Cross-currency payments, via institutions such as Western Union, for example, can be convenient and are occasionally the only solution if the recipient does not have a bank account. Payments of this kind are often used when guest workers and others send money to relatives abroad. A payment using this solution starts with the payer depositing money, for example in cash, by card or by bank transfer, with an institution. The payer receives a claim on the funds the institution holds on behalf of the payer, known as client funds. The institution then transfers this claim (or parts of it) from the payer to the recipient. As the transfer takes place within the same institution, payment can take seconds, even when it is cross-currency. Depending on the services the institution offers, the recipient can retain the funds in their own (payment) account with the institution, request a transfer to a bank account or have the funds paid out in the form of cash. However, having the funds paid out in the form of cash can be very expensive.
Fact box: Some illustrative calculations of international payments
Account-to-account payments between Swedish kronor, Norwegian kroner, Danish kroner and other national currencies within the EEA proceed as quickly as payments within Sweden. However, the fees are high and exchange rate markups are applied. For example, the normal cost for a payment to Norway or Denmark for a consumer is SEK 50. These payments proceed as quickly as they do within Sweden due to the EU regulations that are in place (EU 924/2009). However, the fees are not regulated.
Account-to-account payments to currencies outside the EEA are expensive and slow. Payments of this kind are not regulated in the same way as payments within the EEA. In addition, the payments sometimes have to go via many banks and national payment systems, and the payments therefore are often very sluggish, hard to monitor and expensive. A payment can take up to five banking days and sometimes even longer. For a consumer, an account-to-account payment can cost about SEK 150-250. An exchange rate markup is also added to this. For example, a payment of SEK 1,000 from a major Swedish bank to an account in a US bank would cost SEK 330 in total. This calculation refers to a payment from a major Swedish bank in February 2020, where the bank’s fee was SEK 150, the exchange rate markup was SEK 84 and the US bank charged a fee of SEK 100.
Fees for cross-currency payments that are not account transfers and where the recipient is to have the money paid out in cash are often high. As the fixed fees are high, the cost becomes particularly high for smaller amounts. For example, it costs SEK 500 to send SEK 1,000 from Sweden to Uganda via Western Union. However, the payment can proceed very quickly. For example, the recipient can receive a code via text message when the payer has initiated the payment. The recipient can therefore more-or-less immediately collect the money from an institution or agent that is open. If the recipient wants the money deposited in an account or held at the institution, the fees are lower. In some cases, they are very low and there are now several companies that offer convenient and inexpensive transfers, for example via applications for mobile telephones.