What are peer to peer international money transfers?

Anyone looking to transfer money overseas knows the importance of securing a competitive exchange rate. But what if you could get your hands on the ‘real’ exchange rate, or close to it, that generally only applies to banks and FX providers, otherwise known as the mid-market rate? Well, now you can, thanks to an innovative new concept dubbed peer to peer transfers.

Think of peer to peer transfers just like any other social sharing movement like P2P lending, car sharing, and clothes swaps. The middle man is removed from the scenario, so that everyday consumers can deal directly with each other and save big time.

So when it comes to peer to peer money transfers specifically, you’re not dealing with a bank or foreign exchange provider who applies a margin to your exchange rate but with a P2P platform that connects you directly with a stranger in the country you’re looking to transfer money to.

In Australia, peer to peer transfers is still somewhat in its infancy, with only two main providers offering the service...

• CurrencyFair: This P2P platform provides foreign exchange services to a great range of countries around the world but is based in Dublin, Australia and the UK. Exchange rates are set by users, which CurrencyFair says are usually no more than 0.5% from the interbank rate.

• Wise: By comparison, Wise has a slightly different model. While it matches you with other members looking to transfer a similar amount to you, the users don’t set the exchange rates, instead Wise offers the mid market rate at the time of transfer.

You might be thinking, “so what’s the catch, how do peer to peer providers make their money?” Of course, P2P platforms need to turn the lights on, so in return for matching you with a peer overseas, they charge a service fee, which is generally a percentage of the amount you’re transferring. For instance, at the time of writing Wise charges a fee starting from 0.35%.

As peer to peer providers are fairly new to the foreign exchange landscape, you may be worried about whether it’s safe to trust them with your money. The good news is that all the providers we looked at are regulated by the Australian Securities and Investments Commission (ASIC), which requires financial providers to be transparent and treat customers fairly.

Transfer times are pretty similar to that of a bank, generally they can take about 1-4 business days, depending on the amount and the country you’re sending the funds to.

If you’re unsure if transferring through a P2P platform is the way to go, then here’s a quick snapshot of the pros and cons to help you decide:

PROS:

• Competitive rates: As you’re receiving the ‘real’ exchange rate, or near to it, you’ll likely receive a much better rate on your exchange than if you had gone through your bank, which ultimately means one thing - more money in the receiving bank account!

• Regulated through ASIC: Both Wise and CurrencyFair are regulated by ASIC, which means you’re sending funds through a licensed and regulated international money transfer provider in Australia.

• No minimum transfers: Generally speaking, peer to peer providers don’t have minimums on the amount you can transfer, so if you’re simply looking to transfer $100 for Aunt Meg’s birthday, you can do just that.

CONS:

• Fees are charged as percentages: Peer to peer platforms make their money through charging a percentage of the amount you’re transferring, so for larger transfers this could outweigh the value of the competitive exchange rate.

• Waiting times may apply: If the platform can’t find a match to transfer your money at the rate you want, you could be waiting some time to make a transfer, which won’t do if you’re in a rush. However, you may have the option of a quicker transfer by using their best available rate.

So now that you’ve got the lowdown on transferring money through a P2P provider, you might be wondering how the actual process works. Well, the good news is, just like any other money transfer, it’s pretty seamless...

• Step 1: Set up an account with the peer to peer platform, providing all your details, such as the amount you’re looking to transfer, the currency you’re transferring from and to, your bank account details and the recipient’s bank account details.

• Step 2: Transfer the funds to the peer to peer platform’s account.

• Step 3: The P2P provider will convert these funds by matching them with another customer in their database.

• Step 4: After they’ve found your match and you’ve agreed to the transfer, the peer to peer provider will then transfer the funds directly into the recipient’s bank account.

So in four simple steps - which are largely done by the P2P provider - you will have transferred your money across the globe through the peer to peer method.