transfer and receive money through a bank, even internationally, but that’s just about it. Overall, wire transfers are more expensive and less convenient than money transfers, which are usually hassle-free. That’s why we think you’ll have more peace of mind sending money with Xe.
Get in touch with XE.com
About XE.com
XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.
Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.
Your company money is safe with XE, their NASDAQ-listed parent company, Euronet Worldwide Inc., has a multi-billion-dollar market capitalization, and an investment-grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have truly global coverage.
Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you the detailed information.
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Is a Letter of Credit (L/C) a dying product?
| 13-10-2020 | Ger van Rosmalen | treasuryXL
In this blog , Ger van Rosmalen explains why you need to ask for a Transferable Letters of Credit when your bank doesn’t want to increase credit limits but even want to lower credit limits.
This blog continues in Dutch language…
Is een Letter of Credit ( L/C) een uitstervend product? Nog steeds worden wereldwijd door importeurs en exporteurs risico’s afgedekt met L/C’s. Als ik kijk naar de afgelopen jaren met het toenemende aantal bedrijven dat ik mocht helpen met het structureren van L/C deals dan ben ik ervan overtuigd dat L/C’s het bedrijfsleven nog lange tijd zullen helpen om de kloof tussen onbekende importeurs en exporteurs financieel te dichten. Ja, er zijn alternatieven en daar moeten we onze ogen niet voor sluiten maar deze zijn (nog) geen gelijkwaardige vervanging voor deze in mijn ogen uitstekende betalingsinstrumenten.
Transferable Letters of Credit
Bijzondere aandacht verdienen daarbij de Transferable Letters of Credit. Een speciale vorm van een L/C die uitkomst biedt als de bank kredietlimieten niet wil verhogen of zelfs verlaagt. Je doet bijvoorbeeld mooie deals met een prima winstmarge, maar je bank beweegt niet mee.
Stel je verkoopt een machine aan een klant, en die machine koop jij weer bij een producent. Hoe kun je een dergelijke deal structureren zonder dat het ten koste gaat van je beperkte werkkapitaal? Een Transferable L/C kan hier uitkomst bieden. Je ontvangt een Transferable L/C van je koper voor een machine ter waarde van EUR 100.000. Je koopt de machine bij een producent voor EUR 90.000 en die vraagt zekerheid van betaling. Het L/C dat je hebt ontvangen kun je overdragen naar de producent voor EUR 90.000 die op dat moment zekerheid van betaling krijgt. Als de producent heeft geleverd zal de financiële afwikkeling als volgt plaatsvinden: de documenten voorgeschreven in het L/C worden door de producent via zijn bank bij jouw bank aangeboden. Zijn de documenten goed, dan mag de bank de inkoopfactuur vervangen door de verkoopfactuur en zal de marge op jouw rekening achterblijven.
Klinkt simpel, toch is het dat niet, want er gelden belangrijke spelregels. De in- en verkoop condities moeten naadloos op elkaar aansluiten dus inkoop in EUR dan ook verkoop in EUR, verkoop op CFR basis dan ook inkoop op CFR basis. De goederen mogen evenmin bewerking ondergaan. Hier moet je even voor gaan zitten, maar het maakt deals mogelijk die je anders misschien moet laten lopen. Hoewel het een bancair product is, bieden banken het in mijn ogen te weinig aan als alternatief voor kredietverlening. Soms omdat de bank er weinig of geen ervaring (meer) mee heeft of het niet wil doen omdat de exporteur hier niet veel ervaring mee heeft en de bank daarom een reputationeel risico denkt te lopen.
Conclusie
Met een goed onderbouwd verhaal kun je dergelijke L/C transacties heel goed gebruiken om jouw groeidoelstelling te realiseren, met comfortabele zekerheid van betaling.
Mijn advies is om expliciet te vragen om een Transferable L/C en neem niet te snel genoegen met een afwijzing.
TradelinQ Solutions kan je daar heel goed begeleiden. Neem vrijblijvend contact op voor meer informatie.
Ger van Rosmalen
Trade Finance Specialist
Smart working with blockchain-based smart contracts
| 12-10-2020 | Carlo de Meijer | treasuryXL
Smart contracts are one of the most popular and talked about subjects being built in the blockchain industry. As processes are increasingly digitalised, it is becoming necessary to find a way to make reliable, digital business agreements. Smart contracts are a great alternative for replacing traditional contracts, that are often complex, slow and expensive.
Smart contracts are gaining widespread use and ease of creation. Today, smart contracts are available to optimize many financial and business processes, thanks to the contribution of blockchain consortia such as Hyperledger.
This blog discusses some of the current opportunities and challenges facing the adoption of smart contracts.
What are smart contracts?
A smart contract is a self-executing, self-enforcing protocol which is governed by its explicit terms and conditions, which stores and carries out contractual clauses via blockchain.
To enter into a blockchain based smart contract, the parties first negotiate and agree to the terms of the agreement before memorialising the terms (either in part or entirely) in smart contract code that are stored inside the blockchain.
Smart contracts allow the performance of dependable transactions without the engagement of third parties. It is a decentralised method, which means that intermediaries at the moment of confirming deals are not required.
Smart contracts automatically execute when predetermined terms and conditions are met, based on the rules it was programmed to do.
Smart Contract Key parts
Smart contracts consist of a number of essential parts: signatories, subject and specific terms. First of all the signatories i.e. two or more parties that use the smart contract and give their final ‘go forward’ regarding the proposed terms via their digital signature. Second the agreement’s subject itself that is limited only within the smart contract’s environment. Third the specific terms of the smart contract. They have to be described in detailed mathematical terms and implemented in a programming language that is compatible with the smart contract’s blockchain. Based on these terms, the contract will execute itself.
Smart Contracts and Blockchain
The key to these contracts is the decentralised network known as blockchain. Smart contracts use blockchain technology to verify, validate, capture and enforce agreed-upon terms between multiple parties.
Smart contracts on the blockchain allow for transactions and agreements to be carried out among anonymous parties without the need for a central entity, external enforcement, or legal system. The transactions are transparent, irreversible, and traceable.
Blockchain is the perfect environment for smart contracts, as all the data stored is immutable and secure. The data of a smart contract is encrypted and exist on a ledger, meaning that the information recorded in the blocks can never be lost, modified, or deleted.
Where could smart contracts be used?
Smart contracts can be used to perform functions in a great variety of industries. Whether regulatory compliance, contractual enforceability, cross-border financial transactions, property ownership, home buying, supply management, material provenance, document management and many other applications.
Today, smart contracts are relevant in areas such as trade in digital financial assets with legal transfer of ownership, banking and credit services, logistics processes, tracking the origin and path of goods, decentralized storage, and use of renewable energy.
Supply chain management
An area where smart contracts could be used is in supply chain management. Making supply chains more transparent via smart contracts is helping to smooth out the movement of goods and restore trust in trade. Smart contracts can record ownership rights as items move through the supply chain, confirming who is responsible for the product at any given time. The finished product can be verified at each stage of the delivery process until it reaches the customer.
Insurance
Smart contracts could also be used in the insurance sector. This sector nowadays lack automated administration. It can take months for an insurance claim to be processed and paid. Smart contracts can simplify and streamline the process by automatically triggering a claim when certain events occur. Specific details could thereby be recorded on the blockchain in order to determine the exact amount of compensation.
Mortgage loans
Smart contracts could also simplify the mortgage process. The terms of a mortgage agreement are based on an assessment of the mortgagee’s income, expenditures, credit score and other circumstances. The need to carry out these checks, often through third parties, can make the process lengthy and complicated for both the lender and the mortgagee. By cutting out the middle men, parties could deal directly with each other.
Financial industry
The most widespread use of smart contracts remains in the financial industry, as money and accompanying documents become electronic. In the financial services sector the opportunities for smart contracts include, for example, payment processing, clearing/settlement of financial instruments, trade finance, as well as regulatory technology such as streamlined ‘know your customer’ certification.
Smart contract platforms
There are nowadays a number of smart contract platforms. They could be subdivided on the basis of technology, end-user (banking, government, supply chain, real estate, insurance etc.) and region (Europe, North America, Asia or rest of the world oriented).
Their differences are in programming languages, blockchain consensus, the cost of maintaining an application’s smart contracts, differences in blockchain security, transaction confirmation speed, trust in the main network nodes, and much more.
Ethereum was the first blockchain platform to develop codes specially made for dApp development. Their appearance has prompted the arrival of many other platforms including names like Aeternity, Cardano, Qtum, Stellar, and Waves.
Ethereum
Ethereum, the well-known global blockchain platform was the first to introduce smart contracts to a more wide-spread crypto community. Ethereum is still the most advanced platform for coding and processing of smart contracts. This open-source platform has one of the largest networks of developers available, and due to this, it can keep up with the continually changing environment in the blockchain industry.
Aeternity
Using a hybrid of Proof-of-Work and Proof-of-Stake model, Aeternity offers a method for powering so-called Turing-complete smart contracts that are capable of being executed off-chain. Thereby they deliver both privacy and security.
Cardano
Cardano is a decentralised blockchain and cryptocurrency project. Like many crypto projects, Cardano is open source. The Cardano platform is working towards implementing smart contract functionality with the Goguen update this year. This should bring their smart contracts a step further to ‘smarter contracts’.
Qtum
Qtum is an open-sourced blockchain application platform, where security and flexibility are two of the most essential components. The Qtum team has worked intensively to assure that smart contracts can be executed safely, making the platform perfect for businesses and their enterprise clients. Qtum uses Proof-of-Stake and a Decentralized Governance Protocol.
Stellar
Stellar, unlike many crypto coins, was created by developers for developers. That means that it is capable of handling extremely complex smart contracts. For simple smart contracts, Stellar offers a clean, easy-to-use alternative for developers that want to build smart contracts delivering greater efficiency.
Waves
Waves is an open blockchain project, strongly focusing on dApps and using Web 3.0 technology. To keep their smart contract project simple, Waves offers many online courses, and other methods of support for developers that may want to work with Waves. Like many smart contract projects, Waves uses Proof-of-Stake.
Benefits of Smart Contracts
Smart contracts provide many benefits over traditional contracts for a wide range of industries. In theory, they are more efficient and trustworthy than traditional contract law, and are also thought to offer better security as all actions are recorded and verified. As a result they may reduce unnecessary costs and time expenditure while enhancing transparency.
Greater efficiency and speed
Smart contracts are able to improve the efficiency and speed with which commercial arrangements are carried out. Smart contracts are automated so there is no need to spend a lot of time on the paperwork and also correcting the errors that are manually written in the documents. They can be executed in minutes, for a fraction of the cost, from wherever the involved parties are, and without the need for lawyers.
Accuracy and transparency
As the codified terms are fully visible and accessible to all relevant parties, there is no way to dispute them once the smart contract is established. This facilities complete transactional transparency and may removes the likelihood of manipulation, bias or error. This, in turn leads to decreased monitoring costs and risks of opportunistic behaviour.
Trust
Smart contracts may provide parties with a degree of trust. They automatically perform transactions following predetermined laws, and the encrypted documents of these transactions are distributed over participants. The information on the contract and the terms of the contract is straight. Specific validation by everyone and the immutability of the work guarantee that the smart contract can never more be broken.
Security
Smart contracts are also thought to offer better security as all actions are recorded and verified. Blockchain transaction documents are encrypted. That makes them extremely difficult to hack. Security features can also be integrated into a smart contract to automatically generate backups and duplicates in the event of damages, data losses to the original one or hacks.
Challenges
Smart contracts could also bring a number of challenges that may prevent more massive adoption.
Human errors
Like paper contracts, smart contracts could still experience fraud, because of human errors. Smart contracts are codes, and these codes are written by people (coders). As such, there is a (high) chance of a smart contract code having many bugs. They can be delayed, intercepted and corrupted. Some mistakes have proven to be very costly.
Confidentiality, security and privacy
Unlike traditional contracts, all transactions executed via a smart contract, are propagated across all of the nodes in the network.
This may create privacy issues, particularly when the accounts of the parties are associated with known entities. Even when the parties rely on pseudonymous accounts, certain identification techniques can be used to discern the identities of parties who transact with a particular smart contract.
Lack of engineering experience
As smart contracts begin to proliferate, there will be a need for new types of cryptography experts, and forensics experts, to verify software code and to translate the code into human-readable form. A lot of engineering expertise is required to make perfectly operational smart contracts. Experienced coders however are hard to find, and costly.
Legal and regulatory challenges
There are also a number of legal and regulatory challenges, which are preventing the more widespread utilisation of smart contracts. Smart contracts lack a clear legal status. There is no official government regulation that applies to them.
Interpretation and enforceability
If there is a dispute about whether a smart contract accurately memorialised the parties’ intentions or whether one party has breached the contract, the parties may still bring legal proceedings or engage in alternative dispute resolution processes. As contract law varies between different jurisdictions, so too will the enforceability of smart contracts.
Jurisdictional issues
Smart contracts also raise jurisdictional issues. Because blockchain operates as a decentralised ledger, smart contracts can be formed and accessed anywhere across the globe. They do not reside in any one location, but exist across multiple locations at the one time.
Yet existing laws are jurisdiction-based. The differences in laws across jurisdictions can be highly problematic, and may result in incongruent rights and responsibilities, and confusion regarding the consequences if there is a contract violation.
What steps are needed?
Comprehensive/clear picture of business/operational practices
Vague contracts allow space for argument. This can lead to claims, disputes, high legal expenses, project and operational delays, as well as invoicing and payment delays. To prevent these situations (as much as possible) a comprehensive and clear picture of the business and operational practices for involved parties is necessary when defining and agreeing on terms in order to automate contracts. Participants need to agree on “specific data,” which may include the exact time zone to be used along with the specific time, the location and what that means for contractual terms and fulfilment. Legal departments drafting contracts need to consider details like this in advance.
Creating Logic Parameters
Parties should also ask themselves a number of questions. What data source will the companies use for their contract? And what are the tolerances? Furthermore, what type of rounding will the smart contract act on? These types of questions must be discussed prior to translation for smart contract codification.
Legal contracts must contain terms on parameters including sources, tolerances, frequency and time frames of data capture methods among others. Specificities such as location, time, and rounding decisions inform logic parameters around data. These impact how contracts translate into code. Incongruent readings can’t be automated.
Clear, non-conflicted contract terms
Problems may arise when an older contract that is used as a starting point has irrelevant or inapplicable clauses that have been forgotten to be removed. This may result in terms and conditions that are either disparate or contradictory. The code of a smart contract cannot be made to execute contradictory terms.
Smart contracts execute exactly what they are programmed to execute and are incapable of judgment. Rules of engagement, particularly those regarding fee calculations and billing practices, must be able to be encoded from clear, non-conflicted contract terms.
Anticipating Data Glitches and Gaps
There will always be technology glitches and failures that may result in data gaps or errors. These occasions can be reasonably anticipated and protocol for them can be incorporated into both natural language and smart contracts.
With agreed-upon terms for these events, a smart contract can be programmed to navigate data tolerances and triggers that automatically recognize when a glitch or failure has occurred. It can then execute the correct predefined action, agreed upon upfront by both parties resulting in zero delays or downtime to the relationship.
Going forward
The potential market for smart contracts is great. Smart contracts can actually change the way agreements are made across various industries.
It however will take some time and require more development before it reaches its mainstream approach. We cannot implement smart contract technology en-masse, as more experimentation is needed at this point. At the moment, smart contracts are still a technology in its early stages. And existing challenges esp. the legal and regulatory ones should be solved first.
That asks for smart thinking|
Carlo de Meijer
Economist and researcher