I’ve been having a long-standing debate as to whether or not price comparison works for money transfer services. It’s been a debate I’ve had in my own head, as well as with other providers, brokers, and webby techie people.
A lot of industries are very price sensitive, so comparison works very well, but oddly enough comparison doesn’t work so well for comparing currency transfer pricing.
Well, from all the data we have, the analytics we’ve reviewed, the clients we’ve spoken to and the trades I’ve done over twenty years. One thing is clear. And that’s that customers don’t really understand how foreign exchange is priced.
We’ve written a few guides on how to compare exchange rates, produced a list of the top ten things to look out for when you’ve got a large upcoming foreign payment to make. We even set up our own money transfer service so we could explain over the phone how fixed and transparent rates work.
And through all that, people just didn’t seem to get it.
It’s not just customers either. Financial professionals can’t get their head around how an inverted currency pair is quoted, then marked up. Or how the interest is calculated on forward pricing. One of the guys I used to work with when would routinely trade 20,000,000 GBPSEK forwards, would put traders on hold and pass it over to another dealer, because it was simply too much of a mind fuzz to work out which way round the pricing should be marked up.
I recently removed a bunch of brokers from our currency transfer comparison table because they refused to let us publish how much they would charge a client. They insisted that their trades were fee free. Which was complete rubbish, because the fee is the markup, which essentially means the difference between the mid-market price and the customer price.
So, how can you get decent rates when you’ve got large currency transfers to do?
Two ways really. You can either use a discount platform like transferwise, which is online only. Or you can use a currency broker.
But, with online-only providers, you don’t get any support at all. Transferwise doesn’t even have a phone number on its website.
Or, you can use a currency broker. But you have to be careful, because if you choose the wrong one, you could end up talking to a teenager, who’s the last job was at Carphone Warehouse, and who’s only discernible skill is selling.
So ideally, you want the best of both, not the worst. And now you can, with CurrencyTransfer.com
What CurrencyTransfer.com does is aggregate currency broker’s online platforms and provides support for trade execution.
To find out a bit more about how they work, we spoke to Daniel Abrahams the CEO and Co-Founder to get the inside track…
Firstly, why did you set up CurrencyTransfer.com and how does it differ from traditional currency and money transfer services.
The journey started out by solving pain in our personal lives. I was studying in Australia and needed to pay tuition fees, while my Co-Founder Stevan was traveling around Europe. Delivery of funds ran into problems, it was expensive and the service levels so poor.
We quickly realised foreign exchange is one of the last areas of financial services where the end customer, whether that’s a retail client or a CFO, have very little idea what they’re paying.
Moving money abroad should be as easy as booking a plane ticket online. At the same time, we saw that in every industry where there are inefficiencies, marketplaces disrupt. Whether it’s the way we book our flights, hotels or transportation.
So, in this multi-trillion dollar a year market, both pain and the macro landscape led to the opportunity to make a real difference, and build an exciting, global business that think’s and builds differently.
At CurrencyTransfer.com, we are trying to build the ‘Uber for FX Management.’ We’re not a bank, nor a broker, nor a peer to peer currency matcher. We’ve spent the past few years going country by country, continent by continent, aggregating the capabilities of money transfer businesses around the world, and via deep technology, bringing these capabilities onto the platform.
Foreign exchange pricing is very opaque with very few end clients actually understating how or what fees they are charged. What is CurrencyTransfer.com doing to make pricing more transparent for users?
Uniquely, on every trade, we will show you the mid-market exchange rate, next to your quoted exchange rate side by side. Like leaving a supermarket, with a clear, no fluff, no jargon, receipt.
We believe foreign exchange is often over-complicated, and worse, at the mercy of commission hungry sales brokers.
By digitising almost all aspects of currency purchasing and putting control back into the clients hands, we make it as transparent as leaving the supermarket and knowing what you’ve paid down to the last penny, shekel or cent.
What’s the average mark up on transactions of say £10,000, £100,000 and £500,000 through CurrencyTransfer.com?
Typically, we trend between 50 and 75% cheaper than the banks. The average markup will almost certainly inside 1% on a £10,000 transfer, and go as sharp as 0.25% on £500,000 depending on frequency, complexity, currency pairings (vanilla versus exotic) and products required (e.g. buy now pay now spot, short or long dated forward contracts).
Aside from a great exchange rate, every client is assigned a dedicated relationship manager, who will get to know our client requirements and uniquely, we are able to tailor and personalise pricing as the volumes of a business or private client requirements increase. What matters to our clients, matter to us.
Clearly, the most obvious factor in currency transfers is cost. What would you say are the top three risks that people should be aware of when dealing with a currency transfer business and what does CurrencyTransfer.com do to mitigate these?
Firstly, having the product availability to safeguard against currency shocks and the impact of currency fluctuations. Whether you are offered 1 pip or 1 percent away from the market rate by a provider, it won’t help if the market has moved 2%. Whether you are importing goods or buying a property abroad, while negotiating your way to a ‘good exchange rate’ isn’t so difficult, you can’t negotiate market movements. You’d never buy a home in your own country without knowing the final price, however, when buying abroad, the price will change every second. So, as a platform specialising in large value business and private client transfers, we’ve built tools that will enable you to lock in today’s exchange rate, for up to two years in advance. Currency hedging can be critical to managing currency risks, particularly with momentous Brexit on the horizon where nobody is sure how things will play out. On our platform, we allow you to do something about it to take stress and uncertainty out of the equation.
Secondly, working with reputable non-bank payment providers. At CurrencyTransfer.com, we carefully curate the money service businesses who are offering their capabilities onto the platform, both on a financial, non-financial and technical side. They need to be fully authorised payment institutions, we perform due diligence and rely on a team with decades of combined experience to ensure we only build onto our network first class providers. On a technical level, they also need to be API enabled to help ensure frictionless and as close to flawless execution of transfers as possible
Thirdly, the risk of a ‘honeymoon rate.’ Old-school brokers will often give you a fabulous exchange rate on day one, only to widen and widen your spreads as you feel more comfortable, or distracted on the 18th hole of a golf course! At CurrencyTransfer.com, we ‘digitise’ the process of currency purchasing, no instruction is ever taken on the telephone and we put total control in the hands of the client to book currency deals – we’ve eliminated the pushy salesman. Furthermore, you will always know what you are paying, as the mid-market rate side by side with your exchange rate is time-stamped and published. Back to the supermarket analogy, transparency and certainty matters.
And finally, what top three online resources would you suggest for people to learn more about the foreign exchange markets or currency transfers?
- Google news, and typing in a currency pairing that is relevant to your own life (e.g. GBP to EUR news). Keeping abreast of the political and economic drivers of market movements is very important, particularly if you are planning to purchase large amounts of currency for you or your business.
- As a shameless plug, our COO Paul Plewman does a daily currency vlog each day. You can find it here, please do subscribe!
- BBC news ticker on Brexit. If one thing is for sure, the closer we get to March 29, there will be choppy waters in the foreign exchange markets. If you are an expat, property buyer or business owner, this will no doubt affect you and your transfers.
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Richard founded the Good Money Guide (previously Good Broker 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.