How to reduce the cost of receiving international payments

When you receive money from abroad, you may receive a notification from your bank that an international payment is pending your acceptance. You may also be aware of the hefty fee attached to this kind of transaction.

You may wonder why you should be liable for this fee. We look at how SARS is involved in foreign payments, what influences the cost of these receipts, and how you can reduce it.

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Why are banks so strict about international funds?

According to Rikki Barnes, retail head, FNB Forex, banks are subject to a regulatory requirement to report every cross-border transaction to the South African Reserve Bank (SARB).

“This system of reporting is called balance of payments reporting, or BoP reporting. In addition to this requirement, the bank needs to fulfil exchange control requirements, such as screening processes, vetting, and preventing illicit cash flows,” says Barnes.

He points out that all these activities contribute towards the cost of processing cross border receipts.

READ MORE: Is your credit score valid internationally?

Does the sender or the receiver pay?

Barnes says it’s important to note that with cross-border transactions, the sender can choose the charge structure for the transaction that they’re making by indicating who will pay the fees.  

He explains that the charges can be shared between the sender and receiver of the funds, or a charge can be made solely to the sender or receiver.

“The sender of the funds has this choice when sending global payments by SWIFT transactions, and with MoneyGram transactions,” says Barnes.

“In order to receive funds via PayPal Services, clients can open a PayPal account for free. However, there is a standard fee on all withdrawals. Clients receiving funds via MoneyGram, however, can do so free of charge,” he says.

Reducing costs – using manual versus digital channels

Barnes says that the costs incurred when you receive funds from abroad will depend on a few factors, such as the cross-border solution or product that is being used, who the sender has selected to bear the cost, which channel has been used to receive the funds, and the prevailing exchange rate.

“The commission received by the bank through global payments and receipts is dependent on whether a client is using digital or manual channels to process the transaction,” says Barnes.

“Using manual channels costs more than digital channels, due to the human intervention or service element, and the costs incurred at branches and call centres,” he continues.  

“The bank also incurs costs through carrying out its regulatory and compliance obligation in terms of reporting every foreign exchange transaction to SARB,” he adds.  

Global payments and receipts made on digital platforms cost less than manual processes, such as transacting through a branch or through a call centre or banker. 

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