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Wire transfer, bank transfer, or credit transfer, is a method of electronic funds transfer from one Legal person 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 Fedwire system in the United States, are more likely to be real-time gross settlement (RTGS) systems, as they provide the quickest availability of funds.
This is because RTGS systems, such as Fedwire, post each transaction individually and immediately to the electronic accounts of participating banks maintained by the central bank.
Other systems, such as the Clearing House Interbank Payments System (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 have a smaller volume of payments. A faster settlement process allows less time for currency fluctuations while money is in transit.
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.
For international wire transfers, additional information may be required, such as the recipient’s full name, physical address, bank name and address, bank account number and type, bank routing number, and the bank's SWIFT or IBAN code. The fees and processing times can vary depending on the service provider and the destination country.
Prior to this, in 2002 the European Union relegated the regulation of fees a bank may charge for payments in euro between EU member states down to the domestic level, Regulation (EC) No. 2560/2001. European Parliament and the Council of the European Union resulting in very low or no fees for electronic transfers within the Eurozone. In 2005, Iceland, Liechtenstein, and Norway joined the EU regulation on electronic transfers. However, this regulation was superseded by the Single Euro Payments Area (SEPA), consisting of 32 European countries.
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 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. OFAC facts
SWIFT 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 have a contract only 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 , where the amount transferred is guaranteed in full, and fees (if there are any) can be charged only at endpoint banks.
The European Union offers some partial protection from this practice by prohibiting European intermediary banks from taking a fee out of the amount being transferred, even for transatlantic transfers. However, it is still common practice for a European brokerage firm to state that they charge no transfer fee, and then contact their bank to take an unpublished fee from the amount transferred as a means to compensate their bank with their clients' assets.
Another option for consumers and businesses transferring money internationally is to use specialised brokerage houses for their international money transfer needs. Many of these specialised brokerage houses can transfer money at better exchange rates compared to banks, thus saving up to 4%. These providers can offer a range of currency exchange products like spot contracts, forward contracts and limit orders. However, not all such providers are regulated by appropriate government bodies. For example, in the UK, even though such companies are regulated by the Financial Conduct Authority, not all of them fall under FCA scrutiny. Other such regulators include the Australian Securities and Investments Commission (ASIC), the Financial Transactions Reports Analysis Centre of Canada (FINTRAC) in Canada, and the Hong Kong Customs and Excise Department.
SWIFT also acts as an international standards body for the creation and maintenance of financial-messaging standards. See SWIFT Standards.
Each financial institution is assigned an ISO 9362 code, also called a Bank Identifier Code ( BIC) or SWIFT Code. These codes are generally eight characters long. For example: Deutsche Bank is an international bank with its head office in Frankfurt, Germany, the SWIFT Code for which is DEUTDEFF:
Using an extended code of 11 digits (if the receiving bank has assigned extended codes to branches or to processing areas) allows the payment to be directed to a specific office. For example: DEUTDEFF500 would direct the payment to an office of Deutsche Bank in Bad Homburg. SWIFT deviates slightly from the standard, though, by using position nine for a Logical Terminal ID, making its extended codes 12 digits long.
European banks making transfers within the European Union and within Switzerland also use the International Bank Account Number, or IBAN.
Domestic bank-to-bank wire transfers are conducted through Fedwire or CHIPS. Transmitting and receiving US banks are uniquely identified by their ABA routing transit number.
EFTS transfers are often called "ACH transfers", because they take place through Automated Clearing Houses.
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