How Do International Money Transfers Work?

The journey your money takes across borders

Every year, people send over $656 billion in remittances to family and friends in other countries. Yet most senders have little idea what happens between pressing “send” and the money arriving. Understanding how international money transfers work helps you choose the right provider, avoid hidden fees, and know why your money sometimes takes days to arrive.

The process involves more moving parts than most people expect. Your dollars pass through multiple institutions, get converted between currencies, and travel across messaging networks before the recipient sees a single unit of local currency. Each step adds time and cost. The World Bank Remittance Prices Worldwide database puts the global average cost of sending $200 at 6.35%, meaning roughly $12.70 of every $200 never reaches the person you are sending to.

This guide breaks down the full chain from sender to recipient, explains the systems that make it work, and shows where the money actually goes.

How the traditional transfer chain works: sender to recipient

A traditional international money transfer follows a specific path through the global financial system. Here is what happens at each stage:

Step 1: You initiate the transfer. You go to a provider (a bank, an online service like Wise or Western Union, or a money transfer app) and enter the amount, the recipient’s details, and the destination country. The provider quotes you an exchange rate and a fee.

Step 2: Your provider debits your payment method. The money leaves your linked payment source. Your provider now holds the funds and is responsible for getting them to the destination.

Step 3: The payment instruction enters the network. Your provider sends a message through a financial network (most commonly SWIFT) to the recipient’s institution. This message contains who is sending, who is receiving, how much, and in which currency.

Step 4: Correspondent banks relay the payment. If your provider does not have a direct relationship with the recipient’s institution, the payment passes through one or more intermediary banks, called correspondent banks. Each correspondent may deduct a fee and takes time to process the instruction. A transfer from a small US regional bank to a rural bank in the Philippines might pass through two or three correspondents.

Step 5: Currency conversion happens. At some point in the chain (either at your provider, at a correspondent bank, or at the destination) your dollars get converted to the recipient’s local currency. The exchange rate applied here is where much of the hidden cost lives.

Step 6: The recipient’s institution credits the funds. The final bank or payout partner credits the converted amount to the recipient’s balance or makes it available for cash pickup.

This entire process typically takes 1 to 5 business days. The more intermediaries involved, the longer and more expensive it gets.

What is SWIFT and why does it matter?

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is the backbone of international banking communication. It is not a payment system; it is a messaging network. SWIFT does not actually move money. It carries the instructions that tell banks what money to move and where.

Founded in 1973 and headquartered in Belgium, SWIFT connects more than 11,000 financial institutions across 200+ countries. When your bank processes an international wire, it sends a standardized SWIFT message (called an MT103 for customer transfers) to the receiving bank. That message includes the sender, recipient, amount, currency, and routing details.

Here is what SWIFT does and does not do:

SWIFT handles	SWIFT does not handle
Standardized message formatting	Actual movement of money
Secure communication between banks	Currency conversion
Transaction tracking (via GPI)	Fee negotiation
Compliance screening triggers	Speed of settlement

The actual settlement (the movement of money) happens through correspondent banking relationships and central bank clearing systems. This is why even though a SWIFT message arrives in seconds, the money can take days. Each bank in the chain needs to verify, comply, and settle independently.

Photo by NASA on Unsplash

SWIFT GPI (Global Payments Innovation), launched in 2017, has improved transparency by letting senders track payments in real time. According to SWIFT, 89% of GPI payments now reach the beneficiary within 24 hours. But that still leaves millions of transfers taking longer, particularly in corridors involving smaller institutions or countries with less developed banking infrastructure.

Where fees and exchange rate markups come from

The total cost of an international transfer has two components, and most providers are not transparent about both.

Flat fees are what the provider charges upfront, typically $5 to $50 depending on the amount, speed, and destination. This is the number you see advertised. But it is often the smaller portion of the total cost.

Exchange rate markups are where the real cost hides. The mid-market rate (also called the interbank rate) is the fair exchange rate between two currencies at any given moment. Most providers do not give you this rate. Instead, they apply a markup (typically 1% to 3%), meaning you get fewer units of the destination currency for each dollar. On a $500 transfer with a 2% markup, that is $10 you never see as a line item. Learn more about this hidden cost in our guide on what an exchange rate markup really is.

Beyond what your provider charges, correspondent banks along the route may deduct their own fees. A $200 transfer might lose $3 to $5 in correspondent bank charges that neither the sender nor the recipient expected. This is a key reason why international transfers are so expensive.

Here is a realistic cost breakdown for sending $200 from the US to Colombia:

Cost component	Typical range
Provider flat fee	$5 - $15
Exchange rate markup (1-3%)	$2 - $6
Correspondent bank fees	$0 - $5
Recipient bank fee	$0 - $10
Total cost	$7 - $36 (3.5% - 18%)

The variation is enormous. Choosing the wrong provider on a single transfer can cost you three to five times more than choosing the right one. Over a year of monthly transfers, that gap compounds into hundreds of dollars, money that could go to the person you are sending to.

What a typical transfer looks like in practice

Consider Maria in Houston who sends $300 every month to her mother in Bogota. Using a traditional provider, here is what a single transfer looks like:

She pays a $7.99 flat fee. The provider quotes an exchange rate of 4,050 pesos per dollar, while the mid-market rate is 4,150. That 2.4% markup costs her another $7.20 she does not see. Her mother receives approximately 1,197,000 pesos instead of 1,245,000, a difference of 48,000 pesos. The money arrives in two business days.

Over 12 months, Maria pays roughly $182 in combined fees and markup. That is nearly an entire extra transfer’s worth of value lost to the system.

Now consider the alternative. If Maria holds digital dollars in her own wallet using Arca, she sends $300 directly to her mother’s wallet. Her mother receives the full $300 in digital dollars in under 10 seconds, with no $7.99 fee, no 2.4% markup, no two-day wait. If her mother wants to convert to pesos, she does so on her own terms, at the rate she finds, when she chooses. Over 12 months, Maria keeps that $182 in the family instead of losing it to intermediaries.

Photo by Christin Hume on Unsplash

This is the core difference: traditional transfers move money through a chain of institutions, each taking a cut. A dollar wallet lets you send value directly, the same way you might hand cash to someone standing next to you, except the other person can be anywhere in the world.

Faster alternatives and what is changing

The international transfer landscape is shifting. Several developments are reducing the cost and time of cross-border payments:

Digital-first providers like Wise, Remitly, and others have reduced costs by cutting out some intermediaries and offering mid-market rates. The World Bank reports that digital channels average 4.29% in cost versus 6.65% for cash-based channels.

Real-time payment networks are expanding globally. Systems like PIX in Brazil, UPI in India, and FedNow in the US enable near-instant domestic payments. Cross-border interoperability between these systems is still early but progressing.

Dollar wallets represent the simplest approach. Instead of routing money through the banking system, you hold digital dollars in your own wallet and send them directly to anyone else with a wallet. No SWIFT message, no correspondent banks, no multi-day settlement. You send dollars, they arrive in seconds.

With Arca, you hold your own keys and control your own dollars. Sending to another wallet takes seconds. The recipient does not need a traditional financial institution, just a phone. For people sending money internationally, particularly in corridors where fees are highest, this removes most of the friction and cost from the process. For those exploring options beyond traditional banking, see how you can send money to someone without a bank.

Understanding what a remittance actually is and how the system works puts you in a better position to choose the option that keeps more of your money where it belongs: with the person you are sending it to.

Ready to skip the correspondent banking chain? Get started with Arca, your dollar wallet, no bank needed.