There are alternatives to using high street banks for converting and sending money abroad.
High street banks are being threatened by leaner fintech companies with better technology that provide a better service at a lower cost. That’s a statement that most of us have heard from one source or another over the past few years.
The two most well-known services are Wise and Currencyfair. Of the two, Wise is my favorite.
Wise
Sending money abroad is deceptively expensive, thanks to the hidden fees we’ve all been forced to pay. Now Wise lets expats, foreign students and businesses transfer money wherever it’s needed, at the lowest possible cost. No hidden fees, no headache.
Let’s see how that translates into a real-life example.
Converting $100,000 to Euros
Let’s say we need to convert $100,000 into euros. We’ll pitch a typical high street bank against two well-known currency conversion services: Currencyfair and Wise.
I picked two Maltese banks, HSBC and BOV. Here are their advertised rates:
BOV exchange rates
HSBC exchange rates
Currencyfair
Wise
Having checked all the rates, let’s have a look at the final results.
Here’s what each Maltese bank will give us in return for our USD:
- BOV: €87,734
- HSBC: €87,039
Amazingly, between the two leading banks in Malta, we see a difference of €700 for the same simple service. Pretty bewildering if you ask me. I believe that both banks also charge a fee, although I was unable to locate the pricing for currency conversions on their website.
Let’s move on to the online currency conversion giants:
- Currencyfair: €88,837
- Wise: €88,925
Note that Currencyfair improves on the BOV’s rate by €1,100, and Wise by €1,200. You must also keep in mind that I’ve seen banks that provide much worse conversion rates and extra fees for conversion. Even so, the differences between the fintechs and the Maltese banks are pretty impressive, and I, therefore, see it as a no-brainer to go for either Wise or Currencyfair for currency conversions.
And now let’s look at some more exotic options that can give you even better results with some extra work on your end.
Bonus 1: Using Crypto for Conversions
You could use a crypto exchange like Kraken or Binance and do your currency conversion via Bitcoin or a stablecoin. You can read more about that in my dedicated post on the subject.
Bonus 2: A Clever Hack using the Mintos platform
Another clever move would be to skip all the banks and currency conversion services and use Mintos for my currency conversion needs. Mintos is currently the best European P2P lending platform and I’ve been obtaining upwards of 10% returns per year on my investments there.
You might be wondering what all this has to do with our currency conversion case study.
The thing is, Mintos launched a foreign exchange service on their own platform. You can, therefore, deposit those $100,000 and convert them to euros there. At the time of writing, the rate employed by Mintos for USD to EUR conversions was 0.892818. They also charge a 0.7% fee.
- Mintos: €88,581
That’s by far better than the banks’ rates, and slightly worse than TransferWise and Currencyfair. However, once your money is on Mintos, why not invest it there? If you don’t want to park your money there as an investment for a long time, just let your money work for you for just one month, then use the secondary market to sell your loans. The secondary market on Mintos is highly liquid, just as an example I know an investor who sold $1m on the Mintos secondary market in just one day recently.
Keeping an average return rate of 10%, which is easily achieved at the moment on Mintos, after parking our newly converted USD to EUR on the platform for a month, we would be able to withdraw the following:
- Converted currency €88,581 + Returns of 1 month circa €885 = €89,466
That’s the best result of this currency conversion experiment. You could also keep some money invested if you like Mintos and withdraw the rest, or keep the whole amount invested and gain around €8-10,000 per year at the current interest rates.
Bonus 3: Negotiate a Better Rate with Your Bank
If you are processing a significant volume of currency conversions every year (I’d say $50,000 and above) it would make sense to reach out to your bank and ask if they are open to negotiating a better rate for you. This is a win-win situation and most banks will be happy to give you a favorable rate.
As an example, I was able to negotiate a special rate with my bank to convert from USD to EUR.
By way of example, for today they quoted a Preferential Rate of 1.0998 when the Official Buying Rate was 1.1138 (Reference or Average Rate was 1.0946).
Just to give you an example of the effect of this concession, let’s take an example transfer of US$ 66,000. The conversion of this amount would work out as follows:
| Interbank rate | US$ 66,000 @ the average rate of 1.0946 = Eur 60,296 |
| Conversion at the Quoted Buying Rate | US$ 66,000 @ the buying rate of 1.1138 = Eur 59,256 |
| Conversion at the Preferential Rate | US$ 66,000 @ the preferential rate of 1.0998 = 60,011 |
This means that I gain the difference between Eur 59,256 and Eur 60,011 or Eur 1,040 and Eur 285 = Eur 755.
How do you manage your currency exchanges?
Hello Jean,
I’m about to set up an online translation business. While I finally decided what legal setup is best, I’d like to start operating with no register at all, kind of testing the service and the idea.
I guess the most simple is PayPal at first? Apparently Paypal doesn’t allow linking to Transferwise which is a bit of a pain… I was ready to use my Transferwise borderless card but I need a connecting platform such as PayPal to make payments from clients possible. My PayPal is linked to a UK account and also N26 (although they say they do not support virtual banks?) Any recommendation?
I am Spanish citizen, digital nomad with no fixed resident at the moment (latin america), and aiming at setting up this biz mainly for US clients (US).
Stripe only allow registering with an actual company registration – I could do a UK LLC although not sure about the long term tax rate and so on. Or perhaps a US LLC but not ready to make this investment yet (500$ register fee).
Sorry for the long message! just trying to make sure what’s the best option to start out. Thanks
Hola Maria,
I don’t think N26 is treated as a virtual bank since for all intents and purposes it functions like a normal bank account, including having a unique IBAN number.
PayPal, with all its problems, would probably be the easiest way to start for you.
Further on, as you you correctly state, you could set up a US, UK or even Spanish company and accept Stripe payments.
It wouldnt be better to do the money transfer by using transferwise to mintos and there to keep the money 1 month?
That could also be an option. Why do you think it’s better?
If one where to withdraw USD funds from Paypal to local Maltese banks, the funds received in EUR will actually be higher with HSBC than with BOV (I’ve tested this on multiple withdrawals).
But if I’m not mistaken credit card withdrawals use VISA’s exchange rates and not the Bank’s exchange rates. The concerned bank will then add its fees and that explains the difference in funds received.
On regular transfers it’s advantageous to use Transferwise or CurrencyFair.
Hmm, how would you explain the fact that HSBC works best in that case? It has worse conversion rates compared to BoV.
If I’m not mistaken this is how it works… Once you withdraw funds to a VISA card the USD funds will get converted to EUR by VISA(an international company that uses up-to-date exchange rates) and then VISA forwards EUR funds to your EUR bank account. So the conversion has already taken place before the funds land in your bank account.
The rates you found are only used by the bank to make currency conversion(bank transfers mainly), in this case the currency exchange is made by VISA and not by the bank.
http://www.visaeurope.com/making-payments/exchange-rates
Right. I’ve checked my account and I can see that there are no charges related to inward transfers via the VISA card. The transaction details the exchange rate used and nothing else.
When I do a SWIFT transfer in USD, BoV charges an inward fee since they charge feeds for incoming USD. This seems to support what you are saying.
What I don’t understand, however, is how doing the transfer to HSBC results in more money in your account versus BoV. If the conversion is done by VISA themselves, then the resulting EUR in the bank account should be the same for both banks, right?
I’m still trying to figure that out. It could be that the conversion is being done by the bank itself but they use exchange rates from VISA and add a conversion fee of their liking on top of the exchange rates.
Hmm, that would be pretty bad, since they are not disclosing any other fee.
You can see all BOV’s fees here – https://www.bov.com/documents/bov-tariff-of-charges.
If you search fees for other banks you’ll find a similar doc.
Yes I know and there are no fees relating to incoming VISA income in Euro.
Very easy to calculate pricing for currency conversion by comparing their buying and selling rates;
BOV: (1.1005+1.1398)/2=1.12015 which is the actual rate they are comparing to
So their charge is (1.12015-1.1005)/1.12015=1.75%
HSBC: 2.5%
Good point, thanks Francarl.
Possibly of interest, Payoneer is using Hyperwallet on their backend. If anyone is looking to build a system like Payoneer, check them out. They have some powerful possibilities. Speaking to that is the fact that they recently got acquired by PayPal in Jun 2018 (iirc). Braintree was acquired by PayPal in Sep 2013, so they might be leading to some mass integration of services soon across all three platforms.
Great share ! Thanks 🙂
Right now I’m really confuse whether use PayPal or Payoneer to receive my online payment as freelancer.. Currently I use Paypal, since at that time I don’t know about Payoneer.. PayPal takes a lot of money from difference currency exchange rate each time I need to withdraw to my local bank account.. It quite hurts ! :(..
My question is, is Payoneer currency exchange rate is better than PayPal for withdrawing money to local bank ? If yes, is it still worth ? Since Payoneer is charge some fee also as membership subscription base what I know..
PS: My PayPal base currency is USD, and my local bank account is IDR..
Thanks in advance for any advices..
Regards,
Ronny
Welcome! I haven’t used Payoneer lately so I can’t give you any advice on that comparison unfortunately.