Wire transfer - Description & How it works

Banking Essentials blog

What does Wire transfer mean? Process with Regulations

A wire transfer can be an essential term that should be understood by persons who do international money transfers. In this article, tradingcritique.com explains to you the meaning, process, history and other details of wire transfer easily and understandably.

Wire transfer meaning

Wire transfer is a type of money transfer that happens in both online and offline modes. It happens through a system and network of institutions by which money can be transferred domestically and also internationally.

Wire transfer happens through a network of banks or institutions through which the wire transfer is processed. As a sender of money, you place requests for wire transfers in banks or institutions that are connected with the receiver. In some cases, you may get some passcode or secret credentials which you should share with the receiver privately for him/her to receive the money. The receiving end institution verifies the credentials of the receiver and transfers the money to the receiver.

The wire transfers happen through an electronic medium and network of institutions now, but when it was started the information of wire transfer was sent through telegraph lines. As the information was sent through telegraph wires it got the name WIRE TRANSFER. The money transfers can be processed through cash directly or via bank accounts.

Normal bank transfers can also come under wire transfer. It is just the process and verification involved in the wire transfer that differs from a normal bank transfer. Even the electronic transfers that we do via our net banking can also be termed as a wire transfers.

A Wire transfer can also be called a money wire, bank wire transfer, to wire money and remittances.

Don’t confuse more on the term of wire transfer. The process involved is basically like a normal bank transfer which you are all familiar with. Wire transfer is mostly used for international transfers for more security.

As you read through this article, you can differentiate what wire transfer is and what you need to process in a wire transfer.

History of wire transfer

In this internet age, we have many modes of money transfer that happens instantly. The wire transfer was present even before the present modes of transfers were available.

The wire transfer was first introduced by the Western union during the 1870s. In these western union wire transfers, you are not required to have any bank account. International money transfers are made easy through simple wire transfers.

During the 1870s, the only mode of communication available was the telegraph. Western unions were connected through telegraph lines. When a sender submits a request to send money to a recipient in a western union office and gives the money, he/she is provided with a passcode.

This request of transfer is messaged using a telegraph line to the receiving western union office. As the transfer information is sent through telegraph wires, this transfer was named a wire transfer.

The sender should personally contact the recipient and tell the passcode. The receiver can then visit the western union office to provide his valid ID proofs and credentials along with the passcode. Once they are verified, the receiver can receive the money.

Western Union here forms a network. The cash is submitted by the sender to the Western Union and the destination Western Union Transfers it to the receiver. Cash is the mode of transfer here and the information is passed through telegraph lines.

The wire transfers were done even when there was no internet and electronic medium available for cash transfer internationally. This is how the wire transfer came into existence.

Wire transfer process and working in the current scenario

Now the wire transfer has different forms with many regulations and systems involved in it. There are many types of wire transfers that are available now.

There are banks and private institutions which can do wire transfers. Banks have proper Regulations for wire transfers which makes it more legit and safe. Private institutions don’t have as many regulations as much as banks.

The banks are connected through a network and backed up by regulatory bodies to process the wire transfers. The sender and receiver should have proper identity proofs for processing and receiving the wire transfer.

The process involved in the wire transfer is the same as the process explained in the above paragraph of western union. Some changes are present when it comes to banks and regulated institutions.

When the sender places a request for a wire transfer in the bank, she/he needs to give proper government authorised ID proofs to process the request. The ID proofs asked by the bank can be more when compared to the private institutions.

Once the process of a wire transfer is processed, it is activated through a regulated network. The Regulatory body comes as an intermediator to process the payments which are more transparent with accountability.

The destination bank also come under the same regulatory body and follows the same process to transfer the money to the receiver.

The process behind the wire transfer is tedious in government-regulated institutions such as banks. This helps in reducing illegal money transfers such as money laundering, transferring money to terrorist organisations, etc.

Regulations for wire transfer

There are different regulatory bodies present in each country to regulate its wire transfers. Mostly the central bank and the national banks of a country regulates these wire transfers.

As the wire transfers are mostly for international transfers, they are taken care of by the government to check any illegal transfers.

Some of the major regulations for wire transfer are,

Fedwire (Federal Reserve’s wire transfer system) regulates the wire transfer in the United States of America. All the wire transfers are transmitted through the Fedwire system and it is governed by the Universal Commercial Code, Regulation J.
Wire Transfer Regulation (WTR) or the Funds Transfer Regulation (FTR) under Regulation (EU) 2015/847 regulates the wire transfer in the European Union.

Same as the regulations mentioned above, each and every country have their own set of regulations and the regulatory bodies to look after the legal processes involved in wire transfers.

Where to do Wire Transfers?

You can approach the nearby banks in your region to do your wire transfers. The banks will tell you the process involved in the wire transfer.

Some private institutions like Western Union are also specialised in wire transfers. Some other internationally available private institutions to do wire transfers are Worldremit, Wise, TORFX, SENDFX, Currencies Direct, OFX, XE money transfer, etc.

Whatever the wire transfer institution it may be, it is your responsibility to check the credibility of that institution.

Some of the details you should check about wire transfer providing institutions are,

Number of countries they provide wire transfer services
Time required to process a wire transfer request
Regulations followed by them to do the wire transfers
Documents required for wire transfer
Commission or fees per wire transfer

Before placing any wire transfers it is important for you to completely know the process involved in it. This helps you not to lose your money during any wire transfer. You should also provide the credentials of the receiver properly or else the money may be transferred to someone else.

Types of Wire transfer

Wire transfers can be classified according to the destination region and the type of institution involved in wire transfers.

The different types of wire transfers are,

The different types of wire transfers are,

Domestic wire transfers
International wire transfers
Bank wire transfer
Retail money transfers

Domestic wire transfers

When the wire transfers take place within the same country, those kinds of transfers are called domestic wire transfers. Such kinds of transfers take only one day to process. Domestic wire transfers cost less when compared to international wire transfers.

International wire transfers

International wire transfers take place between different countries. More regulations are required for international wire transfers. The rules are also stringent where you need to produce more verification documents to process the international wire transfers.

You need to pay more for international wire transfers when compared to domestic wire transfers. There will be charges for currency exchange also if the money you sent needs to be exchanged via Forex.

Bank wire transfer

Bank wire transfers take place through legalised banks backed up by regulatory bodies and government institutions.

Wire transfers through banks are the safest and secure mode of wire transfers. Your wire transfers can be easily tracked back.

Retail wire transfer

When you do wire transfers through private institutions and companies it is called retail wire transfer. Retail wire transfers can be a bit costlier than bank wire transfers.

You can have more liberty while doing wire transfers through private institutions. The rules and documents required to process retail wire transfers are less compared to bank wire transfers.

As mentioned above some the companies like Western Union, Currencies Direct, OFX, etc., are some famous retail wire transfer companies available worldwide to do wire transfers.

Steps involved in wire transfer

Let us now see the step-by-step process on how you should place a wire transfer.

As a sender of money, you should visit the bank or institution in which you like to place your wire transfer.
Enquire about all the processes and the documents required for placing the wire transfer in the bank or the private institution.
The following are the basic details you will be asked for placing a wire transfer request.

Your personal details, bank account number, Social Security number
Any other government authorised ID proofs required
The Receivers name and address
Receivers bank details and account details
BIC or SWIFT code along with IBAN of the receiver
The amount of money you need to transfer
Purpose and reason for your wire transfer

Once you placed a request for the wire transfer of all the documents asked by the institution, the wire transfer will be placed successfully.
You can use cash directly or use your bank account for the wire transfer.
After the wire transfer request has been placed it reaches the destination bank or the institution through the regulatory body.
All the wire transfers are Recorded in the regulatory bodies for transparency and accountability.
The receiver of the money transferred through the wire transfer should visit the destination bank or institution, and provide the details and documents to receive the money.
All the proofs required to be submitted by the receiver of the money depends on the destination institution.
Once the receiver successfully provides all the documents required, the wire transfer will be complete and the money and will be deposited into the account of the receiver.

The time taken for the wire transfer to happen depends on the type of wire transfer. If it is a domestic wire transfer process can complete within a day. But if it is an international wire transfer it may take 2 to 3 days for the process to complete.
So it is important for the sender and the receiver of the money through the wire transfer to completely know the process involved.

Why should you use Wire transfer?

Wire Transfer is one of the easiest ways to transfer money internationally. The process involved in the wire transfer is also more safe and secure, as many documents or proofs are required to process wire transfers.

In authorised wire transfer institutions such as banks, a wire transfer can be processed only by individuals whose identities are verified more stringently. Only the persons whose addresses are physically verified can involve in wire transfers. So wire transfer is the safest means of international money transfers compared to any other means.

Fess involved for wire transfer

Any kind of wire transfer is chargeable. Mostly it costs from $2 to $50 according to the type of wire transfer. The fees and commission for domestic wire transfers are less when compared to international wire transfers.

You may also be charged Extra for foreign exchange of the currency. Fees, commission and charges are unavoidable in wire transfers.

In some cases, the banks may not charge any amount for wire transfers domestically. You can expect some kind of charge for any kind of wire transfer you place.

Significance of wire transfer

International money transfers were made easy through wire transfers. The wire transfer was the one which was present from the earlier times and set an example for the invention of the new modes of money transfer services available now.

Even during the 1870s wire transfer set an example that made the complete world into one without boundaries where you can transfer money easily between countries.

Regulations made further for the wire transfers reduced the illegal means of money transfers between the countries. Though we are in the form of different nations we are all connected through wire transfer which can be used to transfer money between any corner of the world.

Advantages and Disadvantages of wire transfer

Even though wire transfer is an easy mode to transfer money between countries, it also has its pros and cons. Let us now see what are its advantages and disadvantages.

Table 1: Advantages and Disadvantages of Wire transfers

Advantages of Wire transfer	Disadvantages of Wire transfers
Easy and safe mode of money transfer internationally.	Many new modes of electronic transfer are now available such as PayPal.
Regulated properly and Backed up by the government.	Private wire transfers are not regulated much.
Many private companies are also available for wire transfer.	Private wire transfers can be used for illegal reasons to like money laundering.
You can find wire transfer facilities available such as banks and companies around you easily.	More service charge or commission.
No bouncing problems are faced, which is usually faced while sending a check for money transfer.	You need a proper balance in your account while placing your wire transfer request.
Regulatory bodies act as an intermediator and record the wire transfers done through banks.	It is difficult to cancel the wire transfer and trace back the money sent and the recipient sometimes.
Takes less time to process domestic wire transfers.	International wire transfers take more time if credentials are not given properly.

In a Nutshell – Wire Transfer

Wire transfers are well known for international money transfers.
Network of banks or private companies worldwide execute wire transfers.
Western union were the first to introduce wire transfers in the 1870s.
Banks do wire transfers through stringent rules via regulatory bodies to be more transparent and accountable.
Private companies are less regulated and process wire transfers faster.
Government authorised ID proofs are essential to make wire transfers.
Understand the process of wire transfers completely before placing a request.
Fees, Commission, and Charges are levied for wire transfers.

We believe that this article must have given you clear information about the Wire transfer. If you have any points to add up about Wire transfer, you can give them in the Comments section. tradingcritique.com gives information on trading and investing. Check our other section to gain more knowledge.