Understanding remittance rates and why exchange rates differ by provider

When you send money abroad, the difference between providers can mean your family receives enough for a week's groceries, or falls short. Understanding why exchange rates differ by provider is crucial for making sure your support stretches as far as possible.

Money transfer companies aren't created equal, and neither are their exchange rates. The rate you're offered directly impacts how much of your money actually reaches your loved ones overseas.

Exchange rates and why they matter

Exchange rate differences exist because each money transfer provider sets their own price for converting your currency. When you send money to family in Kenya or the Philippines, the exchange rate determines exactly how much they receive.

Think of it like shopping for groceries. Different stores charge different prices for the same items. Money transfer providers work the same way with currency conversion.

Common reasons rates vary

1. Provider margins

Every company adds a markup to the mid-market rate, which is the real exchange rate between two currencies. This markup is how they stay in business and keep the lights on.

Banks typically charge higher markups because currency exchange isn't their main focus. They're busy with mortgages and business loans. Specialized remittance apps often offer better rates because sending money abroad is their main focus.

2. Operational costs

Running a money transfer business costs money. Companies need licenses, compliance teams and customer support staff. Those with higher expenses often pass costs on to customers through wider exchange rate margins.

• Physical locations: Maintaining storefronts and staff increases overhead

• Regulatory compliance: Meeting different country requirements costs money

• Technology infrastructure: Building secure apps and systems requires investment

3. Market volatility

Currency values change constantly based on economic news and global events. Some money transfer providers update their rates every few minutes, while others refresh them once or twice daily.

This timing difference means you might see different remittance rates even when checking at the same time. It's like checking gas prices at different stations during a busy day.

4. Risk management

Companies handle currency risk differently. Some lock in rates with banks to protect against sudden changes. Others pass market fluctuations directly to customers, which can mean better or worse rates depending on timing.

Smaller providers sometimes charge higher margins as insurance against currency swings that could hurt their profits.

Strategies for comparing providers

1. Check the base rate

Look up the current mid-market rate before comparing money transfer providers. This gives you a baseline to see how much markup each company adds.

The closer a provider's rate is to the mid-market rate, the more money reaches your loved ones. Even small differences add up when you're sending money regularly.

2. Review any transfer fees

Some providers charge flat fees or percentages on top of their exchange rate margins. Others advertise low or no transfer fees in select countries but still earn money through currency conversion.

• Flat fees: Fixed amount regardless of transfer size

• Percentage fees: Cost increases with larger transfers

• Exchange rate margins: Built into the conversion rate itself

Always consider both fees and exchange rate margins to better understand the overall cost.

3. Factor in speed

Faster delivery often comes with less favorable rates or higher fees. If your family needs money within hours, you might pay more than if you can wait a day or two.

Consider whether speed is worth the extra cost for your specific situation. Emergency medical bills require speed. Monthly support payments can usually wait.

4. Consider promotions or loyalty programs

Many providers offer first-time user bonuses or seasonal promotions that can offset higher rates. Some have programs that improve your rates after multiple transfers.

Check if these benefits apply to your specific corridor. A great promotion for sending to Mexico might not help if you're supporting family in Ghana.

Real-world scenario

Let's say you're sending $500 from the US to Nigeria. If the mid-market rate is 1,500 naira per dollar, your recipient should theoretically get 750,000 naira.

Provider A offers 1,480 naira per dollar with low transfer fees, giving your family 740,000 naira. Provider B offers 1,520 naira per dollar but charges a $15 fee, resulting in 737,200 naira after the fee.

Even small exchange rate differences significantly impact how much money reaches your family. A 20-naira difference per dollar means 10,000 less naira on a $500 transfer.

Final thoughts on exchange rates

Exchange rate differences between money transfer providers come down to business models, costs and profit margins. Smart comparison shopping means looking at the total amount your recipient receives, not just advertised rates or fees alone.

Focus on what matters most: how much money actually reaches the people you care about. This approach helps your support make a bigger impact.

When you're ready to send money with confidence, Sendwave offers competitive exchange rates with low or no transfer fees depending on where you're sending. We're here to help more of your money reach the people who matter most.

Download the app to start sending money to your loved ones.