For a long time, foreign exchange for the average person was a nightmare. You either phoned up an FX broker that you had never heard of, went to a physical currency shop and dealt in cash, or you sucked it up and used your bank. There were inherent issues with all of these methods, poor rates, and awkward services.
Money Transfer Companies changed everything, and Transferwise was spearheading the movement. Founded only in 2010, London, TransferWise underwent an aggressive marketing campaign, in which along the way it had quickly garnered both attention and funding. In the last few years, with the honing of a great app and offering competitive rates, TransferWise quickly became a huge presence in the FX market.
How TransferWise operates
TransferWise can offer competitive exchange rates because it operates. With millions of users around the world and £4bn in exchanges each month, they have access to the same margins as banks. This is rolled over to clients in the form of a discounted margin.
The real benefit of TransferWise is that it’s such a seamless and accessible experience, so it hardly seems like you’re using an FX broker or even actioning trades. Visually, it’s laid out as a multi-currency e-wallet, where you can send and receive payments just like a bank. In fact, you even have “virtual” bank account details, so it’s easy to receive business payments.
The cost of using TransferWise
Your experience with TransferWise remains the same wherever you are based, other than costs. It’s a little easier in the UK or US for example, which has a ultra-competitive and transparent exchange fee for major currencies. So, converting your GBP to EUR will incur a 0.35% fee along with a small charge. So, £1000 to Euros currently incurs £3.95 in fees (0.395% if you collate the fee with the margin). This is all very clear before you click the convert button, and most major currencies are similar fees.
The exchange rate itself will be the mid-market rate, so you needn’t worry about that. It’s a huge weight off your mind, knowing that you don’t need to perform research and comparisons for every trade. For something a little more exotic though, like Tanzanian Shilling, you’ll pay a higher conversion fee (£18.28 for a £1,000 conversion), which is actually still competitive.
TransferWise is extremely functional because it offers not only a free debit card but a borderless one. This means you can go abroad and receive these rates straight out of the wall in cash when you’re there. As you can imagine, this makes TransferWise a popular choice among expats who receive their income in foreign currency.
How valuable is TransferWise compared to banks?
If we look at the high street banking alternative, you can really see how much time and money you can save with TransferWise. Most transfers are performed right away unlike banks’ 1-to-4 day timeframe. Regarding fees, you are looking at opaque and well-hidden costs that extort you for around 3% to 5% currency margin, as well as a flat fee often in the area of 20 GBP/EUR/USD.
To perform the transfer, as we all know, is a matter of filling in long details, security checks, and at best you can use an out-dated mobile app like Co-operative banks. It’s not just TransferWise, but most fintech money transfer companies have far newer and user-friendly infrastructure compared to high street banks.
You can now find fintech banks such as Starling and Monzo, or “challenger banks” as they’re labelled, which are an improvement upon high street banks in terms of functionality. These however rarely match the low fees and competitive exchange rates of places like TransferWise.
Banks do however offer more security, for the most part. Most high street banks have survived the 2008 crisis, and many others. They’re also so large that they’re a priority to bail out in the event of a default crisis, and they’re heavily regulated. Compare this to many fintechs which are essentially still startups… You would perhaps feel more comfortable dealing with banks if you’re depositing large amounts of money.
The Money Transfer Market
TransferWise isn’t necessarily the best, per se. There is no best. There’s only firms that are competitive and those that aren’t, and thankfully many differentiate based on suiting varying needs. There are companies that you can find with more powerful FX capability, and even cheaper exchanges than TransferWise, but they won’t be as easy or fast. Likewise, there are companies even more functional than TransferWise, but they may not offer the mid-market rate.
So, the cheapest FX company on the market for some situations is Revolut. Revolut offers no-fee, no-margin FX exchanges on weekdays and for major currencies. You can pay for a monthly subscription if you want to increase the low monthly transfer limits, or use other functionalities such as buying cryptocurrencies and equities. This is a fantastically useful e-wallet, with the option of having a physical card too.
Or, if you want a slightly older company with a more credible history, XE offers competitive rates and highly transparent quotes as explained in this long review.
Whereas, if you’re in need of exotic currencies, World First is a great FX company that has 121 supported currencies with offices dotted around the world. These are great for large transfers as that’s their focus – security and transparency. But, it couldn’t replace TransferWise for most people, because it has a minimum transfer of £/€ 1,000.
Additionally, the users that are looking to serve customers converting larger sums, a more bespoke service is usually available. For example, TransferWise doesn’t have a dedicated dealer, which could be an issue for someone who likes to call and build a relationship with the company, as well as receive some specific advice or guidance. In this sense, TransferWise is limited, a bit like PayPal (though, PayPal has fees as high as banks).
You also can’t perform hedging at TransferWise and Revolut. Companies like Currencies Direct however offer easy hedging for everyday people, so you can lock in those turbulent rates and increase certainty over your future finances.
Overall, TransferWise is a company that’s guaranteed to provide ultra-competitive rates that you can be certain won’t fluctuate. The app is easy, and so is sending money. If you’re after large transfers or hedging, another FX company would be worth exploring.