Low Cost Transfers

We have lived in a world in which the banks have controlled the amounts of money we must pay in order to facilitate a money transfer and you are most likely wondering why I am referring to this in the past tense. Well there is a very specific reason for me to be referring to this in the past tense. In recent years we have seen the advent of Fintech, which is Financial Technology to those of you who are not in the know of current terms. So if we look at money transfers, we have seen a number of applications and services come into being which offer low cost transfers and this is causing disruption to the traditional methods in which the banks control the transfer markets. That is a key word there, “disruption”

Cost of Money Transfers

Though it has not reached a level where the banking sector as a whole will feel it, the beginning of major disruptions are in place through a number of new and not so new service providers who are utilizing new techniques and technologies to bring the cost of money transfers down from the sky high prices we have been paying and enabling low cost transfers. But for those of you who are not familiar with the pricing structures and costs associated with money transfers, let’s take a quick look at how the banks have been and are still making money.

Money Transfer Spreads

A money transfer spread is a basically the buy and sell prices which is wrapped around the mid-market rate of the currency instrument you are looking to buy or sell. This in effect, gives the bank and immediate profit, you would think, but then you really do not know the currency markets. The currency markets are some of the most volatile markets in the world and thus, there has to be a spread to cover market movements which happen before settlement, or well, that is what they want you to think. In reality, the bank will take large hedging positions and will look at its net exposures with regards to the underlying currencies and match off buyers and sellers with each other to enable a win win situation for the bank. They have been at this for years and they know exactly what they are doing.

Money Transfer Fees

So the bank is immediately making money and then they are going to make sure you pay a fee as well. Now there are two ways in which you can make an international money transfer with your bank. The first is using the IBAN of the account to which you would like to transfer money. The fees charged are different from bank to bank but it is a cost associated with your transfer on top of the spread fees the bank has made money from and your money has yet to be sent. There will also be a fee from the corresponding bank which will add to it. Now, an IBAN transfer is not immediate and therefore it is cheaper than the next method which is a “Swift” transfer but it is by no means a low cost transfer.

Swift Money Transfer

The other method the banks use is the swift money transfer. SWIFT payments are a type of international money transfer sent via the SWIFT international payment network. The SWIFT international payment network is one of the largest financial messaging systems in the world and is used by every bank to enable transfers and they can be completed in one day or on a next day basis depending on the time and geographic locations of the sending bank and the receiving bank.  The costs of a swift international payment are considerably more than IBAN and again does not facilitate what I would deem to be a low cost transfer.

Alternatives to the Banks

Ok, so the banks are in it for themselves and have got used to a lack of competition and in effect have set up a cartel system with which to relieve you of your cash and no one is going to fight the banks. Wrong, there are new players to the system and with the advent of E Money and E-wallet systems. There are now instant and cheap ways of sending cash from person to person without having to go through a bank. Let’s Look at MoneyMailMe.

MoneyMailMe is a relatively new fintec venture which was the brain child of Mihai Ivascu. It is not just about money transfers but it is about social chatting file sharing etc and in a way it adds an extra layer of security to your money transfer as you are chatting directly with the person you are sending money to, either via normal chat or video chat.

MoneyMailMe is a regulated company out of the UK and thus, in order to complete any sort of transfer you must go through a due diligence process. This consists of uploading your passport image or one of the other methods of identifying yourself to your account. Then within 2 days you will have a verified account which has the money transfer features enabled. You will just have to make do with chatting until then.

Now, this is where it gets interesting. As they use an e-wallet system, you must upload your cash and it will be converted into e-currency, in this way you can send and receive the cash instantly across the globe. There is a cost associated with this and it runs at 2.5%. now, if you are looking to transfer USD to a friend who has a USD account. You just get them on the chat and send them the cash, it is instantly in their phone and ready for use. If they want to withdraw it, there are no fees and they can also use it to pay for items, as long as the other person has a MoneyMailMe account. Yes, very cool indeed but whast about international transfers with conversion.

There is a cost associated with that too. If you are looking to transfer USD from your account to a friend who wants euro, there is a 2.5% markup added to the mid-market rate but again, the transfer is instant and this has a lot of positive imprecations which could spell out a lot of trouble for the banks. It is available 24/7 from your phone. No more going o bank or getting to your computer. A perfect example would be when your son or daughter is on holiday. It is a Saturday, they have lost their bags with wallet and passport but still have their phone.  The banks or transfer agencies can do nothing for you in that situation. With MoneyMailMe no problem. But lets look at costs.

So for a 100 USD to USD transfer it will set your back 2.5USD to almost anywhere in the world instantly

For a Euro to Usd transfer, it will set you back 5 to almost anywhere in the world instantly.  

Now, a banks costs, well let’s see…significantly higher and longer , Well done MoneyMailMe, That is a true low cost transfer, the disruption should begin very soon.