I have been talking to some nice people around the world who want to help me finance a project. But when I look into the practical issues, it becomes almost impossible to do because of bank fees. Why do banks, or online payment sites like PayPal, charge around 10% to let someone lend me some money for a project, when it is just numbers being moved on a screen? Sorry for being naive, but it is starting to bother me....
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7The 10% is often called a COT (Cost of Transaction) fee. If the bank is demanding that you pay the COT fee or supply a COT code proving that you have paid the COT fee, then you are being scammed. Any legitimate banker would deduct any transaction costs (usually far less than 10%) from the amount to be transferred, and deposit the rest into your account.– Dilip SarwateCommented Jun 5, 2022 at 15:00
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2What are the countries and currencies of origin and destination? How would the person sending the funds pay (from a bank account, using a credit card…)? What are the amounts involved? Do you already have a business set up and registered? In many cases 10% would be really excessive, but depending on the exact combination it may be normal.– jcaronCommented Jun 7, 2022 at 22:09
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Any Western country to any other Western country; Canada to Germany, USA to Sweden, etc. Amounts are a few hundred dollars each. It's a personal transaction (loans). Maybe it's a COT, not sure, but the bank clearly says there's gonna be a cost...– Henry StoneCommented Jun 23, 2022 at 13:42
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2 Answers
Banks and payment institutions are complex businesses, with lots of regulatory constraints and oversight.
They have to check their customers and the origin of funds per anti-money laundering and counter terrorism financing regulations (AML-CTF which imposed KYC, PEO checks, etc.). They have to detect and report suspicious transactions.
They have to operate secure systems involving lots of fraud detection and prevention (PCI-DSS, DSP2…).
They have to get licenses to operate, do a lot of reporting. They have to interconnect with financial systems (Swift, Visa, MasterCard, SEPA, local systems…), which have both a direct cost (subscription and transaction fees) and an indirect one (operating and maintaining all the systems and networks and gateways to connect to them).
They have to refund people when an unauthorised transaction was executed and they can’t recover the funds. They will have to process complaints and chargebacks.
Some will add additional protection for the buyer in case something goes wrong.
They have to provide currency exchange services, deal with international regulations.
All of this has a cost. Such costs have gone down significantly over the years thanks to the introduction of newer, more efficient systems, regulation (especially in the EU), and competition, but there are still cases where it can be a LOT more expensive.
A transaction from one bank account to another within the EU in Euros (a SEPA credit transfer) is extremely cheap (if it isn’t, find a competitor who is cheaper!). A payment involving multiple currencies, multiple countries not in a payments union, funded with a credit card, can be a lot more expensive.
The best advice is that you shop around. In many cases 10% would be outrageous. In others it may be normal.
If you ask a new question with specific examples of source and destination countries and currencies, and the origin of the funds (bank account, credit card, or even cash…) people may be able to give you advice on the best options (though that may be off-topic, so you probably need to frame the question appropriately).
Banks are businesses, and their reason of existence is to make money, like all businesses.
If you know a cheaper way to transfer money around the world, potentially exchanging the currency in the process, feel free to open a business and make money with it, or even offer it for free. But if you use the service they offer, you have to pay the prices they request.
As others commented, this could be a scam - if you are supposed to pay some transfer fee to get access to money. This is not how any serious bank works; it's always a scam. Never send any money.
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1Something something Bitcoin. If you are having to pay 10%, then avoiding that is one of the few legitimate uses of crypto-currency. Commented Jun 7, 2022 at 8:29
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1bankofamerica.com/foreign-exchange/wire-transfer charges less than $100 for an international wire transfer. Foreign exchange fees would likely add a few %, but 10% seems excessive, even if it is an all-inclusive fee. Commented Jun 7, 2022 at 20:57
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"less than $100" is still insane! I can't borrow money from friends to finance a project that way! Commented Jun 23, 2022 at 13:43
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About 40$ are normal. Alternatively about 1.5% for larger sums.– AganjuCommented Jun 23, 2022 at 14:00