Remittance in Banking Explained: Meaning, Types, and Importance
21 April, 2025
Synopsis:
Remittance in banking refers to the transfer of funds from one party to another, often across geographical boundaries.
The two types of remittances are outward remittance and inward remittance.
Several banks, NBFCs, and money transfer operators provide international remittance services.
Businesses and individuals may need to send money across international borders for multiple reasons. These might include paying for a product or service, sending financial support to loved ones living abroad, or investing in a foreign country.
Banking remittances play a crucial role in facilitating these global financial transactions. They allow businesses and individuals to transfer money from one country to another through a simple online process.
Understanding the remittance meaning and how it functions in banking is vital for anyone involved in cross-border financial transactions.
What is remittance in banking?
Remittance in banking refers to the transfer of funds from one party to another, often across geographical boundaries. The term is widely used in international finance, where businesses and individuals send money to their trade partners or family members living overseas. Banks facilitate these transactions through various payment methods, including electronic transfer, wire transfer, mail, draft, etc.
Bank remittance meaning extends beyond personal transactions. It also includes foreign transfers by governments and large corporations.
Understanding remittance amount
Remittance amount meaning the total sum of money sent from a sender to a recipient through bank remittance. The amount transferred can be subject to various charges, including transaction fees and foreign exchange (Forex) rate adjustments. The sender usually transfers the remittance amount in their home currency, but the recipient receives it in the respective foreign currency.
For example, suppose you are sending a specific amount to your relative in the United States of America (USA). In such a case, you will remit the amount in Indian National Rupees (INR), but your relative will receive it in US Dollars.
Types of remittance in banking
Following are the two types of remittance in banking:
Outward remittance
Outward remittance involves sending money to a foreign country. For example, if you are sending money to support your children studying abroad, it will count as an outward remittance for you.
Outward remittances in India are subject to regulations and limits set under the Foreign Exchange Management Act (FEMA) of 1999.
Inward remittance
Inward remittance refers to the money received from a foreign country. For example, when an expatriate worker sends money to their family in their home country, it is considered an inward remittance for them.
Additionally, remittances can be categorised into cash and electronic. Cash remittance meaning physical cash transfers, whereas electronic remittance includes bank transfers, wire transfers, and digital payments.
How does remittance work in banking?
The remittance transfer process involves the following steps:
Initiation: The sender approaches a bank or remittance service provider to initiate the transaction.
Verification: Banks verify the sender’s identity and ensure compliance with the FEMA regulations.
Processing: The bank processes the payment using secure financial networks such as SWIFT or digital payment gateways.
Conversion and transfer: If it’s an international transfer, the currency is converted before the amount is sent to the recipient’s bank account.
Recipient access: The recipient receives the funds in their bank account or can withdraw cash from a designated remittance centre.
International remittance services
Several banks, non-banking financial institutions (NBFCs), and other money transfer operators provide international remittance services to facilitate cross-border financial transactions. In return, they may levy nominal charges, including brokerage and forex charges. The exact fee may vary from one service provider to another.
Businesses, individuals, governments, and foreign workers can avail of international remittance services to send money to their trade partners, families, or merchants. These services are crucial for developing countries, where remittances are often a significant income source.
Benefits of using bank remittance services
The following are the primary benefits of using bank remittance services:
Security: Banks use advanced encryption and security protocols to prevent fraud.
Convenience: Online banking and mobile apps enable seamless fund transfers.
Speed: Many banks offer instant or same-day transfers for remittances.
Global: Specialised banks allow you to transfer money anywhere globally in multiple currencies.
Transparency: Banks provide clear fee structures and exchange rate disclosures to help you understand the associated costs in advance.
Regulated services: Banks comply with domestic and international money transfer regulations, ensuring the legality of transactions.
How to get remittance services for a global trade business?
If you are engaged in international trade, accessing reliable remittance services is crucial. Here’s how you can do so:
Choose a reputed service provider: Select a bank or financial institution with strong global remittance capabilities.
Understand exchange rates and transaction fees: Compare rates across multiple providers to get the best Forex rates and transaction charges.
Use digital payment solutions: Leverage fintech platforms of remittance service providers for faster and more cost-effective transactions.
Ensure compliance: Adhere to regulatory requirements, such as KYC (Know Your Customer) and FEMA regulations.
Conclusion
Remittance is a vital component of the global financial ecosystem, facilitating personal and business transactions worldwide. Understanding the remittance meaning, its types, and how it works can help you make informed financial decisions. HDFC Bank offers reliable Remittance Services, allowing you to send and receive money in 22 currencies worldwide at competitive rates. Additionally, with the Full Value Remittance facility, you can transfer funds electronically without any deductions or charges. It’s one of the best ways to save extra and avoid intermediary bank fees.
Disclaimer: *Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.
