Global payments
Posted on May 8, 2025
Cross-border remittances have become an important part of the global financial system. From people wiring money to family members in other countries to businesses paying for services in foreign countries, international money transfers are an important consideration for many people. One of the ignored aspects of cross-border remittances is the "SHA" payment instruction in banking.
This article delves into what SHA means, how it operates in cross-border remittances, and its implications for both senders and recipients.
What is SHA in Banking?
In the realm of international wire transfers, especially those facilitated through the SWIFT network, payment instructions determine how transaction fees are allocated between the sender and the recipient. The three primary types of payment instructions are:
OUR: The sender bears all transaction fees.
BEN: The beneficiary bears all transaction fees.
SHA: The transaction fees are shared between the sender and the beneficiary.
Under the SHA (Shared) instruction, the sender pays the fees charged by their bank, while the beneficiary is responsible for the fees imposed by the intermediary and receiving banks. This approach ensures that both parties share the cost burden of the transaction.
How Does SHA Work in Cross-Border Remittances?
When processing a cross-border remittance with a SHA instruction:
Sender's Responsibility: The sender is responsible for charges by their bank (processing fees) in the processing of the transfer.
Intermediary Banks: As the funds are transferred at the international level, intermediary banks can deduct fees from the transfer.
Recipient's Responsibility: The beneficiary receives the amount after deductions made by the intermediary and receiving banks.
This means that while the sender ensures the full amount is sent, the recipient might receive a lesser amount due to the deductions made en route.
Advantages of Using SHA
Cost Sharing: SHA enables both sides to share the costs of a transaction, which is fair, especially in business transactions where both parties are involved and benefit.
Predictability for Sender: The sender knows the exact fees they are paying upfront, which aids in financial planning.
Standard Practice: SHA is frequently used in cross-border transactions and is an acceptable practice for a majority of the world’s banks.
Potential Drawbacks of SHA
Unpredictable Recipient Amount: The beneficiary might not know the exact amount they'll receive due to varying fees deducted by intermediary banks.
Complex Fee Structures: Total deductions are hard to predict since there are different fees in different banks.
Communication Challenges: In the absence of clear communication, the receiver may not know about the reductions, which could cause misunderstanding or arguments.
When to Use SHA?
SHA is applicable in scenarios where:
Both parties agree to share transaction costs.
The sender wants to ensure they pay only their bank's fees.
The transaction doesn't require the beneficiary to receive the full amount.
It's commonly used in business transactions, where both entities have established agreements regarding fee-sharing.
Best Practices for Using SHA
Clear Communication: Both parties should understand the fee-sharing arrangement to prevent conflicts.
Estimate Fees: Although you may not always know the exact amount, this could help in planning.
Consider Alternatives: If the beneficiary needs to receive the full amount value, consider the OUR instruction.
Comparing SHA with OUR and BEN
Instructions | Sender Pays | Beneficiary Pays | Common Use Case |
|---|---|---|---|
OUR (Remitter Pays) | All Fees | None | Tuition payment and supplier payment are examples where the full amount must be received. |
BEN(Beneficiary Pays) | None | All Fees | Situations where the beneficiary agrees to bear all points. |
SHA (Shared Charges) | Sender's Bank Fees | Intermediary and Beneficiary Bank Fees | General business transactions, shared cost agreement. |
Conclusion
Understanding the SHA instruction in banking is essential for anyone involved in cross-border remittances. By sharing transaction fees, SHA offers a balanced approach, especially in business contexts. However, it's crucial to communicate clearly and plan accordingly to ensure smooth transactions. As the global financial landscape evolves, staying informed about such nuances will empower individuals and businesses to make informed decisions in their international financial dealings.
