Fintech is hot right now, especially in the foreign exchange market. There are endless money transfer services cropping up all heavily marketing peer-to-peer disruption. All claiming to make foreign exchange more transparent and cheaper for individuals and businesses.
But it still annoys me that there is absolutely no transparency when it comes to international currency transfer pricing.
We have a comparison table where you can compare money transfer providers. But most won’t actually let us display their market up.
If you want to know what a mark up is read my guide to comparing exchange rates.
Peer-to-peer foreign exchange is about cutting out banks, middlemen and unnecessary costs and using technology to swap your local currency with someone who needs to do an inverse transaction in a country you want to send money to. It could be argued that this is largely a marketing gimmick and an exercise in branding to win new business.
The rates are much better than your bank of course and for small transactions, it’s a good time for individuals to take advantage of well-funded start-ups (like Transfewise) sacrificing scale for profit.
However, peer-to-peer foreign exchange isn’t really applicable to SME currency exposure or converting large amounts of money for personal use (such as buying foreign property).
Good rates are good rates and fintech disruption has taken care of that but a personal expert service and strategy are much more important.
If businesses and individuals really want to save money on foreign exchange they need to be educated on the true costs of having exposure to foreign currencies. The main factor affecting costs in SME and HNW currency exchange is the actual currency itself.
In addition to discount rates one of the advantages of the Fintech disruption in foreign exchange is that tools for mitigating currency risk that were previously only available to institutions are now more readily available to SMEs and individuals through foreign exchange brokers.
By educating customers on the tools and order types available when dealing with international purchases paying more due to currency price fluctuations can be avoided by using tools such as currency forwards, stop entry orders and working limits.
You can also read my ten step guide to preparing for a large currency transfer here.
There is no doubt that “disruption” in the currency exchange world will ensure that everyone gets better exchange rates when they convert money. But saving a small amount when you actually convert the funds is irrelevant compared to not protecting yourself against moves in the underlying market.
One of the key things to remember in foreign exchange is that it is very difficult to speculate and make money, but very easy to protect yourself from losing it.
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Richard founded the Good Broker Guide (now Good Money Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.