What makes the great exchange rate scam truly frustrating is how it catches out even the savviest of customers. It's really little more than an old boys network of banks and brokers hiding behind spurious marketing guff. Even though you may feel you've paid no ostensible transaction fee, you’re still getting thoroughly ripped off on the exchange rate.
Why? The ‘competitive rate’ you’re being quoted isn’t the mid-market rate. It’s simply not real.
It’s a work of fiction, no more real than Harry Potter’s left elbow, and created to pay for your bank's christmas party. But ask them about this and they’ll make some awkward noises, change the subject, or even deny all knowledge.
I phoned my bank yesterday to check out how they dealt with my 'innocent' questioning. I won’t name names, but let’s just call them Floyd's Bank:
Me: So if I send £1000 to France, what would I get in Euros?
Bank: The rate would be 1.234 so you would get €1,234.
Me: And how much of that is your profit?
Bank: None. We don’t take a fee at all.
Me: But the Mid-Market rate is around 1.29 today. So I should get €1,290
Bank: We set our rates at the start of the day, and we don’t take a profit.
Me: You “set” your rate? What does that mean? Do you just make it up?
Bank: No, but we only set them once a day, based on the mid-market rate at the time.
Me: Right. But you are making a profit margin on a rate of 1.234. At no point today has the interbank been 1.234.
Bank: I don’t have access to that data. I’m just given the daily rate.
Me: Right. Ok. So what if I were to send £100,000 instead.
Bank: You would get a rate of 1.256, so €125,600. Again, there’s no fee.
Me: But that’s a different rate to the one you gave me to £1,000…. I thought you said there was one rate for the day, based on the real interbank rate.
Bank: There’s one rate for each size band. And larger sizes have a better rate.
Me: So let’s just get this straight. You aren’t making any profit on the rate of 1.234, correct?
Me: But you are able to give me a better rate of 1.256 if I transfer more.
Me: But how can 2 different rates be making you no profit and be based on the interbank rate, there’s only one interbank rate at any point in time.
Bank: I’m not sure I understand. Could you repeat the question?
Me: I’m not at all surprised. Thanks for your time.
No further comment needed on this I feel.
Demand Real Rates, and Real Fees.
There's only one REAL exchange rate, and that's the mid-market rate, which is tweaked and bumped up by banks and brokers to suit their purposes. Until now, consumers had very little say in the matter, as the real exchange rate was never available. But thanks to companies like us, all that is changing.
Not only do we exchange your currency using none other than the mid-market exchange rate, we also tell you upfront what our transaction fee is. Transparent and fair. As it should be! Yes of course, there are still fees, but overall you’ll get more foreign currency and pay less for the service.
So if someone tells you in future that they have the ‘best rate’, or ‘no fees’, just ask them what the ‘real fee’ is and prepare to watch them squirm.
By Taavet Hinrikus
In January, we highlighted a new European regulation, CBPR2, because it was meant to lower fees for some payments in the EU. Since 15 December 2019, firms are...
It’s not the first time we’ve celebrated good political decisions coming out of the European Union. After European policymakers put more transparency for...
What is the gender pay gap? The gender pay gap is the difference in average hourly earnings between men and women working within the same organisation. The...
Just before Christmas you may have been sent a message from your bank saying they won’t be charging you for making euro payments from non-euro countries like...
TL;DR To the TransferWise community, We’ve just finished Q4 and have headed into a new year and new decade. It’s time for an update on how much closer we’ve...
This article summarizes some of the results from the report that experts at TÜV Süd wrote about TransferWise.