The old ways of transferring money are mainly expensive, tedious and particularly problematic when money is sent to developing market economies with weaker currencies. New ways offer a more efficient payments system that is accessible to developing economies and built for a global network of people – something that is becoming increasingly important as more and more people travel, work and do business abroad. So what are the old and new ways of sending money and how do they compare in terms of cost, time and convenience? Let’s take a look at the high-volume Hong Kong – Indonesia money transfer corridor and assess our options.
When you send money from your Hong Kong bank account to an account in Indonesia, the transaction is not made directly and instead requires several steps and processes to be undertaken before the money reaches the recipient.
First, the money is moved from your local Hong Kong bank to a correspondent bank in HKD. Then, the money is exchanged with IDR on the FX market and sent abroad through the SWIFT messaging network to another correspondent bank serving the Indonesian market. Finally, the money is sent to the local bank associated with the recipient’s bank account.
The multi-hop model of correspondent banks and currency exchanges causes friction, and fees are added every step of the way. The process is shrouded in mystery and customers have no clear visibility into how their money is moving across borders, when it will arrive and how much it will cost. But broadly speaking, it can take anywhere between 5 to 11 days for the money to reach the destination, with the average cost at 11%.
Verdict: While a bank account transfer sounds straightforward, sending money from Hong Kong to Indonesia is in reality a complex process that is both slow and expensive.
In terms of convenience and speed, retail channels for money transfers are a better option than bank transfers. A money transfer from Hong Kong can either be made in cash or using a credit/debit card, and the receiver in Indonesia will be able to receive the money either in cash a few minutes later or in a designated bank account after 2 business days.
Looking at the fee structure of the largest retail brand operating in this space, a flat 15HKD fee for any amount up to 7999HKD seems like a fair deal. But taking a closer look and inspecting the fine print, that deal becomes less appealing: in addition to the flat flee displayed up front, retail channels also make money from currency exchange rates which vary by brand, channel and location. These are fees hidden in the exchange rate and are subject to change without notice.
Verdict: Retail channels are more convenient and faster than bank to bank transfers between Hong Kong and Indonesia, but the hidden costs of transactions make this an unnecessarily expensive option.
Addressing these old problems in new ways, new companies such as TransferWise have sprung up to provide an alternative way to make money transfers. TransferWise operates a global network that accommodates bank transfers using a faster and cheaper system. Funding the account can be done either by direct bank transfer, debit or credit card. Once the money is in the TransferWise account, it can be sent to a recipient’s bank account anywhere in the world.
While the complete transaction could be completed in a matter of hours, it could also take days depending on the structure of each country’s payment system. This likely means that a TransferWise transaction made between Hong Kong and Indonesia will only be slightly faster than a bank to bank transfer, and a few days slower than what retail channels can offer. In terms of cost, it is a cheaper option than the traditional bank transfer, but both the flat fee and exchange rate make this a more expensive option than what retail channels can offer on average.
Verdict: TransferWise is faster and cheaper than banks, but slower and more expensive than retail channels. Plus, this is only an option if both sender and receiver have a bank account.
Bitspark offers an alternative way for transferring money worldwide, using stablecoins to make transactions faster and cheaper – without the need for bank accounts. Sending money from Hong Kong to Indonesia can be done in a few simple steps.
First, the sender exchanges cash HKD for peg.HKD through one of the many inclusion points connected to the network to top-up the digital stablecoin balance. Then the stablecoin funds are sent via our mobile app to the recipient. Finally, the recipient is able to cash-out peg.IDR for cash IDR. The exchange between peg.HKD and peg.IDR takes place on our decentralised exchange at efficient rates determined by the global market and crypto traders.
Verdict: It is both faster and incurs lower fees when compared to other ways of sending money. Plus, as an added benefit, the system is designed as a cash-in cash-out network that works without banks making it an inclusive alternative for the world’s 1.7 billion unbanked.
Bitspark is a bankless money transfer ecosystem that enables businesses and people to cash in and cash out cryptocurrencies across Asia and Africa.