Eating the banks’ lunch
Travel money is about to get a whole lot cheaper for Kiwis. TransferWise launched its Mastercard debit card here this week and it’s a big deal if you travel, send money overseas or buy online from international websites.
I clocked up $3483.11 on my ASB cards while overseas during July. I’ve done the maths and had I received my TransferWise debit card before I left I would have spent $3282.87, thanks to its fairer exchange rates and low fees.
That’s a $200 difference, or $177 after the points. That’s a $177 margin over and above what TransferWise charges. I’ve always known banks rip us off when we spend overseas. This puts it into perspective.
UK-based TransferWise aims to build a customer base here by consistently offering a better deal than traditional exchange. It will be followed shortly by Revolut, a digital bank.
These new services are going to “eat the banks’ lunch” when it comes to foreign exchange, says Binu Paul, founder of the Pocketwise.co.nz website.
Traditional banks and exchange services make a lot of money when we make international transactions.
Typically the banks give us a poor exchange rate and then tack on a fee. My largest single spend in Brazil was on a fabulous Eco Adventures Travel tour of the Pantanal region. The charge on my ASB statement was $1219. Had I used TransferWise, my tour would have cost $1177. My banked milked $42 in excess fees.
TransferWise also allows free ATM withdrawals up to $350 every 30 days, which would have also saved me a few more bucks.
Competitive, low fee, foreign exchange deals don’t just benefit travellers. Plenty of Kiwis send money overseas, especially back to family in the Pacific Islands, Philippines and India. Until now they’ve often used Western Union, which is also loaded with fees.
Whatever the reason for sending, the Pocketwise.co.nz international money transfer search finds good deals from a number of other online currency exchange providers such as SendFX, CurrencyFair, ForFX and OFX.
Let’s say you want to send NZ$5000 to your brother’s bank account in Australia. When I searched on Wednesday the best deal was AU$4752 net of all fees and charges. On the same day my bank was offering AU$4654 net, and Travelex AU$4644 (for AU$ cash, not bank to bank transfer). Not everyone wants to send $5000, yet even on $20 a week sent through online transfer to Samoa or Tonga for example the savings will soon add up.
How safe are these companies? Paul says Pocketwise.co.nz chooses the companies on size and international reputation, but doesn’t audit them or handle your money.
I did note that TransferWise has some oversight from the Department of Internal Affairs and also had to meet Mastercard’s licensing standards. That’s not as rigorous as what the banks face to obtain and then keep their licences from the Reserve Bank of New Zealand, their regulator. The card itself is protected by Mastercard technology providing you use reasonable care in protecting your card and report that loss promptly.
Paul expects most of us will stick to better known names when handing such big sums over. I did work out that on a $400,000 NZ house sale transferred to US dollars through one of the online providers mentioned above would have saved you NZ$7382.
One of the other ways Kiwis can use borderless currency services is apps. Customers could in theory move sums of money between multiple currencies held in their account, making money from exchange rate movements. The cost is minimal. Playing the currency markets, however, is a dangerous game. For every winner there is a loser.
Paul says that we’re getting close to the point where new online providers are cutting into the traditional players’ business and they will have to become more competitive. I hope that happens because I’d prefer to use New Zealand-based services that don’t send profits overseas.
UK-based TransferWise aims to build a customer base by offering a better deal than traditional exchange.