What happens to my money during a transfer?

This article was originally published on March 2, 2020.

Some people are surprised to learn that the money transfer—also known as electronic funds transfer—predates the telephone and most other “modern” inventions. Western Union performed the first electronic funds transfer in 1871. Despite the clear potential of this innovation, electronic funds transfers remained a novelty for many decades. Congress did not bother to regulate these transactions until 1978.

Today’s money transfers are much faster, cheaper, and more reliable than they were in 1871 or even 1978. Yet they are fundamentally the same. No cash changes hands. Instead, financial institutions swap debit and credit information. This exchange could be between two people who share the same bedroom or two people on opposite sides of the world. 

The core aspects of these transactions: speed, low cost, and reliability, are among our core values at Xe. We understand that the world is a lot smaller today than it was in 1871 or even 1978. So, we strive to deliver payments as efficiently as possible, because we know that both senders and recipients are counting on us.

How does a money transfer work?

An electronic funds transfer is like the ultimate contactless payment. If you buy a latte and pay with a credit or debit card, no money changes hands. It’s simply the aforementioned credit/debit swap. Your account balance dips and the store’s account balance increases. 

Incidentally, there is a subtle difference between a credit and debit card. When people use credit cards, they promise to pay at a future time. That’s the agreement you sign at the conclusion of the transaction. Debit card transactions are essentially cashless payments. Money goes out of your account at the point of sale. 

In terms of money transfers, there are basically two types of transfers:

• Intrabank: Such transfers are between two account-holders at the same financial institution. These account-holders could be organizations or individuals. The financial institution could be a traditional bank, like Chase, or a FinTech company, like PayPal. Domestic intrabank transfers are quite easy. They are usually complete in a few seconds. International intrabank transfers are a bit more complex, because of currency conversion.

• Interbank: Most long distance funds transfers, including international credit/debit swaps, are interbank transfers. The sender has an account at one bank and the recipient has an account at another bank. Interbank transfers open up a world of possibilities, because almost anyone can send money to almost anyone else. These transfers are also more expensive than intrabank transfers. Both the sending and receiving institutions usually charge a processing fee.

In both transfer types, the core process is the same.

1. The sender (that’s you!) provides the money transfer provider (that’s us!) with the necessary information (more on that below).

2. The money transfer provider securely transmits (using the SWIFT system or other secure channels) the transfer information to the sender’s bank account, letting them know how much to debit (or take from) your account.

3. They then transmit the information to your recipient’s bank account, letting them know how much to credit (or add to) their account.

4. Once the money has been credited to their account, the transfer is complete!

You might have noticed that bank accounts are critical at both ends of the process. When you send money internationally, you must provide your account information. You must also tell the bank how to convert the currency. Many countries use multiple types of currency, especially in certain areas. On a related note, recipients can usually either keep the electronically-transferred funds in their account or convert the funds to cash at an ATM, bank branch, or other outlet.

This process is much more convenient than the old cash pick-up transfers. Neither senders nor recipients need to go to a branch or anywhere else to participate in the credit/debit swap process.

This process is also difficult for some people to understand. Whether they know it or not, many individuals are modern thinkers. “I have to see it to believe it” is the modern thinker’s rallying cry. So, unless they see cash money going from one place to another, they do not trust the process.

Today, most people are postmodern thinkers. They believe that there are things unseen which are nevertheless real. The “modern age” ended around 1950, at least according to most scholars. And most people alive today were born after that year.

How do we know we can trust the money transfer process?

It’s understandable if you feel a little uneasy about money transfers. Money traveling from a bank account in the United States to a bank account in Colombia in just 5 minutes almost sounds too good to be true. But there is every reason to trust the electronic funds transfer process. It is secure and convenient. Part of that security comes from the fact that there is no cash involved. Cash is usually much easier to steal than electronic signals. 

Furthermore, companies like Xe have been handling these transfers for decades. So, our infrastructure is very well-developed. We adhere to regulatory standards in every country we do business, and our security is matches that of banks and other enterprises. And, as mentioned above, the convenience and ease of use is unmatched. Convenience usually goes hand in hand with reliability.

So, if you want to move money overseas, you basically have two choices. Option A is a cash transfer at a financial institution which uses essentially the same technology as that 1871 money transfer. Option B is a seamless electronic transfer with Xe. That choice is pretty clear.

What do I need to send a money transfer?

Once you decide to transfer money with Xe, there are some things you should have before you use our app or our website, like over one million people have already done.

To provide the money for your transfer, you can either send an ACH transfer, a wire transfer, or a card payment. Depending on which method you select, you may need different things. But you’ll definitely need basic bank account data, such as your bank account number, routing number, and SWIFT or BIC number. If you’re paying by card, you’ll just need your card information.

Your financial institution has all this data. And, once you enter it, we store it securely. So, you don’t have to re-enter it and you don’t have to worry about unauthorized use.

You’ll also need similar information from the recipient. This includes:

• The recipient’s name

• The recipient’s address

• Their bank name

• Their bank account number

• Their BIC (SWIFT) code

We recommend getting this information ahead of time, so you won’t need to scramble when the time comes to send your transfer. When you ask for this data, be careful about sending it over unencrypted channels, like a cell phone text message.

After you hit “send,” we’ll take care of the rest. You’ll get an email confirming that we have your information and it is accurate. This initial email usually includes an estimate of the time needed to complete the transaction. That time frame is usually 1-4 business days, but most transfers are completed within 24 hours (or even a few minutes).

In the unlikely event we encounter a hitch, we’ll send a follow up email detailing the problem and the way we intend to solve it.

Once the transfer is complete, we usually send another email to that effect. Since we usually only have the recipient’s account information, the recipient might not receive such notice. But don’t worry, because the money is there.

Need to send an international money transfer? Use Xe

Today’s electronic funds transfer process might seem almost magical, but it is based on solid financial principles and reliable science. To efficiently send money overseas to family or friends, or to transfer money for any other purpose, log in or sign up to get started with us today.