Trading in different currencies? Learn what fees are involved...
Posted on 10th October 2019
There's no denying that PayPal is a popular way to transfer money and buy things online. The online payments giant operates in 202 markets and has 286 million active users. For many years, PayPal was the go-to solution for people looking to send money beyond borders. Nowadays, PayPal isn't so attractive to business uders anymore. The main reason for that is down to exchange rates and fees levied by PayPal to its users. Sometimes PayPal users don't even realise there are fees to pay thanks to the lengthy terms and conditions that we often (read: mostly!) ignore.
The trouble with PayPal
Many people and businesses use PayPal because they feel there is no alternative. Quite often, individuals believe PayPal is the only option for various reasons including trust in the well-known brand, security, and convenience. PayPal was always the easiest way to send money in one currency and receive it in another. But when you sit down and work out the costs involved, it no longer becomes a viable option.
PayPal charges a fixed fee for currency conversions (around 3-4% of the market rate). Plus, if you happen to fund the payment from a debit or credit card, it levies even higher fees! There's also the standard fee of receiving money into your PayPal account to consider which is usually around 3.4% of the transaction amount. Plus, let's not forget about the cross-border payment fee which varies between 0.5-2%.
So far, that paints a miserable picture. The good news is there are now more realistic alternatives you can opt for that charge less than PayPal...
What are the other options, then?
One name that will no doubt be worrying PayPal is TransferWise. The UK-based company was set up in 2011 and is a viable alternative to using PayPal. According to their website, they offer a borderless, multi-currency account. TransferWise doesn't charge a monthly fee for having such an account and claims its users save up to 8x on costs compared to PayPal.
There is a calculator on their homepage that illustrates how much their transfers cost. For example, to send £1,000 to someone in EUR (€):
The sender gets charged a low fee of £3.95 if transferring from their bank account;
The recipient receives €1,119.85.
The multi-currency account from TransferWise allows businesses to receive money from 40+ currencies. Plus, currency conversion fees are no higher than 3.56%.
Another alternative to PayPal is the newer Revolut. Established in 2015, Revolut offers the same services like TransferWise. Although their multi-currency accounts are free to set up, they do offer premium ones. For instance, you can set up team member accounts. Plus, some local and international transfers are free!
Team members can also have access to mobile apps and even "virtual" debit cards. There are also options available for freelancers and sole traders too.
Launched in 2009, CurrencyFair is an Irish company that offers online transfers. The curious thing about this website is that money doesn't leave the country!
The way that it works is as follows:
You have a EUR account and wish to send USD;
Another customer has USD and wants to send EUR;
CurrencyFair matches both customers up, avoiding currency transfer fees.
CurrencyFair is an online currency exchange marketplace. All they do is charge a fixed fee depending on the currencies used and the amount to transfer. Their website states that as more people use the platform, the fees charged will decrease which is great news!
Strictly speaking, Monito isn't a service that lets you transfer money. Instead, what their site offers is a practical and easy to use real-time comparison engine.
There is a simple "calculator" on their home page that asks you three simple questions:
Amount to transfer
Once you enter that info and click the compare button, it goes away and compares services. You're then presented with a table of results listing service providers and costs. It's a quick and easy way of finding out who can offer you the best deal for your chosen currency pair. All results are easy to browse, and the site includes links to each provider. The website is free to use, and you don't need to set up any accounts!
Need help figuring out how to trade in foreign currencies?
As business owners become more and more remote, performing the majority of their work online and communicating with other business owners all over the world, it's much more likely that trading in foreign currencies will become a standard part of day-to-day business life. With this happening, it's important to get savvy on fees and learn which service is the most cost-effective for your business.
We can help you compare the different services listed above - alongside others - and decide which one is most suitable for you and your business needs. Feel free to give us a call or drop us an email - we'd love to help!
Nicola J Sorrell
- Effective Accounting
Founder | Xero Champion | IR35 Expert
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