How to use peer-to-peer money transfer services
Save money and enjoy fast processing times when you send money overseas using a peer-to-peer money transfer service.
Peer-to-peer money transfers match people who are trading 2 specific currencies with each other, generating savings by cutting out the middleman.
Although international money transfers are traditionally conducted via banks, it’s now possible to take advantage of peer-to-peer banking services for money transfers. These services provide networks where people can share access to currencies without the need for a central server, allowing you to cut out the middleman. As a result, the money transfer process is simplified and you can save money.
How do peer-to-peer money transfers work?
First, you need to select how much money you wish to transfer and where you’re sending it. You can then upload your funds to your money transfer provider, which will then convert your money at the mid-market rate and match you with a person sending funds in the opposite direction.
For example, if you’re sending money from Australia to the United States, you’ll be matched with someone sending funds from the United States to Australia. This allows customers to cut out the banks and enjoy better exchange rates and lower transaction fees.
Example: Peer-to-peer vs bank
Lauren wants to send $1,000 to her mother in the UK. In order to find the best possible money transfer deal, she compares the services offered by her Big Four bank with a peer-to-peer money transfer service like Wise or CurrencyFair. The results can be seen in the table below.
|Bank||Peer-to-peer money transfer service|
As you can see in the example above, if Lauren sends her funds using a peer-to-peer service, she will be sending an extra £41.90.
* This is a fictional, but realistic, example.
How do I compare peer-to-peer money transfer services?
You’ll need to take the following features into account when comparing peer-to-peer money transfer services.
- Exchange rates. The exchange rate is a very important factor when determining how much money you can save, so look for the company that offers the best rates. However, keep an eye out for companies that suck you in with great rates, but then slug you with high fees.
- Fees. Make sure you’re aware of all the fees attached to your transaction. Does the company charge a flat fee or is it a percentage based on the amount you’re transferring? Is the fee waived entirely if you transfer more than a certain amount?
- Minimum and maximum transfer amounts. You’ll need to check how much a company will allow you to transfer since minimum limits might be too high for some and maximum limits may be too little for others.
- Transfer methods. Compare whether you can only lodge your transfer online or whether there are phone and in-person options available as well.
- Other extras. Compare whether providers allow you to lodge forward contracts, meaning you lock in an exchange rate for a transaction that will occur at a later date, or limit orders, which is where you lock in a minimum exchange rate and the transaction is not completed until the market fluctuates and your chosen rate is available.
- Customer service. Is the company known for providing excellent customer assistance? Is there an online help centre and live chat available? Can you email or phone for support and what are the hours that each provider’s support centre is open?
- What currencies are available? You’ll need to compare which currencies each provider offers and which destinations you can send money to.
What are the pros and cons of using a peer-to-peer money transfer service?
- Better rates. Peer-to-peer services usually offer better exchange rates than banks. Banks typically charge 5% while P2P services charge commissions ranging from 0.5% to 1.5%.
- Lower fees. You’ll typically pay less to transfer money via one of these providers than you would through a bank.
- Fast. Peer-to-peer providers regularly offer faster processing times than banks, with transfers often completed within one business day.
- Supported currencies. While more supported currencies are added all the time, as peer-to-peer providers are relatively new, they do not yet offer the same number of exotic currencies and transfer destinations as major money transfer services.
- Delayed processing. Currencies can go through periods of volatility and during this time, your transaction might be paused if the price has moved 3% since making the transaction.
Are there any risks?
When you’re making an international money transfer, it’s important to keep an eye out for exchange rates and fees. Poor exchange rates can eat up a big chunk of your money if you’re not careful, while hidden fees can be a nasty surprise if you don’t read the fine print before lodging a transfer. It’s also essential that you ensure you are dealing with a reputable company. Do your research before you commit yourself so that you don’t end up the victim of a dishonest provider.
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