Today, our world is becoming an increasingly international place. Even homebodies have bought goods from e-commerce sites abroad. More and more, we find ourselves in situations where we need to transfer our money across borders.
Times have never been better for the financial establishment. Retail banks and legacy non-bank companies like PayPal charge a premium to move your money. From $30 wire transfer fees to exchange margins that are 3-5% off the interbank rate, they make out like bandits.
Then, you have to wait. Sometimes, up to five business days pass before your cash arrives. And if something goes wrong? Then, you’ll have to spend HOURS on the phone – with no guarantee they’ll resolve the issue.
We’re nineteen years into the 21st century, but many of us still use 20th-century systems for transferring money.
Here’s the good news: There are better ways to move your cash around the world. Below, I talk about how a new wave of fintech companies are (finally) dragging money transfers into the future.
Online money transfer companies: Superior to banks in every way
Think back to the days of the late 2000s. Innovations like Wi-Fi, outsourcing, and automation had begun to turn even small enterprises into international businesses. But, we were still beholden to the banks (or Western Union/Moneygram) every time we needed to move cash.
It sucked. Majorly.
Fortunately, a pair of fintech entrepreneurs were just as cheesed off as we were. In 2010, Taavet Hinrikus and Kristo Käärmann were bleeding thousands of Euros to the banks annually.
Using an arrangement where they used the interbank rate to transfer money to each other as their business model, they founded Transferwise.
Their massive success inspired other money transfer startups and boosted the fortunes of pioneer firms (e.g., WorldFirst, OFX). In 2019, dozens of online money transfer companies are now viable alternatives to the banks.
And almost all of them are superior, in every way. Let’s start with the bottom line. The banks don’t even come close to the rates of even mediocre online money transfer firms.
For instance, let’s assume you’ve moved to Montreal from Chicago. You need to transfer 5,000 USD to a Canadian savings account from the one you’re closing with the Bank of America. They give you a rate of 1.291 – which means you’d get 6,457 CAD on the other end.
But, what if you used OFX? As of the writing of this article, four online money transfer firms had better rates than them. However, its rate of 1.3120 would give you 6,560 CAD – that’s 100 CAD more! And, if you used WorldRemit’s rate of 1.3290, you’d get 6,638 CAD – almost 200 CAD better than BoA!
As compelling as the result is, that’s not the only benefit of ditching the banks. The experience of transferring money online is also far smoother. From Transferwise to Currencyfair, they’ve cleanly designed their apps, and they are easy to understand. Because of this, it takes less than five minutes to complete a transfer.
Customer service is another strong point. You’ll never hear people raving about the hour they spent on hold with their financial institution. However, a quick breeze through Trustpilot reveals scores of customers lauding money transfer firms for their handling of everyday issues.
What should you look for in a money transfer provider?
So, you’re ready to jump ship to a money transfer provider. There’s just one problem – there are dozens of firms to choose from. How do you begin the process of evaluating them? Start by checking out a trusted review site like MoneyTransferComparison.com.
They don’t just list the best online services for transfers, they evaluate everything from their reputation to their global reach. In particular, pay close attention to where they have offices. In the event of an issue, you’ll get better service if they have staff in your country.
After you’ve shortlisted a few firms, check out what actual customers are saying about them. I personally like Trustpilot, as reviewers there tend to leave more thoughtful entries.
Try not to read too many five and one-star reviews. The former skews too much towards fawning praise, while the latter are often unhinged rants.
Instead, filter entries to show two, three, and four-star reviews. These contain more nuanced commentary and will give better insight into a firm’s strengths and weaknesses.
Business owners should seek the services of a dedicated dealer
If you operate your own business, you have the most to gain from leaving the banks behind.
As someone who transfers money regularly, you’ll save THOUSANDS of dollars per year in fees and exchange margins. However, note that the best money transfer providers are the ones who offer dedicated dealers.
What is a dedicated dealer? Effectively, they serve as a concierge for those who regularly navigate the waters of global Forex markets. You don’t have time to keep track of every geopolitical issue – they do, as it’s their job.
Their knowledge allows them to offer advice, suggest appropriate hedging measures (like forward contracts), and answer any questions you may have.
For instance, think of those who bought foreign real estate just before the Brexit vote. Would you want to suffer the pain of losing thousands of Pounds Sterling? If you had a dedicated dealer on your side, they would have advised expediting the purchase or cancelling it altogether.
All of us are good at a small number of things, and mediocre/bad at everything else. Is financial analysis not your strong suit? Hire a dedicated dealer, and they’ll do the mental heavy lifting for you.
The future of online money transfer has arrived
Soon, using banks to move money will be like getting around in a horse carriage. You could do it, but why wouldn’t you take a bus, a train, or a plane? It’s a horribly inefficient method of transport, just as bank transfers are a horribly inefficient way of moving money.
With lower rates/fees, and top-notch customer service, online money transfers are the way to go.