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One thing I don't understand, SWIFT you say is $5-$10 per wire, how is this cost justified in any way?



SWIFT is not $5-$10 per wire - it's $30 to $60 in my experience (apart from Interactive Brokers who give you one free one per month). The costs are partly because that is a fixed fee whether you are wiring $1000 or $10m. Also it is still a semi manual process often involving humans at both the receiving and sending banks. This is partly because it is an old system dating from 1973 and also with the $10m transfers there is some fraud / cock up risk and so they check things out a bit. It also allows you to send money from say Jersey CI to the Bank of Bhutan who may not have compatible computer systems. I did that one and got my money stuck in Bank of Bhutan a bit rather with the travel agent I intended it for due to a cock up on my part. Also they do provide human customer support when you do such things. Also now they have to deal with a bunch of anti money laundering bureaucracy. Apparently in the EU the regulations are stack of paper about a foot high so no one has actually read it all so they kind of wing it. There are costs.

In fact thinking about it on a typical $50,000 transfer I imagine a $30 fee would actually be a loss leader if you imagine how much you'd have to pay for a compliance officer to read the laundering regs and file paperwork illustrating the transfer is kosher. Against this they typically try to overcharge you on FX (.5% is possible) and also give you 0 interest on your money when they are getting say 5%pa on it so they may make typically 2%*50k on that = $1000 which would cover costs but I'm not sure $30 would.


SWIFT refers to the network used in sending standard international bank wires, which I am contrasting to the family remittance network, an ad hoc network that links entities that facilitate the capture and delivery of international family remittances.

Sending a standard international bank wire will cost $30-$50 typically, not $5-$10. I don't really know how that price is "justified" as such, except to say that any bank account that is sending international wires increases the AML compliance cost of that account for a bank, and because surprising aspects of the bank wire transfer system are manual, a human being will frequently need to get involved. I would imagine that the incremental cost of sending a bank wire is frequently tiny compared to the cost, but it probably varies significantly from bank to bank (for some, it might even be a loss-leader).

The fees associated with sending a wire via the more ad hoc family remittance network are determined by a competitive marketplace, and are typically $5-$10. Providers are not all banks (although banks do get involved in a large percentage of transactions) and include non-bank companies like Western Union, MoneyGram and Xoom, and smaller players like ViaAmericas (mentioned in the article). People who send money will shop around for the best deal (often, different services are offered within the same retail agent location), and senders will from one month to the next switch providers if the FX rate is better, or if the fees are lower. The bank oligopoly holds no sway here, and if prices could be lower, they would be lower.

Your reaction is a typical one, and one that I remember encountering repeatedly: "why do these transactions cost anything at all?" The truth is, there are significant costs that underlie a family remittance transaction. At least half of transaction fees, and often 80%, are claimed by the retail agents that capture or pay out the remittance. There, you have all of the costs associated with retail, combined with the costs of handling large amounts of cash. On the capture side, many banks will charge retail locations a percentage fee for processing the cash they deposit, and if armored car services are used, they will also change fees for handling. On the payment side, logistical challenges may be even greater, given local conditions.

The amount of money that remains goes to pay for secure and highly-available computer systems, AML compliance processes (which require a significant amount of human involvement), other regulatory compliance costs (security, bonding, record-keeping, reporting, examination fees and assessments), fraud coverage, customer service costs (a call center must be maintained), marketing, and general corporate overhead. Really, what you would imagine it would take to run a remittance network if you thought about it.

If you compare remittance fees as a percentage of a typical US-Mexico transaction ($5 to send $350), they are comparable to other retail payment transactions that involve similar levels of risk and require similar infrastructure. However, volumes are much, much lower than ATM or credit card transactions, so economies of scale yield a much lower benefit, which also adds to the cost.


Are there any kind of odds that the U.S. will join a fully-automated transfer network with at least other western countries? I recently did my first EU->US money transfer and was amazed at how much worse the experience & cost was compared to doing a Denmark->Germany transfer. Within Europe, even across borders and currencies, the transfers are now cheap and fully automated: you just identify the destination account by IBAN, and it's routed automatically. It doesn't seem like it would be impossible to link up U.S. accounts to allow IBAN-identified fully electronic transfers too, versus the current really primitive system where you enter a bunch of information and some humans eventually enact the transfer. But afaict there's no movement in that direction. There's talk about an EU/US free trade area, but why not a rationalized transactions treaty?


The US banking industry has shown no interest in even setting up a more modern intra-country wire transfer system. It's pretty unlikely they would support a better international system anytime soon.


It's not a cost, it's a price and it reflects what the market supports, not how much the bank actually spends for the service.


Isn't it incredibly naive to assume that this price is somehow driven by supply/demand driven market when the reality is banking is monopolistic and riddled with fraud?

If the cost of the transfer actually was determined in a competitive environment I'm sure it would be considerably lower. Unfortunately on such fees it's not in the banking industries interest to act competitively with one another.


> [...] assume that this price is somehow driven by supply/demand driven market

I didn't say that. Intelligent actors tend to avoid any real competition. The price is what enough clients are willing to pay to make the whole scheme profitable. There doesn't need to be any fairness for this to happen.


Going back to the original point, the price is set in a non competitive environment with the chance of the introduction of new competition is basically nil.

This is monopolistic, anti-competitive and wrong, and the less wealthy sections of the population suffer the most (as per usual).




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