Peer-to-peer finance companies aren’t limited to helping customers get better rates of return on their spare cash.
A new wave of foreign-exchange firms is also cutting out the middle-man – in this case, high-street and online bureaux de change and forex firms – by allowing travellers and expats trade currency with each other.
The potential benefits are, in theory, considerable: typically, the difference between the “buy” and “sell” rates at most currency firms is considerable. This is what providers rely on to make their profits (just as the gap between banks’ savings and loan rates is usually fairly wide).
But with platforms such as WeSwap (which is aimed at the tourist market) and CurrencyFair (more suited to expats and higher-value exchanges for remittances or property purchases, say), the spreads are significantly narrower or even non-existent since they don’t have the overheads of traditional firms.
So what kind of savings do customers stand to make?
At the time of writing, for example the pound was trading at almost exactly €1.40 on the currency markets.
For an individual wishing to exchange £500, the Post Office website was offering a rate of €1.352 – this would give €676 (although the Post Office pays more for larger exchanges: exchanging more than £2,000 means a rate of €1.37). WeSwap, on the other hand, says it will pay the “official” exchange rate – in this case, €1.40 – but then deduct a fixed-rate commission.
The amount of commission depends on how quickly the customer wants their exchange to go through: if you want the money immediately, the rate is 1.4%. To get your euros or dollars within three days costs 1.3%, while the rate is 1% if you can wait as long as a week.
So on our notional £500, an instant exchange via WeSwap would produce €700 (at €1.40 to the £1) less 1.4% commission – so €690.20.
Behind the scenes, WeSwap would hope to find another user on the Continent who wants to exchange their euros for sterling.
Customers are given a WeSwap Mastercard – a type of prepaid currency card – to load their money onto. As a bonus, the card is free to use for spending in shops, restaurants and so on, but there are fees for cash withdrawals of less than £200. CurrencyFair and rivals such as TransferWise are set up to handle larger international money transfers rather than provide holiday cash. But their rates are even more impressive.
Both pay the full official rate on exchanges, and CurrencyFair adds a fee of either €3 or €8 on eurozone transfers, depending on how quickly they need to go through, while TransferWise charges a flat 0.5%.
The upshot is that each of these platforms is invariably much cheaper than the traditional methods of exchanging currency – and they ensure that consumers can get the full benefit of the pound’s recent surge in value.
To learn more about how P2P lending could boost your returns, take a peek at Zopa’s lending pages.