Wire Transfer | B2B Finance Glossary
What is a Wire Transfer?
A wire payment or wire transfer is the electronic transfer of funds across a network of banks or transfer service agencies worldwide. Wire transfers are powered by EFT technology and eliminate the need for paper-based payment methods by making it possible for any two individuals, companies, or other parties to send and receive payments securely and quickly.
What are the Different Types of Wire Transfers?
Wire transfers are either international or domestic. A domestic wire transfer occurs between two financial institutions in the same country. To initiate a domestic wire transfer, the sender will need a SWIFT code or a branch number of the receiving bank. Domestic wire transfers are usually processed as same-day transactions.
International wire transfers are sent from a financial institution in one country and received by an institution in another country. These types of transactions require a SWIFT code and are still considered international wire transfers even if the sender and receiver are using the same bank (this is because the sender and receiver are located in different countries from one another). International wire transfers usually take a few days to settle.
How Does a Wire Transfer Work?
To initiate a wire transfer, the sender pays for the transaction upfront at his or her bank. A wire transfer can cost the sender anywhere from $0-$50, depending on whether or not the transfer is international or domestic. Domestic wires usually cost $0-$35, while international wire transfers cost $35-$50.
The sender will need the following information to send funds via a wire transfer:
- The receiver’s name, address, and contact information (plus any other personal information that the bank might require)
- The receiver’s bank information, including the account and branch number
- The receiving bank’s information, including the institution’s name, address, and either the bank’s routing number or SWIFT code
- The reason that the wire transfer is being made
Once this information has been given to the recipient’s bank, the wire transfer is initiated, and the sender pays the wiring fee directly from the initiating bank account. Then, the sender’s bank sends a message to the recipient’s bank through a secure system. The receiver’s institution deposits funds into the individual’s or business’s account. Both institutions settle the full payment on the backend once the funds are transferred.
Wire transfers are used for payments that need to be made quickly and securely, especially for institutions located far away from one another. While financial firms can and do limit the amount of money that can be wire transferred at any given time, the limits tend to be very high, so wire transfers are often chosen for large transactions.
What are the Risks Associated with Wire Transfers?
Wire transfer services usually require both parties involved in the transaction to prove and confirm their identities for the transaction to go through. Additionally, as long as the sender knows the receiver's identity, wire transfers are one of the safest forms of payment.
International wire transfers initiated in the US are monitored by the Office of Foreign Assets Control, part of the US Treasury. This agency is in charge of ensuring that the money being sent is compliant with rules that support AML and CFT efforts and that money is not sent to countries that are being sanctioned by the US government. If anyone tries to initiate a transfer that violates these rules, the sending institution can freeze funds and block the wire transfer.
Wire transfers can be flagged for the following reasons:
- If the transfer is made to a non-account holder
- If the incoming and outgoing wires are of the same dollar amount
- If the transfer is a large amount wired by a cash business
- If regular transfers are being made for no viable reason
- If transfers are being made to safe-haven countries
What are the Advantages and Disadvantages of Wire Transfers?
Wire transfers make it possible to send money to a recipient who uses a different bank or a recipient in a different geographic location. They are much faster and more convenient than paper checks and cannot be lost in the mail.
Additionally, a wire transfer can only be sent if the sender has enough in his or her corresponding bank account, so a wire transfer can never bounce the way a check can. At the same time, wire transfers usually have high transaction fees and can cost as much as $50 to send. Also, sometimes sending institutions can limit the amount sent in a single day.
Here are the advantages of sending wire transfers:
- They have fast settlement times (especially for international payments)
- They are highly secure
- The payments cannot bounce or be lost in the mail
Here are the cons associated with wire transfers:
- They involve high fees
- They have caps imposed by banks
- There are day-long settlement times for international payments