Bank Transfer

Bank transfer or credit transfer is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account or through a transfer of cash at a cash office. Different wire transfer systems and operators provide a variety of options relative to the immediacy and finality of settlement and the cost, value, and volume of transactions. Central bank wire transfer systems, such as the Federal Reserve’s FedWire system in the United States are more likely to be real time gross settlement (RTGS) systems. RTGS systems provide the quickest availability of funds because they provide immediate “real-time” and final “irrevocable” settlement by posting the gross (complete) entry against electronic accounts of the wire transfer system operator. Other systems such as CHIPS provide net settlement on a periodic basis. More immediate settlement systems tend to process higher monetary value time-critical transactions, have higher transaction costs, and a smaller volume of payments. A faster settlement process allows less time for currency fluctuations while money is in transit.

Bank wire transfers are often the cheapest method for transferring funds between bank accounts. A bank wire transfer is effected as follows:

  1. The entity wishing to do a transfer approaches a bank and gives the bank the order to transfer a certain amount of money. IBAN and BIC codes are given as well so the bank knows where the money needs to be sent.
  2. The sending bank transmits a message, via a secure system (such as SWIFT or Fedwire), to the receiving bank, requesting that it effect payment according to the instructions given.
  3. The message also includes settlement instructions. The actual transfer is not instantaneous: funds may take several hours or even days to move from the sender’s account to the receiver’s account.
  4. Either the banks involved must hold a reciprocal account with each other, or the payment must be sent to a bank with such an account, a correspondent bank, for further benefit to the ultimate recipient.

Banks collect payment for the service from the sender as well as from the recipient. The sending bank typically collects a fee separate from the funds being transferred, while the receiving bank and intermediary banks through which the transfer travels deduct fees from the money being transferred so that the recipient receives less than what the sender sent.

With bank-to-bank wire transfer, each account holder must have a proven identity. Chargebacks are unlikely, although wires can be recalled. Information contained in wires are transmitted securely through encrypted communications methods. The price of bank wire transfers varies greatly, depending on the bank and its location; in some countries, the fee associated with the service can be costly. Wire transfers done through cash offices are essentially anonymous and are designed for transfer between persons who trust each other. It is unsafe to send money by wire to an unknown person to collect at a cash office; the receiver of the money may, after collecting it, not provide whatever goods or services they promised in return for the payment, but instead simply disappear. This scam has been used often, especially in the so-called 419 scams which often nominate Western Union for collection.

International transfers involving the United States are subject to monitoring by the Office of Foreign Assets Control (OFAC), which monitors information provided in the text of the wire and then decides whether, according to the US Government’s federal regulations and political positions, money is being transferred to terrorist groups, or countries or entities under sanction by the United States government. If a financial institution suspects that funds are being sent from or to one of these entities, it must block the transfer and freeze the funds. SWIFT or IBAN wire transfers are not completely free of vulnerabilities. Every intermediary bank that handles a wire transaction can take a fee directly out of the wire payload (the assets being transferred) without the account holder’s knowledge or consent. In many places, there is no legislation or technical means to protect customers from this practice. If bank S is the sending bank (or brokerage), and bank R is the receiving bank (or brokerage), and banks I1, I2 and I3 are intermediary banks, the client may only have a contract with bank S and/or R, but banks I1, I2 and I3 can (and often do) take money from the wire without any direct arrangement with the client. Clients are sometimes taken by surprise when less money arrives at bank R. Contrast this with cheques, where the amount transferred is guaranteed in full, and fees (if there are any) can be charged only at endpoint banks.