If you’re starting a business in 2020, you’ve got to go global. From outsourcing to customer outreach, the path to success lies outside your home country. However, even frugal founders get tripped up by an unexpected obstacle – their bank.
The worst part? They don’t even realize they’re getting hosed until it’s too late. Every time you send money abroad, you pay not just exorbitant fees, but at exchange rates well above interbank. When your finances are drum-tight, a few hundred dollars can make the difference between solvency and insolvency.
To ensure your startup’s survival, you need to reduce costs in EVERY area – international money transfers included. In today’s post, we’ll show you how online money transfer providers can save you gobs of money in the long run.
Banks Are Expensive When It Comes To International Money Transfer
People don’t transfer money through their banks because they think they’re getting a good deal. They do so because it’s convenient. Some also think they have no other viable option.
Both of these attitudes cost folks hundreds or even THOUSANDS of dollars annually. Let us demonstrate exactly what we mean. In the US, financial institutions like Wells Fargo charge international transfer fees as high as $45.
But, that’s not where they make most of their profit on this transaction. Instead, financial institutions hide it via inflated currency exchange rates. The rate you pay isn’t the REAL rate of exchange. That price, known as the interbank rate, is what brokers use to trade capital among each other.
When banks move money internationally for customers, they post a price 2-5% off interbank. Let’s say you need to move 30,000 EUR to France, for example. You need to do this to cover down payment/closing costs on a condo. To move your cash to France, your bank gives you a USD/EUR rate of 0.886750. Accounting for the transfer fee of 45 USD, you would have to send 33,877 USD to cover your expenses.
However, most folks never ask: What if didn’t have to pay fees? What if I could get the interbank rate? Assuming both were true, you would get a USD/EUR rate of 0.912250, with no fees. Given these conditions, you would send off only 32,886 USD – more than 1,000 USD less.
Put another way: Every time you engage in a transaction like this, you pay the bank more than 1,000 USD to click a few buttons. That should infuriate you.
Online Money Transfer Providers Can Save You THOUSANDS Per Year
In reality, of course, you don’t have access to the interbank rate. The bankers want their cut – charging a premium on base currency rates is how they get it.
However, there are LOADS of legitimate competitors online. These players are fully legit, as financial authorities license them, like the Financial Conduct Authority (UK) and the SEC. And most importantly, they’ve relentlessly attacked the margins the banks had previously enjoyed for decades.
Transferwise is the one that stands out. By charging the interbank rate, they seized the attention of those who moved money frequently. Transferwise only charges a nominal transfer fee – usually, it’s in the ballpark of 0.5%.
Because of this, Transferwise usually offers the most savings of any online money transfer provider. Let’s revisit our French real estate transaction. When you move money through Transferwise, you’ll move cash at the USD/EUR interbank rate of 0.912250. After accounting for 154.40 USD in fees, you’ll only have to send 33,040 USD.
That’s more than 800 USD less than going through your bank. Think of the fantastic housewarming party you could throw with savings like that!
Online Cash Transfer Firms Offer More Perks, Better Customer Service
The savings offered by online money transfer providers can be convincing enough on their own. However, some are hesitant to leave the “devil they know” behind for the “devil they don’t know.”
In other words, they assume that online transfer providers treat their customers as badly as their bank treats them. Quite the contrary – a look through online reviews underline the marked difference between these firms and legacy financial institutions.
It all starts the second you land on their websites. In most cases, their design is clean and easy-to-comprehend. The sign-up and onboarding process is streamlined and logical. If you hit any snags, customer service is super-responsive. When you send transfers, they often arrive same-day, if not within hours.
And then there are the tools they provide. Do you sell products on platforms like Amazon or eBay? OFX offers receiving accounts. Are you a freelancer? Payoneer provides a loadable card and invoicing tools. Are stormy FX markets giving you the jitters? Set up a forward contract through Moneycorp.
Now look back at your bank, and ask yourself, “Do they offer me even 1/10 of these benefits?” If the answer is no, you owe it to yourself to check out a few online money transfer providers.
Don’t Put Up With Your Bank’s Nonsense
It’s 2020 – you no longer have to accept lousy customer service and a mediocre product. The fintech boom has given rise to financial solutions that are embarrassing the banks.
Take some time to do some research this weekend. We think you’ll be pleasantly surprised by what you’ll find.