These days, we’re all living more internationalized lives. We’re passionate travellers, embrace business opportunities abroad, and make our homes in countries around the world.
To make all of this happen, though, we need to send money across international borders. This chore costs cash – far more than most of us ever realize. Over time, losses can add up to thousands of dollars. That’s money you can no longer invest, or spend on your passions.
Fortunately, there are cheaper ways to send money than the status quo (i.e. banks.) In this blog, we will explore better methods for moving your cash abroad.
COVID-19 Is Turning People On To Online Money Transfer
Across the country, states are slowly emerging from lockdown. Even so, many of us are still uncomfortable being in public – especially if there’s a remote alternative. This situation includes banks – think about how many people touch ATMs, all those crowded lines, and face-to-face meetings with tellers/bankers.
Already, we have moved much of our banking online. From checking balances to paying bills, we’ve replaced time-consuming trips to our local branches with a few clicks. We can even do money transfer online now. As a result, more people than ever are moving cash using the internet.
Don’t Move Cash Through Your Bank, Though
Before you do the same, however, we must caution you to reconsider using your bank. Not because there’s anything inherently hazardous about the process, but because you’d likely spend more than you have to. Yes, the wire transfer fees are ridiculous, but that’s only the beginning.
Did you know that bank exchange rates aren’t the real rate of exchange? They reserve that for themselves – instead, you get a price that’s 2-3% off their rate. And, they pocket every dime of the difference.
Let’s do a quick example that demonstrates what we’re talking about. Let’s say you’re purchasing investment real estate in the UK. Recently, you’ve found a great property, but you need to send over 40,000 GBP to close the deal. So, you sign into your online banking back-end to set up a transfer.
After entering your destination account’s details, you get a USD/GBP rate of 0.770034. At this price, you would have to send 51,946 USD to complete your property purchase.
But, what if you could move money at the interbank, or the REAL rate of exchange? In this case, at a USD/GBP rate of 0.789343, you’d have to mobilize 50,676 USD. That’s a difference of 1,300 USD – an absurd amount for moving cash across international borders.
Online Money Transfer Providers Can Save You Thousands
Fortunately for us, it’s not 1992 anymore. The banks no longer hold a monopoly over international money transfer (even if they still act like they do.) Ever since London-based Transferwise burst on the scene in 2010, a host of other providers have followed suit.
This ecosystem of international money transfer providers is highly competitive niche. Thanks to this dynamic, their fee structures and exchange margins are far better than those of the banks. To prove our point, let’s run our real estate transaction through Transferwise.
Transferwise is famous for charging the interbank rate. So, how do they make money? They do so by charging a nominal fee on your transaction. The more you move, the lower your percentage. In our case, Transferwise assesses a transaction fee of 0.46%, which amounts to about 235 USD.
Given this, plus the interbank USD/GBP exchange rate of 0.789343, you’d only have to send 50,910 USD. That’s more than 1,000 USD less than with your bank. What good could a 1,000 USD extra do in your business or your life?
Why Are Online Money Transfer Providers Better Than The Banks?
America is home to over 4,700 financial institutions. With such a diverse market, you’d think there would be greater competition when it came to things like international money transfer.
However, for decades, these institutions relied on the illusion of choice to maintain artificially high prices on services like international money transfer. However, once public trust allowed e-commerce to thrive, though, it was only a matter of time before someone came for the banks.
Thanks to the decadent profit margins of legacy financial institutions, it was a temptation fintech startups couldn’t resist. Any time you take thousands of dollars in profit off a single five-figure transfer, you open yourself up to attack from competitors.
But exactly how did players like MoneyCorp USA do it? First and foremost – they have less overhead than the banks. Online money transfer providers have less real estate to manage, and fewer employees to pay. Furthermore, many of these players don’t even use the SWIFT system. Some firms have their own network of accounts worldwide. By using them to do domestic transfers, they avoid having to pay tolls to intermediary financial institutions.
On top of all this, most online money transfer providers offer a better customer experience. Trustworthiness is a significant pain point for online firms. Without sufficient trust, timid consumers are less apt to switch from their banks. Leading online money transfer firms have made security their top priority. They use the same end-to-end encryption that online banking transactions do.
Unlike many banks, however, moving money through online money transfer providers is a quick and comfortable process. Site design makes it easy-to-understand what to do next, and when a transfer is sent, it often arrives the same day. Compare that to bank web transfers, which can take up to five business days to resolve.
What about when things go wrong? In these cases, online money transfer providers are more responsive than the banks. From the onboarding process to tracing transfers, their customer service reps have the customer’s back every step of the way.
Americans Don’t Have As Much Selection As The Rest Of The World
As much as things have improved lately, things could be better. Thanks to strict reporting guidelines imposed by the IRS, many international money transfer providers have hesitated to set up shop in the US.
Thankfully, major players like Transferwise, OFX, Moneycorp, and HiFX (now XE) have chosen to brave American bureaucracy. By getting established in the world’s top economy, they’ll have the upper hand, even if the government loosens restrictions in the future.
With fewer players, their deals might not be as sweet as the ones they offer overseas. However, compared to what your bank is offering, you still stand to save thousands every year on international transfers.
Don’t Let The Banks Swindle You
The banks have gotten away with robbery for far too long. Thanks to the rise of online money transfer, they have all been exposed. Save yourself untold amounts of money going forward – move your transfers to an online cash transfer provider. You’ll be glad you did.