For both individuals and legal representatives, sending funds to their friends, family members and business partners has long become very commonplace. However, for most, the technology used to make such transfers remains indistinct. Typically, the whole process for the sender comes down to the fact that he gives the appropriate instructions to his bank with the details of the payment recipient (or enters this data himself in the online banking system) and waits for confirmation whether the funds have reached the recipient or not.

Local Transfers

The underlying remittance system is a complicated network of financial intermediaries and interactions that connect the sender and the receiver. Since most local money transfers are in the same nation, all that is required of the receiving bank is to inform the other bank of the transfer and obtain confirmation that the monies have been received.

The sending bank must transmit the funds to the clearinghouse or a single intermediate bank (often the central bank in each nation), which subsequently deposits the money into the account receiving bank since the sender and beneficiary banks are "speaking" through a clearinghouse. The beneficiary's bank then adds them to the customer's account.

To transfer payment information between their correspondent accounts, banks use various transport systems (for example, SWIFT, SEPA, etc.) or secure channels (such as a remote banking system or SFTP). Banks agree on such instruments among themselves.

International transfers
Sending money across continents and different countries is far more challenging than doing so within a single nation. Naturally, the sender must first instruct his bank on how to transmit the funds. The funds are then sent to the correspondent bank, which is licensed to conduct international business if the sending bank is satisfied that the client has enough money in his personal account (after converting it to a foreign currency using the official exchange rate).

The intermediary then debits the sender's bank account held by him and credits the corresponding bank in the foreign country that has a banking relationship with him. Both intermediaries must have each other's accounts, which is called a mutual correspondent relationship. Relationships without opening mutual accounts are also possible, which involve settlements on accounts opened in a commercial bank, usually a large center for interbank settlements, or in a clearing center.

To ensure prompt settlements, large banks hold the necessary reserves in foreign currencies in foreign correspondent accounts or use credit lines and short-term loans (“overdrafts”) available to them.

The receiving bank conducts the required exchange control processes (KYT, AML), validates the beneficiary's credentials, and, if everything is in order, credits the funds to the beneficiary's account once the intermediaries have completed the transactions and transferred the funds.

The financial technologies that permit domestic and international fund transfers have developed over many years, and as a result, the current system now processes enormous sums of money every day.

It is safe to say that without the backbone of an international money transfer network, the global economy would instantly cease to exist.

Corporate clients often face payment problems both locally and abroad. To do this, companies need a reliable payment service that will allow them to conduct business with their partners without delays and at a favorable rate.

The financial platform Collect & Pay is not only a business solution in matters of payments to partners' safety and fast, but also an excellent assistant in financial reporting and cash accounting. Contact Collect & Pay to open a payment account and support your business in financial matters. - [email protected]