US$1,000 from New Jersey to a supplier in São Paulo

What’s going on

1. The supplier invoices in dollars, the currency you agreed.
2. It gives you its legal name, its CNPJ, the Brazilian company number, and its account or Pix key.
3. For Brazil this is money coming in from abroad for a service it sold: an export.

Why it works this way

Brazilian businesses must receive foreign money through an institution licensed for foreign exchange, which needs to know who is being paid and why.

In everyday terms

Like paying a contractor abroad: you need their name and account, and they need the money in their own currency.

What’s going on

1. The mid-market rate is the midpoint between what banks pay and charge for dollars at that moment.
2. The service takes its fee first: US$11.07 of your US$1,000, about 1.1%.
3. It converts the rest, US$988.93, at the mid-market rate.
4. The supplier gets R$5,007.50. Paying by debit card or wire costs a bit more.

Why it works this way

Banks usually charge a fixed wire fee and add a margin to the exchange rate, which is harder to see. Transfer services compete by showing the rate and the fee separately.

In everyday terms

Like a price tag that shows the delivery charge, instead of building it into the price.

What’s going on

1. It verifies your identity and your business when you sign up.
2. It screens you and the supplier against US sanctions lists: no dollar threshold applies to that.
3. Transfers of US$3,000 or more carry extra record-keeping; this one is below it.
4. It can hold a payment and ask for an invoice if something looks unusual.

Why it works this way

Money transmitters are covered by the Bank Secrecy Act, like banks. Checking every payment is how the system tries to keep out money laundering and sanctioned parties.

In everyday terms

Like passport control, but for money.

What’s going on

1. You authorise Wise to debit your account.
2. Wise’s US partner bank sends the debit into the ACH network.
3. The ACH operator sorts it and passes it to your bank, which takes the money from your account.
4. The banks settle with each other through the Federal Reserve, in batches during the day.

Why it works this way

ACH is cheap because it is batched rather than instant. Wise often pays out before the ACH has finished, taking a small risk that the debit is reversed.

In everyday terms

Like a direct debit for a utility bill.

What’s going on

1. Wise keeps balances in many currencies, in local bank accounts in each country.
2. Your US$1,000 adds to its US dollar pool.
3. Its Brazilian real pool, already in Brazil, will pay the supplier.
4. Only the instruction to pay travels between the 2.

Why it works this way

Moving each small payment across a border through several banks is slow and costly. Netting thousands of payments in each direction means very little money has to cross at all.

In everyday terms

Like 2 shops in different countries that each pay the other’s customers locally, and settle up between themselves now and then.

What’s going on

1. The instruction reaches Wise Brasil in São Paulo.
2. It books a foreign exchange operation: dollars in, reais out.
3. It records who is paying, who is being paid and the purpose: payment for a service.
4. The operation is registered with the central bank.

Why it works this way

Brazil’s foreign exchange law of 2021, in force since the end of 2022, requires every exchange to go through an authorised institution. That is how the central bank tracks money entering and leaving the country.

In everyday terms

Like a bureau de change that must log every transaction with the regulator.

What’s going on

1. Every exchange operation is classified by purpose.
2. Most money coming into Brazil pays IOF at 0.38%.
3. Payments for exports of goods and services pay 0%.
4. Money leaving Brazil now pays much more: 3.5% for most transfers since 2025.

Why it works this way

IOF is a tax on financial operations, used both to raise money and to steer flows of capital in and out of the country.

In everyday terms

Like a customs duty, but on currency instead of goods.

What’s going on

1. Wise Brasil sends a Pix to the supplier’s Pix key or account.
2. The payment goes through the central bank’s instant payment system, which moves the money between the 2 banks straight away.
3. The supplier’s bank credits its account.
4. Both sides get a unique ID for the payment.

Why it works this way

Pix, launched in November 2020, made instant transfers free for individuals and cheap for businesses. It is used by about 175 million people and companies, so almost anyone in Brazil can be paid in seconds.

In everyday terms

Like a text message that carries money.

What’s going on

1. The supplier sees the money and the payer’s name.
2. It matches the payment to the invoice.
3. It records the income as an export, which affects which taxes it pays.
4. For you, the invoice is paid: US$1,000 left your account.

Why it works this way

The supplier is paid in its own currency, so it carries no exchange risk. You carried the cost of conversion, in the fee.

In everyday terms

Like being paid by a local customer, though the customer is in New Jersey.

What’s going on

1. Payments from the US to Brazil fill the US pool and drain the Brazilian one.
2. Payments from Brazil to the US do the opposite.
3. The difference is settled in large amounts, at wholesale rates.
4. Those bulk transfers go through banks, correspondent accounts and SWIFT.

Why it works this way

Moving 1 large amount is far cheaper per dollar than moving thousands of small ones. That saving is how a transfer service can charge about 1%.

In everyday terms

Like a shop that empties its till into the bank once a day, instead of after every sale.