The world of international money transfers is relatively new in the market. For beginners, it might be challenging to understand the intricacies of international money transfers due to the financial jargon and numerous abbreviations. One such jargon is the term ‘Remittance.’ This article will highlight what a remittance is? How it works, and the costs.
What is Remittance?
Remittance is the term used to describe any money transfer from one country to another. This can be done through a variety of means. For example, it can be the transfer of funds by a bank or a money exchange agent. The most common form of remittance is that which is done through bank transfer. The bank transfers the funds to the recipient’s account in their country and notifies them about the payment.
Why do you need a Remittance?
To understand this, we need to know what an international remittance is first. International remittance is a transfer of money from one country to another for which there are no fees charged by either party on either side (the sender or the receiver). This means that there are no costs involved in sending or receiving money from one country to another.
Charges that may be incurred are charges levied on both sides by their respective governments and banks for any currency conversion charges and taxes imposed on them as per regulation set by their respective governments. This has been an essential and widely used tool for transferring money from one country to another.
However, it is possible that the sender may not have any access to their bank account in the remittance-receiving country. If the sender does not have access to his/her bank account, then he/she will have to find an alternative way of transferring funds to the receiver. This is where a remittance agent, licensed by his/her respective government and regulated by financial authorities, comes into the picture.
The remittance agent provides an alternative way of transferring funds from one country to another in a secured manner as per regulations set by his/her respective government and regulated by financial authorities. The remittance agent charges a fee for using their services which can be as high as 20% of the total amount transferred depending on various factors like currency conversion rates and taxes imposed on them in their countries. The money is transferred into the receiver’s bank account, a non-resident in the country where the remittance was sent from.
A remittance agent like Western Union can also be classified as a money transmitter and an agency. The money transmitter has to obtain a license from his/her respective government and be regulated by financial authorities to carry out activities. Some countries like India, the USA, and the UK restrict the activities of money transmitters under certain conditions. They require that they comply with specific regulatory requirements, including KYC (Know Your Customer) norms and KYC (Know Your Client) rules. The agency is not required to obtain any license or registration with their respective government. Still, it can carry out its activity under certain conditions set by its respective governments. If it does not charge any fees for its services, it is considered a remittance agent.