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Money transfer companies have become a hit with expats, freelancers and travelers all around the world. Instead of relying on the terrible rates that our domestic banks charge us to transfer money globally, money transfer companies leverage technology to provide a more affordable alternative.
Generally, what you’ll find with Money Transfer Companies is that they’re app-based, or at the very least, web-based. Customer service is usually online, the transactions are completed on the mobile phone app and so on. This makes the
Because it’s an infant industry, the infrastructure is always being improved and amended. There’s no legacy systems built in like banks have, which are infrastructures that are difficult to shake because they’ve been around for so long. Instead, these fintech currency services have found ultra-efficient methods of exchanging currency.
Some international money transfer companies even use P2P systems, whereby the transfer request of one customer is paired with the transfer request of another customer wanting the reverse order. Nearly all fintech remittance companies have multiple bank accounts across the globe. That way when they debit one account they can credit the other.
How Much Money Does a Money Transfer Company Save You?
You can’t fully appreciate the savings potential of international money transfer companies without looking at what’s been going on before them (and still to this day). If you walk into a mainstream bank and ask to transfer money overseas, you’re looking at 3% to 5% in exchange spreads.
This means that 3% to 5% of the total exchanged amount will be taken as profit/payment of service for using the bank. Of course, a small spread is needed for them to cover any adverse price movements in the (long) time it takes to transfer the funds. But this is still high.
These 3% to 5% exchange spread fees could equal tens of thousands of dollars if you’re buying a home overseas or hundreds of bucks if you’re just going on holiday. Further, there are often fixed fees on top of this when using a bank, which can be as high as USD/EUR 30 for each transfer.
Alternatives to Expensive Bank-Serviced International Money Transfers
Eventually, people started realizing these awful prices that banks were providing and would turn to an alternative. These were things such as initiating the international transfer at a supermarket or currency store. These types of places would often offer no-fee transfers with perhaps a 3% spread.
However, today money transfer companies in the USA, the true alternative, offer exchange spreads anywhere between 0% and 2%. For example, Revolut and Transferwise have an exchange spread of 0%. The former also has zero fees and the latter has a fixed 0.5% fee (this may differ between countries). This is as close to a free yet efficient money transfer that you can get.
What to Look Out For When Searching For a Money Transfer Company in the US?
Here is a breakdown of the things you should look at to compare which company best suits your needs:
1. Exchange Spreads and Fees
First and foremost, what pretty much everyone is looking for is a price that’s as close to the real mid-mark rate as possible. Take a look at both fees and exchange spreads and take them both into account.
You’ll obviously want to rule out ones that look exceptionally high and noncompetitive. But don’t rely on price alone. There are some other important factors to consider which are covered below.
2. Maximum Transfer Limits
Does the company that you’re considering suit small, frequent transfers or infrequent large ones? You’ll want to define your needs.
- Are you looking for a company that will help you transfer your house deposit when moving to a new country?
- Are you looking for a multi-wallet currency that you can receive your monthly salary into?
- Will you need to use a debit card abroad every day?
These are important questions to answer because MTC’s aren’t all looking to solve the same problem. While some are fine for everyday use, they may have a low maximum transfer limit or no dedicated dealer.
If you’re going to be using the service frequently, perhaps you’re an expat or freelancer, then accessibility is even more important. Does the company offer multiple ways to initiate transfers (web browser, app, local currency stores) or are your options limited.
At the very least, you’ll wan to look for companies that have mobile apps, and check out their Play Store / App Store reviews. Download and test them out to see which one you like the functionality and clarity of the most.
4. Customer Service
Customer service is always important. You may not think you’ll ever need help or be in an emergency situation, but it can happen. And it seem like if there’s a potential for something to ever go wrong, it will happen while you’re traveling abroad. You don’t want to be in a situation where you can’t access your liquid assets and you don’t have a phone number to ring and your emails are being ignored.
Many users will never have to use customer service. But it’s still important to assess. Again, read customer reviews of the company or ask questions on online forums. You can also test out a company’s customer service by seeing how they respond to a contact form submission or email. If it’s the same query copy & pasted, you’ll be able to compare their responses and response times appropriately.
Not all MTCs will deal with the same countries. If you’re only using them for two particular currencies then this will be easy to check. If you’re globetrotting, then find companies that deal in exotic currencies (36 is around the industry average, for reference).
Many of the day-to-day types of MTCs will not offer hedging products, but there are some that do. This is worth considering. If you have an accessible way to hedge, your transfers can quickly become more secure and less risky.
7. Local Availability
The US is unique in that it’s made of many different states, all of which have their own regulations, licensing and laws. It’s therefore important to check that the MTCs are operating in your state, and have licensing there.
It’s also worth mentioning that just because an MTC deals in a certain currency, it doesn’t automatically mean that you can use the service there. While an Australian company may deal in US dollars, it may only accept Australian residents.
8. Trading History and Reputation
Money transfer companies are a relatively new thing which means regulation is still evolving. It’s perfectly safe, but it means that there’s not many industry leaders that have proven themselves for decades.
But it’s still very important to take trading history and reputation into account. This is a company that you’re giving your money to and the transfer could even be a large percentage of your wealth. While there are plenty of reputable money transfer companies out there, there are also many that are not.
Research a company well and read reviews before deciding to do business with them. Try to narrow your list to companies that have a well-established and transparent online presence. If you’re struggling to find a specific company’s name mentioned anywhere other than their own site, you’ll probably want to stay away.