What is Remittance?

In a broad sense, a remittance can simply refer to the transferring of money overseas between two parties for non-commercial purposes.

However, the term is usually used in the context of people working overseas sending money back to family in their home country.

Now,

The emphasis here is on “non-commercial,” as remittances are different from business payments (more on this below).

Some examples of remittance include:

• Helping your family regularly with living expenses in your home country (food, housing, utilities)
• A community of people from the same country or region living in another country send money back home
• Helping your family with an emergency expense
• Supporting your child’s or another family member’s education with regular money transfers abroad

A remittance is usually sent via a third party like a bank or licensed money transfer company, and there are costs involved (over and above the interbank exchange rate).

Most importantly, not all remittances or remittance companies are made equal. And choosing the right one is essential for helping you to save time, effort, and money!

We’re giving you the low down on everything you need to know about remitting money safely, affordably, and fast (as well as the 5 best remittance companies and alternatives for better ways).

Remittance — Uncovered!

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1. How Remittances Work

1.1 Types of Remittance

To understand how remittances work, we need to first start with the two broad categories of remittance:

Inward Remittance

Inward remittance is money received into a bank account or as a cash payout from abroad.

An example would be children who work in a different country or state sending money home to supplement their families expenses.

Outward Remittance

Outward remittance is defined as money being sent overseas or to a different state in the same country to support a family member.

For example, this can look like a parent sending money to support their child’s education abroad (usually bank transfers) or helping them out in case of an emergency while travelling (usually cash transfers).

1.2 What is the Purpose of Remittance?

Remittances help many people around the world send money to loved ones for personal reasons.

In some cases, a remittance may seem like a commercial transaction (like directly paying utility bills for a family member or sending money to support your children’s education), but the underlying purpose is always personal.

This is the key difference between a remittance and a payment.

Remittances are transfers of funds for personal reasons, while payments are commercial transactions.

This is also why remittances are not usually taxed (because the sender has already been taxed for their earnings) but payments are (because these qualify as income).

The distinction between the two is also crucial because it can affect the type of money transfer company you choose.

1.3 Ways to Remit

All remittances take place via a legal channel — either through a high street bank or licensed remittance company.

But if you ask us, we suggest you choose a licensed remittance company over banks any day.

Here’s why:

First, banks charge a lot in fees, most of which are hidden and inflate the cost of your transfer. Remittance companies can be significantly cheaper, in some cases (but not all)!

Second, remittance companies offer a lot of flexibility (like different payout methods, various funding methods, access to more currencies, and many transfer speeds).

Third, different remittance companies have various advantages.

This means you can choose one that meets your specific needs.

1.4 How to Remit

Getting started with your remittance transfer is easy:

Getting started with your remittance transfer is easy:

Register for an account with a remittance company of your choice and verify your account (the “Know your customer” policy is mandatory for licensed providers)

Fund the remittance by sending money to your remittance company (by bank transfer, cash, or debit or credit card. Services like WorldRemit and Remitly also offer location-specific methods like iDeal, Sofort, Klarna, etc)

Your recipient receives the money. After receiving your funds, the remittance company converts the amount, deducts the fees, and sends the money to the recipient’s bank account (or as a cash payout, depending on the service you choose).

Most remittance companies also give you the option to track your transfer on an online dashboard or the company’s mobile app.

2. Top 5 Remittance Companies

Let’s get started with a quick snapshot of what each service is capable of:

Top 5 Remittance Companies

Important: The first three are massive corporations and make it possible to send cash, the last two can save you money in fees but you need to send money from a bank account.

#1 RIA — Extensive Network of Cash Pick-Up Locations

So while RIA does have a complicated and potentially expensive fee structure, you might still like them because of their extensive network of cash pickup locations worldwide — 350,000 in total!

This means you won’t have any difficulty searching for an agent near your recipient.

But wait:

If you don’t need to send cash and want to save money see our #4 and #5 picks!

As we mentioned, RIA isn’t super cheap (although still cheaper than banks). And the best way to find out what you’ll be paying is by heading to their website to get an estimate. But if you want a quick look at their overall fee structure, it comes down to factors like:

• The amount
• The currency corridor
• How you fund the transfer

RIA also supports registrations from the US, Canada, UK, Spain, and Australia and lets their users remit to 149 countries in 60+ currencies.

While Ria allows sign-ups from a handful of countries, the good news is they have a great presence in North America, with agent kiosks in most 7-Elevens and Walmarts.

You can check the available currencies for your location when you get a rate for your transfer on their website.

Learn more through our RIA (review).

#2 MoneyGram — Good for Sending Money to Remote Locations

What stands out about MoneyGram is that it lets you send money to many remote locations.

They’re a reliable remitter for those from the US, Canada, UK, and EEA.

And like RIA, they’re also integrated with most 7-Elevens and Walmarts in the US and let you fund your transfers with cash (although, this does increase the fees).

MoneyGram lets you send cash, bank, and mobile wallet transfers to 200+ countries in 40+ currencies, as well as pay utility bills in the US.

MoneyGram’s fees depend on the following:

• The amount
• The currency pair
• The funding method
• The payout method

Sending money home with MoneyGram is not inexpensive, but they’re still much cheaper than high street banks.

Learn more in our MoneyGram (review).

#3 Western Union — Most Reputable and Good for Fast Transfers

Western Union is one of the oldest remittance companies in the world (they’ve been around since 1851) and is more widely available than RIA or MoneyGram.

WesternUnion supports sign-ups from pretty much anywhere in the world and lets you remit to 200+ countries in 130+ currencies (this can vary by country, but still remains a sizable number). And just like the 2 previous services, it has an extensive network of cash pick-up agents.

Western Union also offers a variety of remittance services, including bill payments, mobile wallet transfers and bank transfers.

But their most popular service is the Money in Minutes option, which guarantees cash transfers to anywhere in their supported locations within 10 minutes.

But again, just like RIA, MoneyGram, you’ll be paying a little extra for their reputation, the convenience of being able to fund your transfer with cash, and their extensive worldwide network.

Compare between the money transfer giants here: Ria vs MoneyGram vs Western Union

If you want a quick breakdown of their fees, it comes down to:

• The chosen service
• The currency pair
• How you fund your transfer
• The amount

Learn more in our Western Union (review).

Note: If paying with cash is not a priority, and you still want lots of flexibility on your remittance transfers (like fast cash payouts, many currencies, flexible funding methods, bill payments, etc.), services like WorldRemit and Remitly can be much more affordable.

#4 WorldRemit — More Affordable With Flexible Funding Options

WorldRemit keeps the cost of sending cash low by letting you set up the transfer online (this helps you bypass sending agent fees).

They’ve also recently introduced a flat fee structure where the fixed fees for a specific country remains unchanged no matter how much you send. So this can be a plus for those sending larger amounts. But do bear in mind that the margin on the exchange rate still increases with the transfer amount).

Their cash payout network is also good as it includes banks, pawnshops and third party agents.

Other than cash transfers, WorldRemit also supports overseas bill payments, mobile wallet transfers, Airtime top-ups, and bank transfers.

They also have a coupon code here to get your first 4 transfers fee free.

Use the code ‘4FREE’* and pay no fees on your first three money transfers.

*T’s & C’s: 4Free applies to the below send/receive countries

• Send: US, AU, CA, UK & FR
• Receive: PH, FJ, ZW, NP, GH, KE, CM, MA, CI & CD

WorldRemit supports sign-ups from 44 countries and lets you remit to 150 countries worldwide.

Learn more from our WorldRemit (review).

#5 Remitly — Affordable and Fast

Like WorldRemit, Remitly also keeps its cash transfer costs lower than the money transfer giants by letting you fund your transfer online.

But another great thing about it is speed.

Express service: This lets you send cash in minutes to your family. For this service, you find the remittance transfer with a credit card, which can be a bit more expensive (still cheaper than WesternUnion, RIA, MoneyGram, and banks).

However, if you’re looking to save a little money and don’t need your transfer to happen within a few minutes, their economy service may be better suited for you.

Economy: If you’re sending a regular remittance, the slower and more affordable Economy service lets you send money to your family member’s bank account in 2-3 days.

Remitly lets you send cash and bank transfers from 16 developed countries (including the UK, US, Canada, Australia, and New Zealand) to 50 developing countries across the world.

Sometimes it is even, “Zero Fees!”

You can see what you will pay.

Note: Remitly doesn’t allow transfers between the 16 sender countries.

Learn more about sending money home fast with Remitly (review).

Also see: WorldRemit vs.Remitly

3. Remittance Company Alternatives

Sometimes the services offered by a remittance company may not meet your needs.

Here’s when remittance may NOT be right for you:

• Sending money locally (in your country)
• Paying overseas suppliers and contractors as a business
• Shopping online
• Paying your local small business
• Sending large amounts over $7000 USD/$8700 CAD/ £4000 GBP/€4500 EU/$9500 AUD/NZD.

This is where our suggested alternatives come in.

#1 PayPal – Small Domestic Payments to Friends, Family, and Local Businesses

We included PayPal as it can be very cheap and practically instantaneous for domestic payments due to its network (not for currency conversion).

It offers free domestic payments in most countries (including the US, Canada, UK, Australia, New Zealand, EEA countries, etc.) and is accepted by many online merchants.

They can be extremely inexpensive for small local transfers to friends or for small business payments to local companies.

Learn more about international transfers with PayPal and Xoom

#2 CashApp – Local P2P Payments in the US With Cool Perks

CashApp is a great peer-to-peer (P2P) payment option for US and UK residents.

You can use it to pay friends, family, and trusted businesses in the US or the UK — and even receive your salary and tax benefits!

But what we really like about it is the extra perks and features.

With it, you can buy Bitcoin or trade stock. So if you really wanted to, it can actually become your one-app place for managing all your finances.

You can also get a CashApp Visa debit card linked to your account for online shopping and ATM withdrawals in the US.

Bonus: CashApp supports USD-GBP and GBP-USD transfers as well (not their best feature though — we recommend services like Wise for overseas bank transfers. See below.)

Learn more about in our CashApp (review).

#3 Venmo – Easy Local P2P Payments in the US With Fun Social Features

Venmo (owned by PayPal) is one of the most popular P2P apps for paying friends, family, and trusted businesses in the US.

It’s most famous for the social aspect of the app — you can see a social feed of your transfers and add fun emojis to your transfer notes.

Venmo has been also been catching up with CashApp in terms of the added perks like:

• Receive your salary
• Buy and sell cryptocurrency

Venmo works very well for local transfers in the US.

Learn more about CashApp vs. Venmo.

#4 Wise — Small International Bank Transfers and Multi-Currency Account for Individuals and Businesses

Wise is an international money transfer company that can technically be used for remittance.

But as a service that crosses over into business and multi-currency accounts, it’s a lot more versatile than the traditional remittance companies listed above.

• Its multi-currency account is great for frequent travellers, expats, and growing global businesses. You can hold, manage, and convert between 50+ currencies. And also pay and get paid like a local with bank details in 10 major currencies. It even comes with a MasterCard debit card!
• Business accounts that use their multi-currency account can also accept payments in multiple currencies, pay their overseas contractors and suppliers easily through bulk payment, and integrate with useful business tools like Xero.
  
• But what we love best about Wise has to be its transparent and affordable fee structure. You can immediately see the exact amount your receiver will get from their calculator here — no surprises.

This is why it’s often our top choice for international bank-to-bank and card-to-bank transfers for small amounts below $7000 USD/$8700 CAD/ £4000 GBP/€4500 EU/$9500 AUD/NZD.

Wise is available in 66 countries (including the US, Canada, the UK, Australia, and Eurozone) and lets you transfer money internationally in 40+ currencies.

Learn more about Wise’s transfer money internationally with our Wise (review).

#5 TorFX, XE, and OFX — Specialized Services for Large International Transfers

Large international transfers (over $7000 USD/$8700 CAD/ £4000 GBP/€4500 EU/$9500 AUD/NZD) call for a different level of support and infrastructure for the process to go smoothly — both for safety and lowering cost.

• OFX (see our review) is our top pick for large international transfers. They mix online service with great phone support 24/7.
• TorFX (see our review) is known for its exceptional service (4.9/5 on trustpilot) and phone support for larger transfers (which can be really helpful)
• XE (see our review) is known for its wide base of receiving countries and currencies (you can send larger transfers to 220 countries in 139 currencies with XE).

As it turns out, for large transfers service becomes critical (ideally telephone support) because banks have transfer limits and there is usually more paperwork required (like ID). Services specifically designed for larger transfers make transfers stress free and the have fees that reduce (in percentage terms) as amounts increase!

Also, all three services help you save money on your large transfers with flexible services like Spot Orders (when you’re ready to transfer right away at the best available exchange rate), Forward Contracts (to lock in a favourable rate for the future), and Market Orders (the ability to transfer when your chosen currency pair hits the desired rate).

4. Remittance Terms Explained

Here are some common terms you’ll come across while researching remitters and setting up your transfer:

Exchange rate (also known as Foreign Exchange Rate or FX rate): The price of one currency when compared to another.

For example, at the time of writing, $1 USD = £ 0.79 GBP

Mid-market rate/Interbank rate: The interbank exchange rate is the rate banks and big financial institutions use when swapping currencies from one to another.

Remitters don’t offer this rate to their customers as they need to make money from your transfer. Instead, they add a percentage margin on the exchange rate based on the transfer amount as remittance fees. (This is a standard practice in the industry.)

Fee-free transfers: Some remitters and money transfer companies claim to offer fee-free transfers. However, this is not entirely true as customers still pay a margin on the exchange rate so that the service provider can make money from the transfers.

Cash Advance Fee: This is a fee charged by credit cards when you use them to fund your transfer. These often come with high fees and interest rates.

Financial Institutions: A financial institution is any company that provides financial services. For example – banks, credit unions, investment companies, remitters, money transfer companies, etc.

KYC: Aka the “Know Your Customer” process that financial institutions like banks and money transfer companies use to verify the identity of their users to prevent illegal activities like theft or money laundering.

Local agent: A third-party service that partners with remitters to provide in-store services like sending and receiving remittances.

IBAN (International Bank Account Number): This is an internationally agreed way of identifying an individual’s country, bank, and specific account when transferring money abroad. This is a combination of 34 letters and numbers. You can usually find your IBAN in your mobile banking app (your bank can help if you can’t locate it).

SWIFT Code: SWIFT Codes are a combination of letters and numbers to identify specific branch codes of a bank.

Transfer Limit: Remitters and money transfer companies can have daily, weekly, or monthly transfer limits for their users to comply with the rules of the regulatory financial bodies that monitor them.

Proof of deposit: A document confirming that funds were credited to a recipient’s bank account or that the funds were collected in person at a local agent office.

Remittance advice: A remittance advice is a document that serves as proof of payment of an invoice. This is usually sent by a customer to a business for proper record keeping.

Final Word

Remittance is a non-commercial, personal transfer processed by banks or other specialized services (as discussed in “Top 5 Remittance Companies” above).

However, there may be specific instances where your remittance company’s services wouldn’t be able to meet your specific needs.

Examples include: online shopping, paying for goods and services while travelling, splitting bills for an evening out with friends, etc.

This is where the alternatives we shared come in.

We hope this has cleared up some of the ideas around remittances. And the most important thing to takeaway is that there are many cheaper options than using your normal bank.

Simply go through our suggested options, and you’ll be able to find a service for your needs.

Happy Remittance!