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Transferring money into India for cheap

Nineteen years into the 21st century, the world’s workforce has gone international. Respected corporations and small business owners alike now outsource many tasks to India.

The reasoning behind these decisions is fiscally sound. In America, accounting services cost 150 to 400 USD per hour. Contrast that with India, where the same professionals charge 12 to 15 USD per hour on average.

As such, more businesses than ever are hiring Indian contractors. However, in doing so, many have run into an expensive problem – the cost of international money transfer. For generations, banks have had a near-monopoly in this industry.

Until recently, entrepreneurs have had little choice in the matter. The banks forced them to accept high wire transfer fees and fat exchange rate margins. However, in the past few years, online money transfer companies have brought badly-needed competition to this space.

If you’re looking for the best ways to transfer money to India, set aside ten minutes to read this blog. Doing so could save you THOUSANDS of dollars per year in fees – let’s get started.

India: one of the world’s most expensive money transfer markets

The cost of international money transfer is an issue for any individual or business. However, it is a costly problem for those who regularly send money to India. Most banks and established exchange houses consider the Indian Rupee (INR) to be an “exotic currency.”

As such, the exchange rate margin is obscenely wide for pairings like USD/INR. Now, all major US banks don’t publicly share their exchange rates. However, other international banks, like Toronto Dominion Bank in Canada, do.

And it isn’t pretty. According to TD, there’s at least a 2.6% difference between the prices they charge and the interbank rate. Many institutions post exchange rates with a difference of 5% or more. And wire transfer fees? The Bank of America charges 35-45 USD for outgoing bank wires – a number that adds up with every transfer.

High fees/margins hurt everyday people and businesses alike

Most international money transactions aren’t one-offs. Businesses pay Indian contractors, weekly, bi-weekly, or monthly. Indians working abroad send money home to their families in similar frequencies.

Over a year, the fees and excessive margins charged by banks add up fast. Let’s assume you send 300 USD home to your mother with each bi-weekly paycheck. Let’s assume your bank charges a USD/INR rate of 66.500. Meanwhile, the interbank rate is 70.450. Every transfer, you’ll give up roughly 15 USD versus the interbank rate. And then, there’s the 35 USD rate for every outbound transfer.

Over one year, you’ll do this 26 times. In that time, you’ll spend 1,300 USD, just for the privilege of sending 300 USD to your family biweekly. That is insane.

That cost only climbs for entrepreneurs with outsourced talent in India. Let’s say you pay your distributed team 2,000 USD every two weeks (500 USD each to four freelancers). If you were to go through your bank, you’d pay 3,640 USD in outbound fees annually. Factoring in margins (20 USD lost versus the interbank rate), you’ll spend 5,720 USD total to pay your employees per year.

Have you ever wondered why banks always seem to make out like bandits? Given this example, it becomes much easier to understand.

E-competitors offer alternatives to those sending money to India

The banks have held a monopoly over money transfer for what seems like an eternity. Fortunately, this reign appears to be coming to an end. Starting in 2010, fintech startups like Transferwise began to chip away at their market share.

After generations of charging obscenely high fees and unfair exchange rates, the financial establishment was ripe for disruption. As of 2019, Transferwise is now the world’s second-largest non-bank money transfer firm. Last year, they moved 4 billion USD per month.

They aren’t the only ones stealing chunks of business from the banks. OFX, WorldRemit, CurrencyFair – all have benefited from a flood of clients fleeing the oppression of their financial institutions.

Why are they jumping ship? Aside from the cost, which we’ve already addressed, the customer experience is much better with online money transfer companies. Check out the Trustpilot page of Transferwise and compare it to the average bank.

Money transfer companies treat their clients humanely, offer easy-to-use platforms, and offer outstanding customer support. Often, banks treat customers like replaceable ATMs, hitting them with fees at every turn. Customer support? We hope you like staying on hold for an hour.

With that stark a difference, we’re surprised this exodus hasn’t hit banks harder.

Which money transfer company is best for India money transfers?

On balance, the average online money transfer company offers markedly better rates than the banks. However, there are significant differences from one firm to the next. Some are better suited for remittances, while others focus on business transactions.

Which international money transfer business should you use? If you are regular cash remittances to family, Transferwise is best. There is no minimum transfer amount, and they exchange money at the interbank rate. Finally, their fee averages 1% per transfer to India – not bad, considering that you’re getting the interbank rate.

What if you need to pay an outsourced team thousands of USD every two weeks? In this case, OFX is the best play. Not only do they offer fee-free transfers and thin exchange rate margins, but they also have forward contracts. This product allows you to lock in a preferred exchange rate, which safeguards you against rate fluctuations.

India: A vital 21st-century hub for international money transfer

Internationalization has unleashed a whole new world of wealth creation. Affordable and talented labor pools have been unlocked, allowing for accelerated growth. Migrants can earn dominant currencies, allowing them to improve the lives of their loved ones back home.

India has a central role in this exciting future. By taming the unfair rates levied on INR currency pairings, money transfer companies can help this nation prosper as the 21st century progresses.

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About the Author: Praveen Unnikrishnan

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