In the last few years, Internet transfer has become a prominent way for people to move funds internationally. The popularity of Internet banking makes transferring through on-line services user friendly and convenient. I will explore several such providers and discuss their transfer mechanisms and fee structures individually.

First, let’s talk about PayPal.

PayPal is principally known for its facilitating online purchases by being a trusted platform between the seller and buyer. However, from the very beginning, PayPal has offered free transfers between two personal accounts for non-business activities within the same country. PayPal also offers cross-border personal transactions through linked bank accounts for a fee, which varies by country. The sender decides whether the sending or the receiving party pays the fee.

As mentioned in the wire transfer section, PayPal still functions within the global interbank clearing house system. It acts as the interface between you and your bank account both at home and abroad, and saves you the hassle of initiating wire transfers remotely. Since most of the banks in the US still do not offer wire transfers through online banking, (although some do through Western Union, which will be discussed later), using PayPal becomes a more attractive option.

In order to send money to yourself on PayPal, you need two PayPal accounts: one linked to your US bank account and the other to your local bank account. In the US, PayPal functions as a financial service company rather than a bank. When you fund your US PayPal account, the actual money is sitting in PayPal’s collective account with one of the major US banks and earning interest. As you make a transfer from your US PayPal account to your local PayPal account, PayPal will initiate a wire transfer from its US bank account to its local receiving bank account, following the exact same process as discussed in wire transfer. (In Europe, PayPal is structured as a bank registered in Luxemburg so the transfer need not go through another bank.) The money will then sit in your local PayPal account until you initiate an ACH transfer from the PayPal account to your local bank account. See the illustration below.


Signing up for a PayPal account is free, so the only fee comes from what PayPal charges you for the transfer. Its full fee schedule can be found here in the user agreement. Since PayPal has a different legal status in each country and is subject to different laws, you need to first make sure if personal transfers are allowed under PayPal in your host country before you proceed. (For example, PayPal accounts in India are not able to process personal transfers.) In addition, you can only send up to $10,000 in a single transaction.

Continuing with the wire transfer example; currently PayPal charges 2.0% of the transaction amount, 0.35 Euro Fixed Fee, and 2.5% above the wholesale exchange rate to complete the transfer to Germany. Assuming Bank of America’s retail exchange rate is roughly the same as the above fixed fee and premium combined, it will only be more economical when you transfer less than $2,000 USD through PayPal than through a normal wire transfer. Theoretically, the wire transfer between PayPal’s Bank of America and Deutsch Bank accounts should take the same amount of time as your accounts of the same banks, while the ACH transactions between your PayPal and bank accounts can happen real-time or within a few hours. Therefore, the real benefit PayPal brings is to simplify the transfer process on-line so you don’t have to contact your US bank from overseas to initiate the wire transfer, and potentially avoid another incoming wire fee from your local bank.

PayPal’s fee percentage also varies widely by country. For example, to transfer funds to Japan, PayPal only charges 0.3% of the balance plus 40 Japanese Yen and the standard exchange rate markup. It means you can fund your Japanese account more economically with PayPal. It could also be much more expensive in some other countries and worth the effort go the wire transfer route.

One last thing to note is that although PayPal allows you to link your credit card for purchases, it charges a much higher fee if you initiate fund transfers from a linked credit card instead of a bank account. It’s the equivalent of PayPal charging you a cash advance fee, without the benefit of getting the cash right away. The fees also differ by country and can be as high as 5%.

All things considered, PayPal may be easier to work with, but it may not be faster or cheaper than initiating wire transfers with your bank, depending on the amount, frequency, and the bank you use. Moreover, it still requires you to have bank accounts in both countries. Next we will discuss other service providers that allow you to receive cash without a bank account.


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