A UN study from 2013 found that 3.2 per cent of the world’s population lives in countries other than the one they were born in, making a total of about 232 million expatriates around the globe. At the time, that was a significant increase from 175 million in 2000 and 154 million in 1990, so the trend is obviously on the up. Naturally, that creates a significant demand for cross-border payments.
Of course, it’s more than just expatriates who need this service. The globalised business landscape often makes it enticing to buy goods and services from companies overseas, even if you live in your home country. It’s no surprise, therefore, that cross-border payments were worth about $150 trillion in 2017, with that figure expected to rise by over $100 trillion by 2027.
So, being an essential part of everyday life for more and more people, the inevitable question is how you can get the best deal, minimising the admin and other costs so that the amount you need to send out of the country is kept to a minimum. Let’s take a look at some of the options.
Types of Cross-Border Payments
We have covered methods of sending money from Thailand to other countries in some significant detail before, but that article focuses on remittance, not overseas payments. Here, the available options are somewhat different. Generally speaking, you have five alternatives:
- Paper cheques
- Global ACH
- Prepaid debit cards
- International wire transfers
Starting with the oldest system, paper cheques are indeed still a valid way of making an overseas transaction. In fact, it can be an especially economical option as there is generally no transaction fee. However, this approach inevitably comes with many disadvantages, not least of which is the time it takes for the cheque to travel by post from one country to the other and then be cashed and processed. Add in the fact that different countries have wildly varying levels of reliability when it comes to their postal services and you now have to factor in the risk that the cheque may never arrive at all.
Originally intended to replace cheques, global automated clearing house (ACH) systems are digital networks of financial institutions intended to process large numbers of low-value payments and transactions. They make it easier for banks to handle, for example, everyone paying their utility bills at the same time of each month. The problem here is that, for the most part, ACH systems are for domestic use and the number and scope of global systems is limited. Additionally, since they are intended to process transactions in batches, they are often slow and have a limit on the size of transactions they can handle.
Also known as cash cards, prepaid debit cards do provide quite a simple and straightforward option for making cross-border payments. These work functionally the same as PayPal – you transfer funds from your main account into a separate one that can be used overseas, either by physically being in another country in the case of the cards or through digital transfers with PayPal. However, both have their disadvantages, not least of which is the huge fees incurred through either method. The prepaid cards come with the added disadvantage that you need someone to be in the target country to physically make the transaction for you, making it effectively the same as just remitting cash to them to pay your bills there for you.
That leaves international wire transfers, which can be separated into a couple of sub-options:
Bank transfers vs money transfer companies
We have gone into how exactly remittance works in the past, covering the fact that using an international bank transfer through the SWIFT system is (somewhat ironically, given its name) often slow and expensive while the likes of DeeMoney makes it extremely easy and cost-effective. However, remittance is not the same as cross-border payments and the number of remittance companies offering this service is comparatively limited. That number does, however, include DeeMoney.
When it comes to actually saving money on cross-border payments, fintech is your friend. A 2016 report by The World Bank found that the tech being developed by money transfer companies had significantly lowered the cost of remittance, charging an average of just 6.26 per cent of the transaction compared to the 11 per cent fees charged by banks. This brought the overall average down to 7.4 per cent.
We could effectively end this article right here. This is undoubtedly the most significant cost-saving option when it comes to cross-border payments – the simple fact that fintech-backed money transfer companies like DeeMoney charge significantly less in fees than banks, PayPal and prepaid debit cards while being significantly faster and more convenient than using paper cheques and global ACHs. You can even save time and effort with the right company by setting up automation so that regularly repeating transactions like monthly bills are always paid on time without you having to think about them. However, the title says “tips” (with an ‘s’, making it plural), so we have to come up with at least one additional thing to consider.
Look out for all the fees (especially the hidden ones)
When it comes to making a payment for goods and services overseas, one potential consideration is whether you really are getting a better deal by shopping abroad than you would from buying in your native country. Factor in shipping, payment handling, import tax and everything else and you might find that, while the quoted price starts out lower, the end price may end up slightly higher.
Keep an eye on currency exchange rates
The unfortunate reality is that most bills and payments have a set deadline for when they must be completed. However, if you can introduce a degree of flexibility, you can potentially make some savings by only sending money overseas when the exchange rate is most favourable. As an example, if you have bills to pay in the UK but you live and earn your income in Thailand, wait for the pound to weaken or baht to strengthen (or both), meaning that the cost of the bill reduces relative to your income.
There are some noteworthy disadvantages with this, however. For starters, this option only works if you have a bank account in the country or currency you are making payments in. This may be fine for expatriates paying bills back home, but is less viable for businesses or one-off payments. Additionally, currency fluctuations are often hard to predict and very gradual, so you could end up waiting for months for the rate to improve only to be forced to send money at a very poor rate because the bill is coming due and you’ve run out of reserves in your UK account. It’s a bit of a gamble, in other words, and not especially reliable.