Money transfer experiment – Chapter 2: UKForex


Previously on “Money Transfer Experiment”

I have a bank account in the USA. Recently I wired some money to an account in a bank here in Belgium. The sending bank (which shall remain un-named for the rest of this story) charged me $40 for this. It’s a flat fee, not dependent on the wired amount. I know what SWIFT charges for a message (a tiny fraction of this amount), so you can understand I find this amount … outrageous. BTW, the whole process takes 3-4 business days and there’s no information at all as to its status and progress. Also, the FX rate that was used was far from the best.

There must be a better way. So the experiment is: use alternative payment options to reduce the transfer fees, and find the best FX rate.

Chapter 1 was about my experience with Paypal – see here. In summary,  Paypal’s fees are lower than my banks for international transfers for amounts lower than $5,000. Paypal’s FX rate is marginally better than my bank’s, but far from best.

Chapter 2 – UKForex

Introduction

Shortly after I published chapter 1, Tom Rundle (@tumbletom) of OzForex commented on my blog and suggested I try UKForex, who according to their web site (www.ukforex.co.uk) specializes in providing best foreign rate exchanges for businesses and expat people in the need of transferring money to or from overseas. As far as I understand, they are a branch of OzForex who, as the name implies, started the business in Australia.

Anyway, Tom suggested this for chapter 2 of the story, so here we go.

Setup

I registered with UKForex yesterday. It was clear right away that while UKForex is very much online,quickly I could read that they pride themselves on very strong customer support. After registration, I received a mail telling me the next step is to call one of their support numbers because “we need to speak with you to discuss your needs and to meet various regulatory requirements”. It was evening for me, so I figured I’d give them a call the day after.

About 5 minutes later, I received a call on my mobile (which I did provide when I registered). The number was from the USA, and presto I was talking to an UKForex representative! Impressive reaction time.

Someone called Calvin Kuk thus talked to me and asked me to explain what was my business. After I explained my setup, he asked me how I was doing this now, so I mentioned the wire transfers with outrageous fees from my bank, plus chapter 1 of my experiment with Paypal.

Kudos to Calvin because he actually listened, which is rare these days. He immediately mentioned two points, for which I was really grateful as I did not have to find this by myself later on (especially because their site is one of these older ones with lots of links and information, kind of difficult to grasp and understand. All is there, but I’d suggest to them a good cleanup and simplification, so that people get straight to the point) -

  1. UKForex specializes in larger amounts (so the minimum transaction is above 1,500 EUR)
  2. In the USA, UKForex banks with Bank of America (not the same as mine), so moving money from my bank to UKForex implies a domestic wire fee from my bank (reminder from chapter 1: this is a flat 20 USD per wire)

Experiment

Armed with this knowledge, I started comparing FX rates at 18:30 CET today Wed 28 Sep 2011. Here are the results.

First, a transfer of 1,500 EUR:

 MyBank  PayPal  UKForex
 FX  0.7107  0.7145  0.7224
 Total (USD)  2,110.62  2,097.97  2076.41
Second, a transfer of 3,500 EUR:
 MyBank  PayPal  UKForex
 FX  0.7107  0.7145  0.7236
 Total (USD) 4,924.79  4,895.26  4836.26
Lastly, a transfer of 25,000 EUR:
 MyBank  PayPal  UKForex
 FX  0.7147 -  0.7271
 Total (USD) 34,981.65 -  34,383.17
Notes and reminders:
  1. Paypal fees are 0.5% as long as the transaction is under a certain threshold. I have notice today that the threshold is different than yesterday! Today, anything above 1,000 EUR gets a much higher fee. So beware…. In any case, I have assumed that for the 3,500 EUR scenario, I would issue several Paypal transactions, each sufficiently small to get the 0.5% fee. That makes Paypal impractical for the 25,000 EUR scenario.
  2. There is a flat 40 USD fee charged by my USA bank for an international wire, regardless of the amount of the transaction.
  3. Bear in mind I haven’t yet executed a full transaction with UKForex. So there may be other fees hidden in addition to the 20 USD flat fee my bank will charge for wiring the money to UKForex. I will report back when I do a full end-to-end transaction.
Conclusions
A pity that there is a 20 USD wire fee in my case to get the money to UKForex, because on the FX rate they are consistently the winners (at least per today FX rates). Based on the test above, Paypal and UKForex are equivalent up to 1,500 EUR transferred. Above that, UKForex is the clear winner. As to my USA Bank: it comes last in all cases.
Some thoughts after chapter 2
  1. I found UKForex’s marketing excellent. First, Tom Rundle somehow spotted my tweet and blog (he is now following me :-) ), then the super responsive reaction after I subscribed.
  2. Given that UKForex is coming out best, I’m now going to send them the required information for a full setup (photo id, proof of residence, etc). Definitely becoming their client.
  3. I was wondering about whether I would actually entrust 25,000 EUR to UKFunds. It’s a very good question: I would order a wire with my bank with no problems, but I do not know UKTrust. I guess it’s a question of doing some smaller transactions first and building up a relationship.
Next steps
Try a mobile payment scheme. Stay tuned for chapter 3.

Money transfer experiment – Chapter 1: Paypal


I often get this question – are new (or not new) entrants to the person-to-person payments scene (such as Paypal or the emerging mobile phone payment schemes) a threat to the banks?

My opinion is yes – they are. And I was looking for a way illustrate easily and clearly why I think it is so.

That’s why I imagined the following experiment.

I have a bank account in the USA. Recently I wired some money to an account in a bank here in Belgium. The sending bank (which shall remain un-named for the rest of this story) charged me $40 for this. It’s a flat fee, not dependent on the wired amount. I know what SWIFT charges for a message (a tiny fraction of this amount), so you can understand I find this amount … outrageous. BTW, the whole process takes 3-4 business days and there’s no information at all as to its status and progress. Also, the FX rate that was used was far from the best.

There must be a better way. So the experiment is: use alternative payment options to reduce the transfer fees, and find the best FX rate.

The goals of the experiment are – prove my point that new payment entrants are disruptive to the banks, and also more practically to find a better solution for transferring my hard earned cash :-)

Chapter 1 – Paypal

I have a paypal account in the USA, linked to the above mentioned bank account in the USA. I have just created another BE based Paypal account.

Here’s how I imagined this -

Step 1 – I’ll transfer money from my USA bank account to my US Paypal account. There’s no information on paypal.com as to the charges for this. The worst case is that this be considered by my USA bank as a domestic transfer, for which they charge $20 (yeah, yeah, another outrageous fee). Paypal says this process should take 3 business days.

Step 2 – I’ll send the money from my USA Paypal to my BE Paypal account. This should be instantaneous. Reading the Paypal site it is not clear at all as to what the charges will be.

Step 3 – I’ll then transfer the money from my BE Paypal to my BE bank account. Paypal says there are no charges for this, and it should take 3 business days.

Net effect – it may take longer (up to 6 business days) but I hope to save 50% of the charges or more.

Here’s what happened -

Step 1 – I figured very quickly step 1 is not required.  I can just go ahead and send money directly from paypal.com, as my US bank account is linked to the Paypal one – so Paypal directly debits my bank.

Step 2 – I login to my US Paypal account, and use the “Send Money” option. I enter my BE Paypal email as the recipient, enter the amount, choose the “Personal”  option, click in the “payment owed”. Then there is the question of whether I want to send US dollars or Euros. Paypal helpfully provides a currency converter. I compare this to the exchange rate on my bank’s US site – the Paypal rate is marginally better so I tell to Paypal to convert and send Euros.

Fees pertaining to this step:

  • from my US bank to Paypal US: 0
  • from my Paypal US to my Paypal BE: 0.5% of the amount transferred. I simulated several amounts, and it seems this fee applies to amounts below $5,000. Above that, they apply other much higher fees, I don’t really understand how they are computed. But I rarely transfer above $5,000, so fine for now. And I’m really happy with the 0,5% fee, much lower from the flat bank fee of $40 (as long of course as I transfer below $8,000 or, more precisely $5,000 where another fee structure kicks in)

Time elapsed so far: minutes. The amount appears in my BE Paypal immediately.

Step 3 – I login to my BE Paypal account. As it is linked to my BE bank account, I can select “Whitdraw” tab, “Transfer to bank account” option. Enter the amount, click a couple times, easy enough.

Fee for this step: 0

Time elapsed for this step: 3 business days.

Interesting post experiment note -

Two days after I started this experiment, I got a call from Paypal on my BE mobile phone (which I have entered when I created my BE Paypal account). They were calling because they have noticed the unusual international transfer activity, and were curious if this would be a repeating pattern in the future. I told them yes. Was impressed by the very pro-active support call.

Conclusions and questions of chapter 1

For transferring money, Paypal is better than an international bank wire as long as you transfer under $5,000. The FX rate is very similar.

I wonder -

  • where does the “magical” $40 bank flat fee come from? Is it something the bank uses to incentivize their customers to use it only for larger amount transfers? If so, why?
    BTW, domestic wires in that same US bank are charged $20 flat.
  • what is the fee structure of Paypal for larger transfers ($5,000) – their site is not clear about it.

Conclusions on the experiment so far

The point of this experiment is to show that -

a. banks charge outrageous fees for international transfers, in a very opaque process.

b. the new entrants are sort of not attacking (yet) on this business, but you can use them, with a little creativity, to improve it.

c. imagine what’s going to happen when the new entrants start to actually focus on international transfers……..

But – you know the eternal optimist that I am ;-) – I think that there’s a way for banks to embrace this rather than fight it. This was one of the conclusions of the Innotribe@Mumbai event. But before that, banks and all of us need to understand exactly what’s happening.

Next steps

I want to use some mobile payments schemes – suggestions welcome. Also at Sibos I got to know some other interesting possibilities and companies (such as Tranferwise), that would perhaps get me a better FX rate.

Stay tuned.

Sorry for the long post, hope it was good reading