Currency conversion fees: Did you ever feel cheater after exchanging money?

Wise transfer: The best way to save on currency conversion fees

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Wise (Previously known as Transferwise) is a lightning-quick service that allows you to save enormously on currency conversion fees. The cost of transferring money abroad is much lower relative to traditional banks and foreign-exchange money brokers because they apply a (1) low transfer fee, and (2) the real mid-market exchange rate. The mid-market exchange rate is the middle point between the bid and ask.

Financial institutions usually advertise a foreign transaction fee that is still acceptable, or even no foreign transaction fee at all. It looks like an attractive proposition at first sight, but the opposite is true. It is a deceptive marketing practice. The financial institution’s main profit engine often lays hidden in the currency conversion rate they apply. While they usually advertise the currency conversion rate, you might not realize the actual cost unless you make the computations.

In 2018, I was charged a criminal 2.6% or approximately 1,150 EUR on the total value of an international money transfer by a main street bank because of unclear and deceptive representation of the total costs. Unfortunately, Wise was not an option since they did not operate in Bahrain, my country of residence at the time.

The same practice is also applied by companies that advertise commission-free currency exchange in an airport or a tourist hot spot. The currency conversion fee they charge is usually extremely high. Table of Contents

Wise’s innovative business model

The disruptive power of Wise’s business model consists in its matching platform. In essence, customers form pools of deposits in various currencies. When 2 customers have opposing financial needs, the platform will connect them. This allows Wise to eliminate the costly foreign transaction fees associated with cross-border money flows, and the poor currency exchange rates.

Their innovative business model received the endorsement of the likes of Richard Branson, founder of Virgin Group, and Max Levchin, co-founder of PayPal. They both became early investors in Wise. As of 2020, Wise reportedly has 10 million customers and processes USD 6 billion every month.

The total cost of international transfers comprises foreign transaction fees and currency conversion fees

The total cost of international money transfers includes 2 components: the foreign transaction fee, also known as the transfer fee, and the currency conversion fee. The currency conversion rate is also known as the exchange rate. We tested Wise’s price competitiveness versus 4 competitors (Paypal, Rabobank, CaixaBank, and Xoom) based on money transfers from EUR into GBP. The raw data were sourced from Wise’s website on 11 March 2021.

There are several other international money transfer services out there, such as Revolut and Monese. However, they are not covered in this article because their services are not directly comparable.

  • Wise is more widely available and supports more currencies. For example, Revolut only serves residents of the European Economic Area (EEA), Australia, Singapore, Switzerland, Japan, and the United States. Monese only operates in Europe. In contrast, Wise also has significant operations in Asia, Canada, Latin America, Middle East, and Africa.
  • Revolut and Monese operate a subscription-based model. Higher subscription tiers come with more benefits. So, they might offer a better deal than Wise in individual circumstances, but it will largely depend on how often you perform foreign currency transfers and the amounts involved.

Wise’s high foreign transaction fees make it look expensive

Some incumbent banks and money exchange brokers charged a small foreign transaction fee or no fee at all. For example, PayPal charges a small, fixed transfer fee. Xoom charged a tiny fee for amounts < EUR 2,000, they did not charge a foreign transaction fee for amounts above EUR 2,000. Rabobank and CaixaBank used a step-up system where the transfer fee depends on the amount being sent.

Wise transfer fee relative to competitors

No price quotations were received for transfers that exceed the following amounts:

  • PayPal – EUR 17,629
  • CaixaBank – EUR 10,000
  • Xoom, a PayPal service, did not allow transfers that exceed EUR 25,000

Based on the foreign transaction fee alone, Wise was not competitive. While their fee was consistently cheaper relative to CaixaBank, they were much more expensive compared to PayPal and Xoom. For small amounts, the foreign transaction fee of Wise was slightly better than Rabobank, but Rabobank was significantly more competitive for larger amounts.

Wise charges a % fee on the total amount. The larger the transfer amount, the larger are the total fees. While the % fee continued to decline over our range, the decrease flattens towards 0.41% for amounts above EUR 5,000. There was 1 notable exception. It is much more economical to send EUR 2,500.01 instead of EUR 2,500.00. The foreign transaction fee for EUR 2,500.00 is EUR 20.87 compared to EUR 10.71 for a transfer of EUR 2,500.01.

Wise offers monthly volume discounts for amounts over GBP 100,000 or equivalent in your local currency. For example, the average fee for GBP to EUR can become as low as 0.18% on large amounts. This is a real cost saver for businesses with regular foreign currency transactions. The monthly volume discount calculator can be found here.

Wise also confirmed in its Q4 2020 mission update that it is more cost-effective to use money already on your account, rather than to fund your international transfers in other ways. This might be an extra reason to keep cash balances in your Wise account.

International transfers in the same currency are not affected by the high transfer fees. For example, the cost of transferring 1,000/10,000/100,000 EUR/USD/GBP/AUD is EUR 0.28, USD 1.05, GBP 0.32, AUD 0.57. In other words, the fee is fixed for same currency transfers irrespective of the amount involved. The same currency pricing calculator can be found here.

The mid-market exchange rate is a real game-changer

Wise exchanges your money using the mid-market exchange rate. This is the exchange rate that you can retrieve if you look up the exchange rate in the financial media, such as Reuters or Bloomberg. The mid-market exchange rate is significantly better than the exchange rate used by the competitive firms that set their own currency conversion rate. The exchange rate often includes a “hidden” profit margin.

When we combined the transfer fee and the applied currency conversion rate for the various transfer amounts, the results of our test changed dramatically. The amounts in the below table represent the realized cost savings by using the most competitive player. For example, transferring 5,000 EUR through Wise instead of Rabobank would result in cost savings of EUR 18.86. Despite the rather high foreign transaction fees, Wise was the clear winner. Xoom was relatively competitive for small amounts because of the ultra-low foreign transaction fees, but they became considerably more expensive for large amounts. CaixaBank scored poorly for both criteria. Rabobank was more expensive relative to Wise, but all-in-all their pricing was reasonably good for transfers > EUR 1,000. Last, PayPal performed very poorly with regard to the applied currency conversion rate, despite they only charge a tiny, fixed fee of EUR 1.99.

Wise FX rate compared to competitors

Outstanding user experience

Wise has a very user-friendly, intuitive, and transparent platform. What I like the most is their transparent disclosure of the transfer fee, the currency conversion fees, and the estimated delivery time.

Wise currency conversion interface

The speed of using Wise for international transfers is phenomenal. In Q1 2021, 38% (up from 34% in Q4 2020) of all the transfers arrived in the recipient’s bank account within 20 seconds, 62% (up from 53%) within an hour.

Recent improvements allow Wise to instantly transfer 25% of the payments from the US that use ACH and 20% of Canadian transfers that use direct debit to fund their transfer. My personal experience is that that my transactions got executed within a few seconds to max. 2 days. The delay was mainly because the transfer was towards a centralized account that required processing by the recipient.

In Asia, Wise also booked significant improvements in terms of their turnaround time in Singapore, Malaysia, and Indonesia.

The transfer initiation screen also exhibits the expected delivery time. Reportedly, the estimate is 91% (up from 89%) accurate. So, there is an 89% chance that your transfer will arrive within the specified time or early.

There is always a risk that transactions get delayed because of compliance reasons. Moving money from one account to another account, whether domestic transfers or cross-border transfers, is a sensitive matter because of anti-money laundry and terrorist financing concerns. Financial intermediaries are strictly regulated, and they risk heavy fines if they do not adequately monitor the money flows that they process.

Wise’s multi-currency account allows you to make payments like a local

Wise enables you to open a free multi-currency account. The currencies supported are USD, EUR, GBP, Australian Dollar, Canadian Dollar, New Zealand Dollar, Singaporean Dollar, Hungarian Forint, Turkish Lira, and New Romanian Lau. A multi-currency account means that you will get local bank details you can use to send and receive money as if you hold a domestic account. Most of these account details are available, but there are some geographical limitations. For example, I do not have access to Turkish Lira and New Romanian Lau.

Being able to receive, buy, maintain, or send foreign currencies in your multi-currency account provides you with flexibility and a potential competitive advantage. The 5 key benefits are:

  1. Increased sales: You can quote your clients in their domestic currency, which might lead to increased revenues.
  2. Holding foreign currency: When you receive foreign currency from your foreign client, you can store the balances in your account and await a favorable currency conversion rate or use the funds to pay for foreign-denominated expenses in the future. Recall that there is a slight benefit for funding your transfers through your Wise balances instead of through another method.
  3. Easy access: Wise allows you to purchase and store money in 56 currencies. This includes some currencies that provide interesting and useful diversifications, such as Chinese Yuan, Japanese Yen, Norwegian Krone, Swiss Franc, Hong Kong Dollar. They even have some exotic currencies! For example, you can become a multimillionaire overnight by purchasing Tanzanian Shilling (not recommended!).
  4. Recurring payments: Since 2020, you can schedule recurring expenses. This new feature allows you to efficiently manage recurring personal and/or business expenses.
  5. Integration: You can integrate your Wise multi-currency account with popular online platforms and storefronts, such as Paypal and Amazon.

It is important to highlight that Wise introduced fees for individuals and businesses that maintain large cash balances in Europe and Australia because of the ultra-low interest rate environment we live in. In Europe, Wise charges an annual rate of 0.4% for individuals holding amounts above EUR 15,000 for more than 3 days. Similarly, companies are charged for amounts of more than EUR 70,000. In Australia, there is an annual fee of 1.6% if you exceed the thresholds for more than 3 days.

Wise is at least as safe as your bank

Wise is at least as safe as your bank

Wise is heavily regulated by, among others, the FCA (Financial Conduct Authority) in the UK and many other regulatory institutions across the world. Since Wise is not a bank, their business model is also less risky than traditional banks because they do not lend out your money.

By law, Wise is required to keep your money separate from their own internal accounts. If Wise would go bankrupt, it would not affect your money balances since they are being kept in established financial institutions, such as JP Morgan Chase and Barclays. In the unlikely event that something would happen to one of the banks where the money is stored, the client would incur a financial loss. The risk is rather limited because the amount of risks that banks may undertake, has been heavily reduced since the financial crisis of 2008.

The Company uses two-factor authentication to secure your account. To log in, you need to enter your password and username and you will receive a security code or a push notification on your smartphone.

Wise Debit Card is an attractive travel companion

Wise also allows you to request a MasterCard debit card. The cost to enable this feature is 5 GBP. The debit card has several advantages:

  1. You can use the card in over 200 countries.
  2. The debit card allows you to spend free of charge if you have the currency available in your account. Else, the currency conversion will occur against Wise mid-market exchange rate. To benefit from Wise’s favorable exchange rates, you should not allow the ATM to do the currency conversion. According to Wise, this costs on average 6% extra.
  3. Create a virtual debit card for all geographies where Wise offers a debit card, except for the US and Japan. It allows you to make online payments easier and safer because you don’t need to share the card details of your physical card.
  4. The first 2 ATM withdrawals abroad up to a certain threshold (200 GBP/EUR equivalent, 350 AUD/NZD/SGD or 250 USD) are free. Additional withdrawals cost a fixed fee (0.50 GBP / EUR, 1.50 AUD/NZD/SGD or 1.50 USD). Some ATMs also charge their own fixed fee.
  5. Amounts above the threshold are subject to a 1.75% charge (GBP/EUR/AUD/NZD/SGD) or 2% for amounts above 100 USD.
  6. In case of loss or damage, the cost to replace the debit card is GBP 5 / EUR 6.

Unfortunately, only residents from Europe, the US, UK, Singapore, Australia, New Zealand, and Japan can get a debit card. Moreover, the usage of the card is limited in certain geographical areas:

  1. The card will not work in sensitive countries.
  2. Cards that were issued in the US will also not work in a number of additional Asian, Latin American, and African countries.
  3. Singaporean / Japanese residents cannot withdraw money from an ATM in Singapore, resp. Japan.

Businesses in Europe, UK, Australia, New Zealand, and Singapore can apply for multiple debit cards for their employees. An additional debit card linked to a Wise business account costs GBP 3.

So, how do I open an account?

If you are convinced that Wise provides exceptional value for you, you can open a FREE account through the following link. The link will guide you to Wise’s home portal. Subsequently, you need to press “register” in the top right corner. The registration of a business account is free, but there is a small, one-time fee to receive bank account information. The cost varies by country.

The registration process is straightforward and only takes you a couple of minutes to complete. You need to select whether you want to open an individual account or a business account. The registration process for business accounts is slightly longer because Wise needs to verify more information. 

Conclusion: Wise offers ultracompetitive currency conversion rates

Wise allows you to save enormously on international money transfers. The total cost of international transfers comprises a foreign transaction fee and a currency conversion rate. While Wise does not necessarily offer the lowest foreign transaction fee, their all-in price consistently outperforms their competitors because they apply the real mid-market exchange rate. They are especially competitive for transferring large amounts.

But Wise is more than just a currency conversion service. It is a user-friendly, secure, and quick platform. They also allow you to receive, buy, maintain or send local and foreign currency through a free multi-currency account.

In short, Wise is a must-have service for individuals, households, and small businesses to save money on international money transfers.

2 thoughts on “Wise transfer: The best way to save on currency conversion fees”

  1. As a worldwide traveler, I find this service and article very helpful. Thank you!

    1. Hi Jennifer, I believe Wise is a fantastic service. It is not perfect, but overall they offer an excellent product that offers value for money.

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