Online Money Remittance and Foreign Exchange Transfer: Caveat Emptor

In this article, we examine trends in money exchange and transfer, savings and repatriating and sending money to your loved ones overseas in the most convenient and cost efficient manner.

Money Transfer, exchange rate conversion, transfer of savings to loved ones is never far from the minds of expatriate communities around the world. Indian, South Asians, and Non resident Indian (NRI) community makes large remittances to their native lands. Similarly there is a large scale remittance from North America to Mexico and Latin America, thanks to legal and illegal immigration. East Europeans, thanks to EU have also been migrating to western European countries prompting some remittances back to the old country.

The main motivator for individuals from India to migrate west is the opportunity to earn in dollars, a part of which many of us send back as remittance to our families. In 2005, NRI remittances surpass $ 23 b mark! Sanket Mohapatra writes in the Worldbank blog that "Inward private transfers reached $27.5 billion in the first half of the current fiscal year, a 4.3 percent increase on a year on year basis."

Behind the glamour of forex remittances lies a murky world of hidden fees, transfer charges, exchange rate fuzziness and several ways one can get shortchanged. In his write-up "Money 2.0 and Future of Money: Global remittances waiting to be streamlined," Mohan Blogs "Banks at both ends of transaction - my transmitting bank and the receiving bank - wanted a "small" slice of my remittance pie; and so did other middlemen/exchanges through which my money passed. Add to this the uncertainty of exchange rates that change by the minute and the average remitter can be left wondering about the gain/loss he could have had. Of course, banks do agree to 'lock' rates for you at the time of transfer, but do so at a hugely discounted rate leaving the consumer to wonder if he wants to take the 'risk' of exchange rate shift or go with a predictable, albeit lower rate now?"

During my research on global remittances, I discovered the following about online only remittances:

* There is very little legal recourse for remitting money using online services: Unlike a bank or financial institution, online remittance portals and other money exchange firms do not have formal ombudsman. Banks can assure a rate only when the exchange rate is agreed before transmitting, which can be lesser than the prevailing market rate.

* One cannot go to a Small claims / pro-se court: With no address of business in Canada or US, one cannot go against online-only remittance firms

* Poor customer service: Firms that regularly advertises in ethnic media and websites and offer "promotions" and "gifts" for money exchanges, don't work towards keeping existing customers for repeat business.

What this means is that online firms may claim to offer better exchange rates but cannot match the predictability of traditional banks. On the other hand, traditional banks offering forex services to retail customers may not necessarily offer the best exchange rates. (Reference)

For individuals what this means is that when it comes to Forex remittances, buyer beware