How does remittance work? How does it differ from direct money transfer?
"The Option 2 in your answer is how most of the money is moved cross border. It is called International Transfer, most of it carried out using the SWIFT network. This is expensive, at a minimum it costs in the range of USD 30 to USD 50. This becomes a expensive mechanism to transfer small sums of money that individuals are typically looking at.   Over a period of years, the low value payments by individuals between certain pair of countries is quite high, example US-India, US-China, Middle-East-India, US-Mexico etc ... With the intention to reduce cost, Banks have built a different work-flow, this is the Option 1. This essentially works on getting money from multiple individuals in EUR. The aggregated sum is converted into INR, then transferred to partner Bank in India via Single SWIFT. Alongside the partner bank is also sent a file of instructions having the credit account. The Partner Bank in India will use the local clearing network [these days NEFT] to credit the funds to the Indian account.   Option 3: Other methods include you writing a check in EUR and sending it over to a friend/relative in India to deposit this into Indian Account. Typically very nominal costs. Typically one month of timelines. Option 4: Another method would be to visit an Indian Bank and ask them to issue a ""Rupee Draft/Bankers Check"" payable in India. The charges for this would be higher than Option 3, less than Option 1. Mail this to friend/relative in India to deposit this into Indian Account. Typically couple of days timelines for transfer to happen." If you are a citizen of India and working in Germany, then you are most likely an NRI (NonResident Indian). If so, you are not entitled to hold an ordinary Indian bank account, and all such existing accounts must be converted to NRO (NonResident Ordinary) accounts. If your Indian bank knows about NRO accounts, then  it will be eager to assist you in the process of converting your existing accounts to NRO accounts most likely it also offers a money remittance scheme (names like Remit2India or Money2India) which will take Euros from your EU bank account and deposit INR into your NRO account.  Or, you can create an NRE (NonResident External) account to receive remittances from outside India.  The difference is that interest earned in an NRO account is taxable income to you in India (and subject to TDS, tax deduction at source) while interest earned in an NRE account is not taxable in India.  The remittance process takes a while to set up, but once in place, most remittances take 5 to 6 business days to complete.
Why do these fees exist? From a Banks point of view, they are operating in Currency A; Currency B is a commodity [similar to Oil, Grains, Goods, etc]. So they will only buy if they can sell it at a margin.  Currency Conversion have inherent risks, on small amount, the Bank generally does not hedge these risks as it is expensive; but balances the position end of day or if the exposure becomes large. The rate they may get then may be different and the margin covers it. Hence on highly traded currency pairs; the spread is less.  Are there back-end processes and requirements that require financial institutions to pass off the loss to consumers as a fee? The processes are to ensure bank does not make loss. is it just to make money on the convenience of international transactions? Banks do make money on such transactions; however they also take some risks. The Forex market is not single market, but is a collective hybrid market place. There are costs a bank incurs to carry and square off positions and some of it is reflected in fees.  If you see some of the remittance corridors, banks have optimized a remittance service; say USD to INR, there is a huge flow often in small amounts. The remittance service aggregates such amounts to make it a large amount to get a better deal for themselves and passes on the benefits to individuals. Such volume of scale is not available for other pairs / corridors. Best consult a CA as you may anyway need his/her service. I am NRI, availed secured loan (Against house property) in India and now I want to get that money transferred to Finland. Loans by NRI taken in India cannot be transferred outside of India. Refer FOREIGN EXCHANGE MANAGEMENT (BORROWING AND LENDING IN RUPEES) REGULATIONS Loans in Rupees to non-residents 1[***].     7. Subject to the directions issued by the Reserve Bank from time to time in this regard, an authorised dealer in India may grant loan to a     non-resident Indian, (B) against the security of immovable property (other than   agricultural or plantation property or farm house), held by him in   accordance with the Foreign Exchange Management (Acquisition and   Transfer of Immovable Property in India) Regulations, 2000 :   ......   Provided that-   (d) the loan amount shall not be remitted outside India; Alternative: Sell the property in India, transfer the proceeds to NRO account. Repatriate the funds outside India as per Liberalized Remittance Scheme. Form 15CA/CB with CA certificate will be required. They seem to agree in part with the opinion author on the suggested fix.   David Leonhardt(NYT Opinion Author) wrote:   &gt; Different policies could produce a different outcome. My list would start with a tax code that does less to favor the affluent, a better-functioning education system, more bargaining power for workers and less tolerance for corporate consolidation  Whereas they wrote:  &gt;Third, despite the rise in means-tested benefits—including Medicaid and the Earned Income Tax Credit, created in 1975 and expanded in 1986 and the early 1990s—government redistribution has not enhanced income growth for low- and moderate income working-age Americans over the last three decades. There are clear limits to what taxes and transfers can achieve in the face of such massive changes in the pre-tax distribution of income like those that have occurred since 1980. In our view, the main conclusion is that the policy discussion should focus on how to equalize the distribution of primary assets, including human capital, financial capital, and bargaining power, rather than merely ex-post redistribution "When I left the UK four years ago, free banking is still an option and I'm pretty sure it still is.  Therefore, you have chosen to have a bank account with a 5.00/month charge.   In return for this charge, you will be eligible to receive certain benefits.  For example; reduced borrowing costs, discounted mortgage rates, free overdraft on small amounts, ""rewards"" for paying household bills by direct debit, and things of this sort.   Amongst these benefits may be preferential savings rates.  However, from HMRC's point of view it will be the extra perks you are paying for with your monthly charge.  You have chosen to pay for the account and HMRC is not interested in how you choose to spend your money, only in the money you earn. While I agree with you that it does have an element of unfairness, the problem is how would you divide the cost amongst the various benefits." Basically the idea is you put the exact amount of cash into each envelope and set those aside for a specific purpose. Then when you go to accomplish that specific purpose such as grocery shopping or whatever, you take the corresponding envelope and use only the money that is inside. It is sort of a way to train yourself to follow budgets very strictly. Many people stand by this method and it really is as simple as the website you linked to. As far as tracking, this method really doesn't track anything aside from what you note down about where the money is going. Others have moved on to using ING sub accounts to do the same thing but in a digital form. Most of the people need to remit the money to their precious persons like family, friends and also others. Now a days this type of transmission is simple by Etawakal online money transfer than other remittance services. Etawakal is reliable, safe and secure. http://tawakalexpress.net/Etawakal.aspx Western Union, Money to India, Remit to India are some of the services that specilize in remittance and would be cheaper than an International Wire.   There is not tax for transfering your own money earner outside India into India.  Edit: The business of Remittance is bought into the Service Tax Net by Govt. It is seen that Banks are offering this as a service and hence the tax to Banks which is passed on to customers. 0.12% of tax on the converted amount. IE if you transfer Rs 1,00,000/- you would need to pay a tax of Rs 120/-. Above Rs 1,00,000 the incremental rate is 0.06% "No, but it's serving the same purpose, which is to hide the original origin of a sum of money. Both examples involve moving money from one source to another, when both the source and the sink are in actuality the same entity managed and run by the same people. Both involve doing it in order to hide the money from those who would otherwise have a right to a portion of it. In this case, it is those with a right on the ""net"". In Starbucks UK, it's the UK government."