Foreign currency exchange is a staggeringly large business that handles on an average day around £2.5 trillion worth of transfers. Each of these transfers, from those of just modest personal amounts to huge transactions ranging into the billions, will generate a return for the bank or broker who facilitates the transfer. Quite obviously this makes the global banking business a huge amount of returns each year – but now there are alternative systems such as peer to peer currency transfers that are looking to undercut traditional services.
P2P currency exchange works by a website providing a service that allows its clients to advertise the amount of money they would like to transfer and at what rate they are offering it. This is almost always substantially cheaper than the rates of exchange offered by banks, and, once registered, the users can browse for a ‘match’ suitable for their own needs. The only catch is that you currently need a separate account for each currency, for example one for Pounds, one for Dollars, and so on.
Here’s an example of how it might work:
A British family are buying a retirement home in Spain, while a company in Spain are looking to buy Pounds so that they can invest in setting up an office in Britain. Normally both of these clients would need to exchange their sizable funds required for these investments via banks and brokers who will charge a rate typically a couple/few percent above the international base rate. When dealing with large sums this can amount to thousands of pounds poured down the drain.
Instead they register with a P2P broker and find each other’s rates acceptably low. They individually make the transaction via the website itself, who will store the funds in separate accounts before finalising the transfer at the agreed, much lower rate while taking a very modest commission for its services. At no stage do either party know anything about each other – it is a simple business transaction that cuts out the overblown and overpriced process of using a traditional bank.
How much can I really save?
Until the rise of P2P exchange people and businesses were essentially without any alternatives. Sure, there are some brokers who deal with very large sums at marginal rates, but these are inaccessible to many smaller clients. 90% of people have to instead use the currency retail arms of banks to enact their currency exchange – and pay over the odds.
P2P exchange can cut as good a deal as their clients will find, but bear in mind that there’s a good reason why people are increasingly using these systems. Simply those who are using P2P overwhelmingly are those wanting to make an exchange for a defined purpose rather than take a speculation on the exchange markets – they all want to do so at the lowest possible price. This makes it very easy to find mutually minded people across the world and the good thing is that as the technology and interest/usage of these systems continues to grow it’s only going to get cheaper.
Examples of effective use of P2P currency exchange
1) One off transaction
Peer to peer exchanges are very cheap when enacting smaller scale currency exchanges and may only charge as little as 1% or even lower. This massively undercuts retail banking.
2) Recurring transaction
Used primarily by those who work overseas, have bills to pay overseas or do a lot of travelling, they can save plenty of money by using P2P as fees and commissions are much lower.
3) Rental income
It can be a bind for those with overseas properties that they rent to receive the true value of the rental income due to expensive rates of exchange. P2P allows for monies to be gathered and used to pay overseas bills and convert to indigenous income at better rates once enough funds have been accrued.
4) Corporate exchanges
Larger scale transactions can save a fortune using P2P systems – basically by matching up with other businesses who conduct their trade in reverse. Say a Chinese company who invests in Britain, and vice-versa.
There’s a whole lot of information provided on the figures that can be saved by peer to peer currency exchange on the websites of the main providers. Take a look at the potential savings that can be found through the international money exchange available from midpoint.com.