Monday 25 June 2018

Currying favour for currency exchanges

Using specialist FX services for international money transfers is a no-brainer

Using specialist FX services for international money transfers is a no-brainer
Using specialist FX services for international money transfers is a no-brainer

John Cradden

The current weakness of the euro against sterling, the US dollar and many other currencies is proving a serious financial headache for many Irish expats or those with business, assets or family abroad. But you could save hundreds and possibly thousands on international currency transfers by simply bypassing the banks.

The range of situations where you might need to exchange and transfer large amounts of currency is broader than you might think.

It might be to buy a property or pay a mortgage overseas, move savings into another currency, send money abroad (or send it home if you are abroad), pay overseas education fees or medical expenses, repatriate your pension each month if you have retired to Spain or France, or import a particular kind of car or buy a large consumer item that you can't get in Ireland.

You could be talking about amounts ranging anywhere from hundreds of euro to hundreds of thousands, but to get the best exchange rates and the lowest fees, using online currency brokers or a peer-to-peer currency exchange service is likely to be much cheaper than a bank, not to mention more convenient.

Susan Devenney has been using CurrencyFair, an Irish peer-to-peer currency exchange service, for the past five years. Originally from Glasgow, she and her Irish husband lived in England for a number of years before making the move to Donegal over five years ago.

She has a daughter still living in England as well as a lot of extended family in Scotland, so she would often send money to them for things for occasions like birthdays and Christmas, among other reasons.

"I had used banks before - but I found it really costly moving money back and forwards," she said.

So how does she save using CurrencyFair?

"It obviously depends on the amount of money, but I would definitely say I save hundreds each year."

With the euro-sterling exchange now far worse five years ago, using alternatives FX providers is even more of a no-brainer, she said.

With any international money transfer involving a currency exchange, banks will usually charge a fee or commission as well as an exchange rate margin.

"Exchange rates margins charged by banks to individuals may, depending on the bank and the currency bought or sold, be as high as 4pc," says Barry Dowling, co-founder of TransferMate Global Payments, an online broker, which deals mainly with businesses but also caters for a small proportion of individuals.

"For individuals transferring money from overseas back to Ireland, TransferMate is a far cheaper and faster option than using the bank as we are regulated globally and can receive funds overseas on behalf of clients and generally transfer funds the same day."

Based on exchange rates from June 22, the firm claims that it can save customers in Ireland up to €400 on a payment of US$20,000 compared to Irish banks.

TransferMate uses its "peer-to-peer bank account clearing network" worldwide to eliminate international transfer fees, said Dowling. However, although he uses the term 'peer-to-peer', companies like TransferMate or Irish FX specialist Fexco aren't among the new breed of peer-to-peer currency exchanges that have popped up worldwide over the last few years that promise highly competitive prices for transferring money overseas.

These exchanges work by matching buyers and sellers of euros, US dollars, sterling and several other currencies. You don't send your money directly to the buyer (or seller), instead you send it to the currency exchange firm which then passes it on.

If there isn't anyone looking to buy euro in exchange for Polish zloty, for example, the firm will do the exchange itself using a bank or an international payment platform to make up the difference. There is generally no minimum amount and maximum amounts are generous.

CurrencyFair is understood to be the only peer-to-peer currency exchange based in the Republic of Ireland. It opened for business in 2010 in Dublin but has grown at an impressive rate. By early 2014 it had transferred a total of $1billion for customers, while this total had reached €2.2bn as of last week, according to its head of offline marketing, Adam Davidson.

He says that to date there have always been the "savvy few" who have used specialist FX services rather than the banks. "The majority have blindly been using their banks and maybe some of the ones who think they are savvy have migrated from their bank to a broker."

"Basically, in migrating from a bank to a broker you should go from losing 3pc to 5pc on the transfer to losing 1pc to 2pc on the transfer, but if you go the full hog and go with a peer-to-peer currency transfer service like ourselves then you are only going to be losing between 0.15pc and 0.4pc or 0.5pc tops."

Unlike other currency brokers or specialists, almost all of its business comes from individuals, with less than 10pc from firms.

The average amounts being transferred by users of the service are between €2,500 and €10,000, although a small number of wealthy individuals do use the service to transfer amounts in the many millions, said Davidson.

CurrencyFair's marketplace allows people to choose either to exchange immediately using the best rate currently available, or offer up your funds at a rate of their choosing, and wait for another customer to match them.

It charges a flat transfer fee of €3 (or the equivalent in other currencies) and a 0.15pc margin on the total amount exchanged when customers match each other. The margin rises to between 0.4 and 0.5pc if CurrencyFair is sponsoring the rate, which might at certain times be the cheapest rate available if a user needs to transfer money immediately.

It manages to achieve these low charges by having bank accounts in almost every country and using local domestic payment networks that are generally free or very cheap, rather than using an international network like SWIFT.

The transfer process works simply by making two domestic transfers simultaneously, said Davidson. "So you would pay into our Irish bank and we would pay you out of our UK bank or the other way around. So actually no money is crossing the water."

We asked CurrencyFair last Monday morning what it would cost to send €5,000, €10,000 and €50,000 to the UK and into sterling.

"If you were sending €5,000 into sterling then you would get £108 more with us at the other end than you would with a typical bank. With €10,000, you would get £200 more," said Davidson. For €15,000 and €50,000, you would get nearly £300 and £925 extra, respectively.

He said these comparisons assume that the average bank would charge a fee of €25 per transfer, but the majority of the difference is in the euro-sterling exchange rate - 0.7070 vs 0.6884 for the banks - rather than the €3 flat fee it charges. "That's where the big difference comes in."

TransferMate specifies a minimum transaction value of €1,000, while Ireland FX, a British firm with offices in Belfast, insists on a €5,000 minimum, arguing savings on amounts less than this are minimal.

Currency Fair has no minimum. "For less than €2,000 it still makes a lot of sense," said Davidson, although he adds that the more you transfer the more you save, needless to say.

It's easy to set up an account or register with online currency exchange services or brokers, but regulations to protect against money laundering means that users of such services will generally be required to show two forms of ID, such as a passport and proof of address before you can transact.

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