Sending money overseas is a very different process in 2023 than it was at the turn of the century. What used to take days, if not weeks, is now a matter of clicking a few buttons and seeing a visualised update on where your money is. Money transfer fees are now a fraction of what they were too.
Whilst banks have played a monopoly role in our daily personal finances, they had almost no involvement in this new normal.
The decline of high street banks
The traditional option has always been to wire money abroad using either a high street bank or a remittance firm like Western Union. In both cases, SWIFT is heavily relied upon and the infrastructure is heavy-weight, sluggish, and costly.
For example, a high street bank would typically take several days, charge a flat £10-£30 wire fee, and in return you get a terrible exchange rate (often up to 5% less the value that it is on the market) and a long waiting time.
Things haven’t changed much in that regard. Large banks still have these legacy systems. The only redeeming utility you get in return is convenience (to a degree), because almost everyone in Britain already has a bank, and security, because deposits are insured and SWIFT is very safe. The only real innovation has been the use of Visa and Mastercard chip & pin, meaning spending overseas is fairly convenient.
It’s difficult to appreciate how little high street banks have progressed without putting it into context. Unsurprising, it is tech and startups that are producing digital and peer-to-peer solutions to the issue of cross-border inefficiency.
An international money transfer through SWIFT has quite a lot of friction. However, if a company holds currency in multiple countries already, then its customers can exchange between themselves at the market rate; if the company doesn’t have to go to the FX markets to buy more for a given exchange, then the exchange can use effective treasury systems to be even more efficient.
A simplified example of this is told in the story of how Wise – a unicorn cost-effective money transfer company – came about. Two Estonian friends were living in London; one was receiving British pounds as his salary but wanted to send Euros back home to Estonia, whilst the other was receiving his salary in Euros but was living and spending in London. They decided to exchange GBP and EUR between themselves and could give each other the perfect exchange rate.
A Worcester resident compares methods
Taking the example of 35-year-old Tom working as a software developer, we can explore the options open to him as he looks to move to Spain. Initially, Tom wants to test the waters by visiting Spain and seeing which region he would like to live in. During these visits, a digital money transfer app – specifically a multi-currency account wallet – will be useful.
A multi-currency account wallet like Wise or Revolut can facilitate the exchange of GBP to EUR within seconds. In fact, by just using the borderless spending debit card alone, paying for the local tapas and Estrellas are seamless even if Tom hasn’t exchanged this money beforehand. On-the-spot exchanges are usually completed at a near-perfect rate with low or zero money transfer fees.
When Tom decides to pull the trigger on his move, paying for rent will best be completed with a different kind of platform. A peer-to-peer money transfer like PayPal or Venmo may be requested by a private landlord, which can be convenient. However, they rarely offer a good exchange rate. So, with the help of money transfer comparison site moneytransfercomparison.com, Tom is planning on using one of the many digital money transfer companies once again.
When paying rent in Euros despite having Pounds, using a platform that specialises more in sophisticated FX and larger payments is optimal. Tom prefers handling large amounts of money over the phone, so Currencies Direct and OFX are the natural choices as they offer a free dedicated dealer. These can set up forward contracts for future Euro rent payments to minimise the risk of swings in the currency.
Tom also wants the option of buying a villa down once his inheritance comes from his Grandad in Worcester. When the time comes, the same money transfer companies will be useful as before, but it’s possible for Tom to find some that even specialise in property purchases. A Place In The Sun Currency Service along with TorFX both offer additional functionalities, like repatriation of funds from an overseas property sale, along with dealers that are experienced in relocation money transfers.
However, once Tom’s British pensions start paying out, Wise and Revolut are back on the agenda for easy handling of multiple currencies…
It’s clear that the cat is out of the bag on alternative finance. Whilst we can be sceptical about the future of crypto and whether it will retreat somewhat, it’s clear that peer-to-peer and digital finance is the future – this is clear from the rise of challenger banks.
If a Worcester resident wants a cost-effective way to send money abroad, it’s almost certain that simply going with their current high-street bank is not the best option. Fortunately, the signing up process at international money transfer companies is quick and the subsequent services are accessible. Whether you’re looking to send a large sum, receive specialised advice, or simply make one-tap small transfers will dictate the exact company you go with.