How Does a Wire Transfer Work?
The History of the Wire Transfer
Wire transfers are simply a way for people to exchange money when they are located apart from one another. For example, if your college student runs out of money in Cleveland while you are in Orlando, you can use a wire transfer to get him or her the necessary funds quickly. Today's wire transfers are often handled by telegraph companies, such as Western Union, because it was these companies that popularized the idea decades ago. However, the idea of having a method for exchanging currency between people is much older and dates all the way back to the idea of the "giro." The giro was a centralized banking system in which funds could be withdrawn or deposited through the post office. The idea actually pre-dates the development of banks.
The Wire Transfer Process
Two parties are always involved in a wire transfer: the sender and the receiver. First, the sender must go to a bank or wire transfer facility (many are conveniently located in grocery stores or other retail establishments) and request the sending of the money. The Bank Identifier Code (BIC) or the International Bank Account Number (IBAN) must be presented by the sender so the sending bank will know where the money is going to go. In some cases, the wire transfer facility may already have this information accessible. Once the sending facility has the information it needs, it can send a message to the receiving financial institution using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) or a similar communications system that allows them to release the specified funds to the person receiving the money. The actual transfer of the funds does not happen instantly. In fact, it can take quite a long time--up to several days. However, the receiver is free to pick up the funds on his or her end of the transaction any time after the message has been received.
The Security of Wire Transfers
Wire transfers can be a very secure method of exchanging funds when the transfers are sent from one bank to another. In this case, both the sender and the receiver are required to have an account at the same respective facility. That adds a greater element of protection, particularly for the sender. Today, however, some wire transfers are conducted through Western Union, which can be convenient, but also poses some risks because the transactions can be conducted anonymously. One of the most common scams is to send an individual a bad check and request that a portion of the check be sent by wire transfer to them in a foreign country. By the time the transfer has been sent and the funds have been picked up on the other end, the check comes back bad.
