When we’re choosing a way to send money home, we need to keep in mind that there are many ways to do so. Each method has its own features, costs, timeframes and risks.
What are the various options? How can we choose the best way? What should we look for?
Different ways to send remittances
When we’re choosing a way to send money home, we need to keep in mind that there are many ways to do so. Each method has its own features, costs, timeframes and risks.
We’ll make a distinction here between channels, operators and instruments.
Channels are the routes that money can travel along before reaching its final destination. These channels can be divided into two categories:
- informal Channels
- formal Channels
Informal Channels are all those methods for sending money that do not use operators or instruments that are supervised by the authorities that regulate and protect money flows and financial instruments.
Sending money home through a returning friend or relative is one example of an informal channel.
But some informal channels use more complex and efficient systems, with persons acting as intermediaries or that use computer technologies (Internet). These intermediaries work in a very similar way to Money Transfer Operators.
The difference is that these channels operate without any authorisation and there is no contract for the transmission of the money.
That means you have no guarantee that they will fulfil what they have told you in terms of fees, timeframes, etc..
Very often these channels are less expensive. In addition, they are very widespread. In fact, there are so many of them that a major percentage of the remittances sent out of Italy pass through informal channels.
It is more likely that this kind of channel will be used when:
- the remittance destination country is relatively close to Italy
- the immigrant community in a given area of Italy is well organised.
Informal channels are entirely based on trust. You need to be able to trust the person who offers to carry or send your money.
There are no contracts and you have no guarantee that something won’t go wrong along the way. For example, the money could be stolen. Or the border police might want to know why a person is travelling with such a large sum of money. The money could even be confiscated.
So informal channels aren’t always the best choice –there are major risks and limitations you need to consider.
Risks and limitations of informal channels
Informal channels are still used very frequently to send money out of Italy.
In many cases they are much less expensive than formal channels. They might even be free, if a friend or relative is willing to carry your money in person.
Informal channels are also much simpler to use (no ID documents or other formalities are required).
But they are not always the safest channels. In fact, there are major risks and limitations to consider when choosing how to send money to your home country.
The first risk to consider is the cost. In some cases, the fee asked by the person transferring the money ends up being higher than the amount initially agreed.
The person delivering the money at the final destination sometimes asks for an additional fee. This means the final sum the recipient actually receives is reduced yet again.
Delivery times can vary too, compared with the timescale the intermediary tells you when you hand over the money.
In both cases, you have no way to defend yourself because everything is based on a verbal agreement and trust. There are no contracts, so if the conditions change along the way you have no way to enforce the original agreement.
A second major risk concerns the possibility of the money being lost or stolen. It might even be confiscated by customs agents who are suspicious when they find money being carried as cash.
In this case too you have no way of recovering the money because the person who said they would deliver or send it is not obliged to return it to you.
And then, if the money doesn’t travel through formal channels, it cannot enter the economic circuit.
So we there is no way to turn the money it into opportunities for you, as the sender. Opportunities such as:
- access to banking services
- the possibility that the bank will recognize the money as a personal asset to decide whether or not to grant you a loan.
Recipients also lose out on opportunities when you send money through informal channels. Again, these missed opportunities concern relationships with banks and access to credit. For example, recipients might not get access to financial instruments or sustainable development projects.
There can also be lost opportunities for the economies of both countries. Remittances sent through informal channel cannot be channeled to generate development in your own community (see “Remittances can create value” in the Remittances section).
Formal Channels include all the methods used to send money through operators or instruments that are regulated by law. Formal channels are supervised by an authority that oversees the flow of funds and financial instruments (Authorities).
There are three main types of operators in Italy that provide services for transferring money abroad through formal channels (see the section on each operator):
- Money Transfer Operators;
- Post Offices.
By the end of 2009 a new European Directive on payment services will come into effect in Italy (and the other European countries).
This will allow other operators (known as payment institutions) to offer payment services, including the transfer of money abroad.
Formal channels have two main features:
- specific laws regulate their activities and products
- they are overseen by an official supervisory authority.
When you send money with any of these operators, you sign a contract (the receipt the operator gives you is proof of the contract). The contract sets out the rights and duties of both the intermediary and the client.
The intermediary is responsible for the service they have sold to you and, if you ask, they are obliged to let you read the contract in every detail.
If anything goes wrong, you can apply to the supervisory authority or to the courts to make sure the contract is respected.
To send money through formal channels you need an identity (ID) document. This is required by a specific law on money transfers, but also because you are better protected that way.
The contract is made out to you in person and it can help you protect your rights.
The cost of using formal channels is generally higher than for informal channels. However, thanks to the increased competition between operators in recent years, the costs associated with formal channels have been falling.
With the arrival of new operators, the New European Directive will surely make further cost reductions possible.
How to send money
Once you have chosen the operator you want to use to send money, there are various ways to do so.
Some operators do not offer the full range of options
– only the methods that their channel or instruments allow them to use.
Let’s take a look at the main ways to send money. Many of these (but not all) are shown on the comparative table on this site:
- Cash to cash: this is the simplest way. The sender gives the operator cash and the recipient redeems it in cash.
- Cash to prepaid-card: in this case the recipient has a prepaid card (see “Payment Cards” in the Saving money explained section) that they can use in their own country. (The card can also be sent from Italy).
The sender charges (pays money on to) the prepaid card (using whichever recharging system applies to that card). The recipient is then able to spend or withdraw money using the card.
- Account to cash: the sender uses a current account to send the money (see “Current Account” in the Saving money explained section). The recipient receives the money directly as cash.
- Account top re-paid-card: the sender uses a current account and the money is transferred to the recipient’s prepaid card.
- Account to account: the money is transferred from the sender’s current account to the recipient’s current account. Naturally, both sender and recipient must have current accounts.
- Account to goods: the money is taken from the sender’s current account and used to buy products (food, home appliances, etc.) in the destination country.
The goods can be collected directly by the person receiving the remittance.
This method has not yet been developed in Italy and doesn’t work for all countries. But it is gradually being used more and more around the world.
Can I use prepaid cards to send remittances?
see “Payment Cards” in the Saving money explained section)
Banks and Post Offices are increasingly offering their customers the option of using prepaid cards to send remittances. Prepaid cards are payment cards that can be used in any part of the world (this is because they are linked with the credit card circuits).
Prepaid cards get their name from the fact that the money that can be spent or withdrawn with them is paid on to the card in advance. This can be done through a bank, Post Office or automated teller (ATM). When the money runs out the card can be recharged with more.
You should pay attention to the usage (spending) and recharge limits that every card has. These limits can be monthly or annual. The limits mean that:
- you cannot spend over a certain set amount;
- you can recharge the card as often as you like;
- but the total paid on to the card in a single year cannot exceed a certain set amount.
Prepaid cards can be used as alternatives to traditional money transfer instruments. In fact, you can send the card itself to your home country to be used there. You can then “recharge” the card with money in Italy as often as needed.
Naturally, to use the card in your home country the appropriate instruments need to be available there to withdraw money or use the card to make purchases in shops and so on.
Prepaid cards have a number of important advantages:
- low cost (there is usually a fee when the card is issued, a commission for each recharge and a commission each time money is withdrawn abroad. But there is no cost when the card is used to buy things in shops etc);
- the exchange rate applied is the one used by credit cards, so it has no “spread” (implicit cost, see the Costs of sending money section)).
Many immigrants have begun to use this instrument and some banks also offer the possibility of “twin” prepaid cards.
There is only one obstacle to using this instrument for remittances. Italian law states that a prepaid card has to be “named”, that is, it must be made out to one person who has to show an ID document when the card is issued and used. Only that person is authorised to use the card.
Starting in November 2009, when the European Directive on payment services comes into effect, some important changes will be introduced. For example, three types of rechargeable cards could be issued:
- a disposable card for up to 150 euros. These cards will not be “named”, so anyone can use them. But they will have a set limit of a maximum of 150 euros and cannot be recharged;
- an “anonymous” card that can be used by anyone and recharged several times. But it can only be recharged for up to 2,500 euros in a single year;
- a “named” personal card (that only the holder can use). There will be no recharge limit on this type of card.
These new types of cards, particularly the “anonymous” card, will certainly make it easier to use this instrument, including for sending remittances. It will also bring a major saving in costs.
Naturally, the instrument to use these cards must also be available in the home country.
Developments in computer technology and the Internet have made possible a series of new, rapid, low-cost instruments for sending money.
One example is the telephone calling card, which is being used more and more as a payment instrument.
It is already possible in Italy to make purchases using calling cards from a variety of companies. In some countries these cards can be used to pay utility and other bills, pay for shopping in shops and supermarkets and send money.
The Internet is also becoming an important instrument in many countries for sending money and making payments.
For example, on-line services make it possible to transfer money through guaranteed, secure systems with a very low commission charge. But you need to have a credit card or a current account and, naturally, access to the Internet. And the person receiving the money needs to have a current account where the money can be sent.
It is also possible to open an Internet payment account.
You can use this to transfer money to other similar accounts. You can also order goods products that can be delivered directly to the recipient’s home, even in another part of the world.
So, for example, you could buy groceries or other goods in an American supermarket for relatives living there. You pay over the Internet, and your relative, or the person you indicate, can go and collect the goods.
These instruments are rapidly spreading around the world but they are not all available or widespread in Italy.
From November 2009, the new European Directive on payment services will allow these products to be offered in Italy too and we are convinced that they will catch on quickly and become widely available.
Formal Channels – why should I use them?
Formal channels have many more advantages and opportunities for users than informal channels.
Intermediaries that use formal channels offer, first and foremost, a secure “transport” service for your money.
The service is secure not just because it uses channels regulated by supervisory authorities. It is secure also, and above all, because you are protected by a contract.
This is the contract that was agreed when you instructed the operator to send your money to a designated recipient. The rights and duties of each party are set out in the contract. So if anything goes wrong or the conditions turn out to be different from the ones declared by the intermediary at the time of the transfer, you always have this contract to refer to.
But the use of formal channels can also offer a series of other services that would not otherwise be available to you.
These services (such as insurance or payment services) are offered by the agent sending the remittance. Using formal channels can also make other services simpler.
For example, if you apply for a loan. If you use your bank to send remittances, the bank not only sees the saving deposited in your account but also the money you send periodically. So the bank could see you in a different, more favourable, light when you apply for a loan.
In the same way, using formal financial instruments to send money makes it easier for you to control and check how it is used.
It also give you the possibility to put part of your money aside for future expenses or to build a ”nest-egg” of savings over time.
Formal channels are the only way to make sure that the money sent to your family ends up supporting your home community or business projects or your home country’s general development. (some examples and instruments that explain how this is possible are contained in the research paper in the Remittances section).
The Main Operators
Once you have chosen the channel for sending your money, there are various operators who provide a remittance service. Each operator has different features and it is a good idea to find out about them before you make any decision.
There are three types of operators in Italy today that can send remittances abroad:
- Money Transfer Operator;
- Post Offices.
As of November 2009, a European Directive on payment services will also allow new operators (called ”payment institutions”) to offer payment services, including sending remittances.
Thanks to this new law, telephone companies and large commercial chains (major supermarket brands) will also be able to offer these services. They will need to receive authorization from the Bank of Italy before they can do so.
The payment institutions will not be able to become actual banks but they will be able to offer all the payment services available to you today through your current account. So you will be able to use them, all over Europe, to:
- apply for payment cards (see ”Payment Cards” in the Saving money explained Section)
- make bank transfers;
- pay utility bills;
- have paychecks deposited directly, etc.
However, they cannot provide cheques or credit cards.
Money Transfer Operators (MTO)
Money Transfer Operators (MTO) are the main operators in the field of remittances, and they need authorization from the Bank of Italy to perform this kind of activity.
At present there are 55 registered MTOs in Italy, listed on a special register kept by the Bank of Italy. You can view this register on-line. So it is always possible to check whether an agent offering you a money transfer service is authorized to do so or not. Make sure you ask for the exact name of the operator because sometimes what you see is only their logo. Only the real name of the operator appears on the register.
The main MTOs operate worldwide by now and have a vast network of offices and agents. This makes it very simple to send money. Money transfer times are also very quick, almost immediate, so these operators are very easy to use. All you need is some form of identification (ID card, passport etc) and the money to send, in cash.
Once you give him the money, the MTO gives you a codeÑwhich you communicate to the person you are sending the money to (the recipient). At the same time, the MTO sends a message to his agent in the destination country.
Once the recipient has received the code from you, he or she can withdraw the money as soon as you have handed it over to the MTO.
You can of course choose a different timeframe, such as the following day or even longer, and that makes the fees lower.
Your actual money is not sent immediately but deposited in a current account.
In the same way, the agent on the other end withdraws the money to be paid out from another current account. The mechanism works the same way when someone sends money to Italy from any country where there is an MTO, so there is a flow of money in both directions every day.
Periodically, according to preset deadlines, the MTO and its agents in various countries do their accounts and money is transferred from one account to balance the other. This mechanism makes the money transfer system especially speedy and efficient.
One of the main functions of banks (see “What is a bank” in the Saving money explained Section) is to manage payment services. Sending money abroad is, therefore, one of a bank’s typical activities.
Banks transfer money through an international system to which almost all the banks in the world are connected. In fact, any bank can send money to any other bank. The banks can be connected directly (through a current account common to the two banks, when they have what is called an interbank agreement). Or they might be connected indirectly, using another bank (called a correspondent bank), when they do not have a direct interbank agreement.
When the connection is direct the system is quite simple and rapid. The two banks communicate the operation almost immediately and exchange the money through their shared current account.
When the connection is indirect the initial communication is between your bank and its correspondent bank. Once the correspondent bank has received the money, it sends it to the bank that you want the money to be delivered to. Once it arrives there it will be paid into the recipient’s current account.
Sometimes two correspondent banks are necessary if there is no interbank agreement between banks with a common current account. In that case the system is more complicated and the timeframes and fees increase.
It’s important to note that the conditions applied to the transfer can vary greatly, depending on whether or not the banks have an interbank agreement.
The Post Office also offers money transfer services. There are two ways to send money through the Italian Postal System.
The simplest and fastest way uses a trade agreement between the Postal Service and MoneyGram. This makes the Post Office a MoneyGram “agent“, so when you go to the post office to send a remittance it is like going to a MoneyGram agency. It is the Money Transfer Operator (MTO) that actually transfers the money.
The Post Office shares a communication and money sending system with the postal services of all the countries of the world. This is similar to the system used by the banks (see “Main Operators and Money Routes“ in the Costs of sending money section).
So you can send money from an Italian Post Office to a Post Office in any country in the world. The system is, however, more complex and slower than sending money through MoneyGram, so it is rarely used.
Here is some additional information to help you make the best and most secure choices for your needs.
What happens if something goes wrong?
What if the money does not reach its destination, or if only some of the money arrives, or it arrives late, or commissions not declared at the time of sending have been applied?
What can you do in cases like these?
The courses of action available to you are very different, depending on the channel you have chosen to use (see the distinction between formal and informal channels, in this section). If you have chosen to use an informal channel, you have no protection and no one can recover your money or enforce your agreement. The only thing you can do is report the person who has deceived or tricked you.
But if you have chosen a formal channel then there is a series of steps you can take to defend yourself:
1) The first step is always to keep the document (receipt, contract, etc.) hat was given to you at the time of sending the money. If anything goes wrong, you should bring this to the operator who made the transfer and ask for an explanation. In the majority of cases the operator can resolve the problem.
But in some cases the operator cannot resolve, or refuses to resolve, the problem.
It is important to know that each time you send a remittance through formal channels you are in effect signing sign a contract that specifies obligations and rights for both parties. So there are some steps that you can take:
2) Ask the operator for the contract pertaining to the transfer of money and read it carefully. This can help you understand whether or not the operator is behaving fairly, whether he gave you the correct information at the time of sending, or if the error is your own.
3) Make a written complaint to the operator, in the form of a letter describing the error or problem that has occurred.
4) Go to a consumer protection association. These associations can help you read the contract and to understand your rights. They can advise you on the proper steps to take (you can find a list of the main consumer associations on this website www.italia.ms/consumatori.html).
5) As of 30 September 2009, it is also possible to get help from a special “arbiter“ or “mediator“. This body has been created to resolve conflicts between customers and financial intermediaries.
The name of this body is Arbitro Bancario Finanziario (Banking-Financial Arbiter), and it answers directly to the Bank of Italy. It is made up of 5 persons (3 appointed by the Bank of Italy, 1 by the financial intermediaries and 1 by the consumer associations).
Its services are available to anyone who has a dispute with a financial intermediary (so not only the banks) in relation to any banking service or product (as long as it is not an investment product).
The Arbiter has three offices: one in Milan for Northern Italy, one in Rome for Central Italy and Sardinia, and one in Naples for Southern Italy and Sicily.
To ask the Arbitro Bancario Finanziario to take action you first need to make a written complaint to the intermediary. Only if the intermediary does not respond to or does not resolve your complaint can you then apply, in writing, for the intervention of the Arbitro.
You must apply to the Arbitro within one year of the date on which you first made the complaint, which has to be attached to your application. (Forms to fill out or copy, and instructions on exactly how to submit the application, are available on this site).
The Arbitro must respond within 60 days and resolve the complaint, indicating what needs to be done. The intervention of the Arbitro is free, the only cost being a fee of 20 euros when you send in the application.
6) It is, in any case, always possible to register a complaint with the Bank of Italy through the contact available on the site or by going to one of the Bank of Italy branches in Italy’s main cities (www.bancaditalia.it).
What to know before sending a remittance
Before choosing how to send a remittance it is important to get as much information as possible about the operator, instrument and conditions (costs, timeframes, number of outlets in your home country, etc.).
It is always a good idea to compare options each time you decide to send money (there are new operators or instruments appearing all the time. Costs can go down, and the laws can change).
So it is always a good idea to ask to see a contract or information sheet listing all conditions, the operator’s responsibilities and the customer’s rights in order to avoid any unwelcome surprises.
You must have an identity document to send money through formal channels. Remember that trusting a stranger with your money or agreeing to send money for another person can lead to serious problems (see “Anti-Money Laundering Law“ in the Saving money explained Section).
Finally, it’s important to keep in mind that there are lots of options that you can use in combination to reduce costs. These options can also help you ensure that the money you send creates value for you, your family and your home country itself. (You can find information on this site to help you understand the various options better, in the Saving money explained section and Remittances section