The service, called Yahoo PayDirect International, "revolutionizes current Internet person-to-person payment methods," said Dickson Chu, general manager of Yahoo PayDirect.
"Foreign born nationals living and working in the United States that need to send money home can make their money go even farther, with rates well below many other money transfer methods."
The new venture launched on Monday puts Yahoo head-to-head with money transfer firms like Western Union.
The new service will allow users to obtain cash through some 800,000 automatic teller machines (ATMs) around the world through the Cirrus network.
After a sender makes an initial remittance, most likely over the Web, a PayDirect card is sent to the recipient to allow withdrawal in local currency.
Instead of using the card recipients can also collect funds at any of the 60,000 MoneyGram international money transfer locations worldwide.
Money by email
The service is slightly different from eBay's payment business called PayPal, which can be used to send money overseas by email, but is primarily used to facilitate trades done on eBay's auction marketplace.
Yahoo said recipients worldwide will not need a PayDirect account, Internet access or even a local bank account to obtain their funds.
The Internet giant is looking for a slice of the global remittances market estimated to be $140 billion to $200 billion per year.
Yahoo's partners include HSBC Bank, MoneyGram, courier service DHL, electronic payments group eFunds and Verso Technologies, a telecom calling card service.