Money transfer companies are quite possibly the closest thing to a perfect solution for people who send money abroad. The development of fintech companies over the past 5 years has been unprecedented.
Money transfer companies are essentially companies designed solely for the purpose of transparency. This is their core goal. With the explosion of online reviews over the past decade, this has been a key way to prove yourself, and reap massive rewards from being a top rated company.
Money transfer companies fulfill the necessity of currency transfers between two entities. This used to be restricted more to corporations, but now it is becoming entirely geared towards people: expats, holiday makers, business owners, nomads, Amazon overseas sellers etc. They are often digitally focused, of course, making them extremely accessible via mobile apps. This has been a key feature of fintech companies: to avoid the time-consuming queues of visiting a local branch like with banks, and to have your services remotely accessible.
Getting a good rate – the right rate
There is no decent rate or good rate. There is either the right rate, or the wrong rate.
What many people forget is that a currency is a homogeneous product. My US dollar is the same as your US dollar. This might sound obvious, but what we forget is that there is only one exchange rate. It may change over time, sure, but at a given time, the US dollar, or the Euro, costs one specific price. Any other price is utterly fabricated.
This trips many people up when it comes to transferring money overseas. People are aware of different rates (i.e. when going on holiday), but less so when it comes to banks. Banks are still the most common method of transferring money, yet their currency rates are not very transparent. They have to be hunted down, and even then it is not quick to find. At the point of transferring money through a bank, we might look for some fees, but forget that the price we get is far away from the real currency price.
Banks can be known to really exploit people’s trust in their safety. In fact, 10% of Santander’s global profits come from international cash transfers. Even if you do come across their specific exchange prices, they would seldom compare these prices to the real market prices – showing customers the differences. Often, this difference will be around 2%-5%. This means that if you send $100,000 to a different currency, perhaps you’re investing in a property abroad, you will straight away lose up to $5,000. This has already eaten into your profits, or even worse, made the investment not viable anymore.
Now obviously money transfer companies still need to make money, so they can afford to offer us their services. But they can do this by still offering the true market rate (or a very recent price). How they can make money is by saying, very clearly, 0.5% transaction fee, or perhaps $7.99 per month for our service. This is the strategy of companies like TransferWise and Revolut. The reason why this is preferable is because it is more transparent. If you make all of your revenue from a currency margin (offering a terrible rate), it is much harder for people to tell. It’s not like they would compare this price to the market price for you, so suddenly the service is no longer accessible, as it requires additional research outside of their app to use it to ensure you’re not getting exploited.
There are some companies that are offering false promises, too, which need to be avoided. They make claims such as “0% commission” or “no fees” but further down the line you this to be not true. Finding the best money transfer rates and double checking to see if these claims are true or false through online reviews is perhaps the best method of sifting through what is fact and what is fiction.
Preferably, people want to find just one company that they can rely on, rather than always be flicking between several, which can be time-consuming. This means that you need transparent companies that display their rates on a one-fits-all manner. Companies like Remitly, TransferWise and Azimo are good example companies of this.
Other things to consider
What is important to remember is that, whilst you should expect the real (or very close to) rate, it may be dependent on the currency corridor. For example the USD EUR currency pair is extremely active and gets traded in very high volumes. This kind of currency exchange can be expected to be very good. Less common corridors, with more exotic currencies, are going to have worse rates. It is harder for the companies to quickly trade them and do not hold large amounts of them.
It is also important to remember not to compare the exchange rates of different types of transfer methods. For example, don’t throw away a company because their ATM withdrawal transactions are more costly than bank transfers of another. This isn’t a fair comparison, because ATM withdrawals will almost always be more costly.
Lastly, money isn’t everything! Okay, it is the main part of this, but don’t neglect other factors, like how you are treated by customer service, ease-of-use, how many currencies they deal with, the ethics of the company. It may be worth giving up a slightly better price for really good 24/7 customer service. When you’re stranded somewhere and you cannot access your account for some reason, you would much prefer to have the utmost helpful customer service and pay an extra couple of dollars in transaction fees.