What is the best way to send money online?

August 19th, 2009

It’s 2009 and sending a check via snail mail is equivalent to going to the record store and buying a vinyl album. Sure it works and you get the same results but in the age of instant gratification this is now looked upon as wasted time. People want to send and receive money instantly and now there are many choices on the net. Among all the options the two most important factors are convenience and cost. In this blog post I’m going to attempt to rank my favorite ways of sending and receiving cash by these factors.

PayPal: Convenience 5 out 5 Stars, Cost 3 out 5 Stars

Let’s start out with the most popular of all methods, PayPal. Whether you love it or hate it, there is one thing about PayPal that makes it so attractive – millions of people already have PayPal accounts. As you will see with other services, recipients have to setup an account in order to receive cash or payment. While this isn’t a huge hurdle, it does add an extra step to the process, and for smaller transactions this might make setting up another account not worthwhile.

Next let’s consider the fees. There are no fees charged for sending cash if you have money deposited in your PayPal account and the recipient has not received over $500 in that month. If the money comes from a bank account or debit/credit card then there is a fee charged to the recipient. If you are sending money as the result of a purchase, there are always fees charged to the recipient. PayPal fees are based on the percentage of the amount sent and an additional flat transaction fee. So for a typical transaction the recipient will pay a fee of 2.9% + a .30 cent per transaction charge.

Amazon WebPay: Convenience 4 out 5 Stars, Cost 3 out 5 Stars

PayPal has had great success because of their convenience and popularity, but their are some pretty big players who are offering competing services. Amazon is one of those new competitors and they might be one of the companies able to rival the number of existing members. Their service is called WebPay and if you have an Amazon account you are half way there. Once you login you still have to configure some preferences and setup a credit card or bank account. Once you are setup you can not only send and receive money via email but you can even send money through your mobile phone.

Amazon is still giving new customers the ability to send money with no fee until September 30th. After that trial period expires Amazon fees will be equal to those of PayPal. For transactions greater than or equal to $10, there is 2.9% + a .30 cent fee per transaction. If you anticipate receiving more than $3000 per month, you get a reduced fee of 2.5% + .30 cents per transaction. Amazon does give you what amounts to a small discount on transactions less than $10 with a fee of 5% + .05 cents per transaction. The other thing worth mentioning is that unlike PayPal, Amazon still charges fees to the recipient if money was sent via stored funds (WebPay is still in it’s early stages, so this may change). So there is really no way to avoid paying a fee with Amazon once the trial period is over.

Obopay: Convenience 3 out 5 out Stars, Cost 5 out 5 out Stars

Obopay is interesting new start-up. With Obopay you can transfer money through the website or mobile phone. If both people are signed up with Obopay, sending money is simple. If your recipient is not an Obopay member, they can still receive it, but they will not be able to claim the money until they register for an account.

Obopay really shines when you look at their fees. If you are sending money from a bank account there is only 25 cent transfer fee. If you are sending money from a debit or credit card the fee is only 1.5%. This is the lowest cost method we’ve found.

MoneyGram: Convenience 3 out 5 out Stars, Cost 1 out 5 out Stars

We’ve mentioned some of the new high tech players in the game, but let’s talk about good old MoneyGram. They started much like Western Union but they offer money transfers that are completely processed online. That being said, MoneyGram transfers are not instantaneous. It often takes at least 3 business days to process a transfer. They do offer same day service but it is expensive. MoneyGram’s real advantage is their worldwide reach. You can send money virtually anywhere around the globe.

And to get that worldwide reach, you have to pay for it. Sending $500 in the US costs around $15 for economy service and $39 for same day service, which is charged to the sender, not the recipient. The fees are clearly very high and probably best for international transactions.

Xoom: Convenience 3 out 5 out Stars, Cost 4 out 5 out Stars

Xoom is somewhat like a cross between PayPal and MoneyGram. It has some of the convenience of PayPal and a lot of the international money transfer capabilities of MoneyGram. Like the others you must setup an account with Xoom in order to send and receive money. For many countries the transfers are instantaneous, for others the wait time is similar to MoneyGram (this really depends on how the recipient wants to receive their money).

The fees for Xoom are very low in comparison MoneyGram. For example sending $500 internationally (to France) was cheaper than sending it state to state here in the good old USA with MoneyGram. The service fees for US to France were only $5 when drawn from a bank account. Again, I think Xoom is a great service but probably most suitable for international transactions.

So what should you use?

Well, it depends on how much you are sending and how effortless you want the transaction to be. If you are sending a small amount of money, I think the Paypal fees are reasonable and you can’t beat the convenience. If you are sending larger amounts, I would recommend funding the Paypal account to avoid fees. I like Amazon fee structure now (free!), but once they start charging fees like the other services in November, I don’t see much advantage of using them. Obopay is promising but it can still be a hassle for the recipient who doesn’t have an account and has to register to access their money. If you are doing recurring transactions with the same people, Obopay is an affordable and convenient way to go.

If you are sending money internationally, I would try Xoom first. The rates are lower and transfers are faster. I would not recommend Moneygram unless you are sending to a country not covered by Xoom.

And finally, let’s not forget the cheapest way to send money… open up your checkbook and mail a check. Not so high on the convenience factor but it sure is cheap if your recipient can wait.

How do you send money? Did I miss anything? Would love to hear your feedback.

Entry Filed under: Shopping