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 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, 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


Author: Kosta

Innovation is much more than the simple interchange of the position of the earth and sun. Follow me on Twitter: @copernicc

16 thoughts on “Money transfer experiment – Chapter 1: Paypal”

  1. Normally you don’t have the same party on both sides of a transfer. The problem with the use of PayPal is the possibility of getting a chargeback — hours, days or weeks after you’ve received funds and shipped the product.

    1. I also was curious as I’ve heard that there may be an issue with the exchange rate being worse with PayPal than with a bank to bank wire transfer. Is this true? I am dealing with a tenant in my US property (I live in Berlin) and I’m looking at PayPal as an option for the tenant to transfer money. Unfortunately, I do not have a current US bank account so I HAVE to use my German one for all payments, etc.

      Is PayPal the way to go. It seems to be a smarter move than doing everything via bank transfers.

      Thanks in advance for your time

  2. … the new entrants are sort of not attacking (yet) on this business …

    This is true in the US, but not elsewhere. There are many online international payments services in the UK (where Transferwise operates) and my company OzForex (being transparent: I head up the Canadian arm) was founded in 1998 to do exactly this in 1998.

    We operate exactly the model you outline above but with a minimum transaction size of $2000. Our fees are lower than PayPal and exchange rate is much better. Below $2000 the difference is marginal which is why we don’t target that space, above $5,000 is not PayPal’s target space and you would be considerably better off using a service like ours.

    Similar to your comments about PayPal’s service we use the online space to keep costs low and scalable but believe outstanding customer service is critical to our success – I invite you to try it out for Chapter 2. You will need to be contracted to UKForex as Belgium is in the EEA and falls under the regulatory framework of the UK’s FSA but the model is all the same…

    Thanks, Tom

    1. Thanks Tom for the information and for a suggested Chapter 2 of my experiment 🙂 Looks good. Will try it when the time comes for a >$2,000 transfer.

      1. Kosta, your ‘experiment’ actually happened, or at least a variation on it, earlier this year. At the NACHA conference, the CEO of Bridge Community Bank in Iowa was looking for a service to enable him to make a transfer of $300 to Scotland. He was offered a service much as you describe – $45 fee, 3 to 5 days not sure, and the UK bank may also take a fee, we don’t know whether they will nor how much. Oh and the FX rate will be poor. Unable to find a better service, he resorted to using his personal Paypal account.

        The CEO in question is also a NACHA board member and spoke about this experience at the conference; and has separately given me permission to use it openly.

        Glenbrook Partners published research this year, phase 1 at NACHA and phase 2 at Sibos, which confirms the gap in the market to which Tom is pointing. at

        and to the wider question of threat or opportunity – it depends what business banks are in. If they are in the business of providing a broad range of financial services, then sourcing some of those services from a third party if doing so enables them to serve a wider market – such as midcaps, SMEs and banked overseas workers – makes sense. If they are in the business of building and running everything themselves, then maybe not. But the latter model is, I think, last century.

  3. Hi everyone, when I first read this post, I was looking for a cheap way to send money over to my french bank account from my US bank account.
    I am a french citizen, I had a Paypal account there before I came to the USA a few months ago.
    I opened a US Paypal account hoping I could transfer some of the money I earned in here as a researcher to my account in France. Here is my (bad) experience:
    – first, you have to register your US checking account with your US Paypal account which is a pretty straight forward process. If you decide to use a debit/credit card instead for sending money to Paypal, you will be charged $31.75 per transaction (roughly $1000) instead of $4.
    – then you can initiate the money transfer from US to France (Paypal account to Paypal account)
    – Paypal can do the currency exchange for a ~2.7% fee hidden in the currence exchange rate that they use.
    – then the transfer between account takes a whole week because Paypal wants to make sure the payment is compensated (i.e. you have sufficient funds on your checking account)
    – at that point, you finally received your money, converted in Euros, without any fee for the recipient (i.e. you) on your destination account.

    – on my french Paypal account, you have to register a bank account where to send the money, if it is not already done,
    – then I initiated a wire transfer between my french Paypal account and my french bank account, at no fee,

    Here starts the trouble
    – at this point, Paypal France flagged my account as “unsafe” for two reasons : exceptional account activity (well, I am not using Paypal very often) and access from abroad (sure I live in the US)
    – the fact that only your name shows up on any involved accounts is not enough to make it a safe transaction, as it seems.
    – So, my french Paypal account has been frozen before the wire transfer went through. The money is currently frozen onto my french Paypal account until I submit sufficient proofs of my identity.
    – the initial security question to restore access to my account was giving details about an old credit card I had in France and don’t have anymore. I emailed Paypal France a couple times but they are not answering (it has been a week). I can not reach them on the phone either because it is a special phone number.
    – So, I tried the US Paypal customer service, which is a pain is the ass as it makes it extremely difficult to get a real person on the phone, you must NOT answer any of the prerecorded questions for about 2-3 minutes and then you will eventually be transfered to a real human being.
    – at first, he tried to say, I have to resolve the issue with Paypal France (remember I couldn’t). I told him so and he transfered my call to a colleague who was able to access my french Paypal account and remove the credit card security question.
    – Instead, I have been asked to submit a scan of an ID with a picture (i.e. my passport), which I did.
    – Not enough, no they want a scan of my french bank statement (I don’t have one with me but can get one through my family, hopefully). If no one can access this type of document for you, beware!
    – I have no idea what they will ask next nor how long it will take to go through this mess,
    – On top of that, I have been charge 3Eur for my french wire transfer being cancelled (by them…)

    SO, in my opinion, Paypal is definitely NOT the company you want to deal with for transferring YOUR money between YOUR accounts, even though they offer interesting rates…

    (800Eur on the destination account costs me $1060, that is $1030 money + $30 fees)
    It also costs me hours of my time for a very simple transaction…and takes weeks…

  4. ***Update***
    – After submitting a bank statement, access to my french Paypal account has been restored
    – I tried to register my french checking account again but it was denied.
    – Only a full registration with Paypal being authorized to access my bak account would be possible. Why? I have no clue…
    – I tried to register my mom’s checking account instead. It worked so I initiated a wire transfer of my full Paypal balance.
    – My french Paypal account has been frozen AGAIN. The wire transfer cancelled and another 3 euros fee charged for incomplete wire transfer…

    – I then called the US Paypal customer service to find a solution with them. The lady on the phone transferred my call to a senior folk which offered a FULL REFUND to my US Paypal account including all fees processed up to date. His words ” As if it never took place”. Within 15 minutes my US Paypal balance was credited back $1060.62 which is exactly the amount that had been charged on US checking account in the first place.
    – Having a $500 monthly withdrawal limit from my US Paypal account, it will take about a month to get most of my money back onto my checking account for a $1.5 fee per $500 check sent.
    – The US customer service has proven helpful resolving my issue but the service offered by Paypal is not up to the task according to my experience (complete failure to transfer money, 3 weeks wasted, tons of hours trying to work it out, $4.5 total cost for checks sent by US Paypal (wire transfer would cost me more on my bank’s side).

    Are you still confident enough to give it a try?

    FYI, USForex is not licensed in my state which makes it a no go as well.

    1. Hi Arnaud,

      Thanks for your testimonials, very instructive.

      In my experience, it is indeed very important to have both the sending and receiving Paypal accounts linked to bank accounts in respective countries. Note that the Paypal accounts should also be in “Verified” status to avoid fees and issues- perhaps that is what is missing and why you are having issues on the French side. The verification process is different from country to country. In Belgium, linking the Paypal account to bank account and sending a proof of identity will do it.

      Since I wrote the post, I have done several more transfers successfully, exactly as described.

      Hope you will get it working as well,

  5. I am going to try the same thing – but from Poland to Canada. I’ll let you know how it goes. I think that the problem Arnaud is having may be caused by the fact that in Europe you don’t need to “link” your bank account to your Paypal account, because the banking system here is different, in that you can make domestic transfers easily using your online banking. So I don’t need to link my Polish bank account to my Paypal account, in order to put money into my Paypal account. I just do a domestic transfer from my Polish bank using their online banking system, and in 1-2 business days, Paypal receives the money. I’ve just done it, so we’ll see how it goes. Fingers crossed.

  6. Thanks for sharing your experience! I can agree, that alternative money transfer methods make a good competition to bank services. It has been a great opportunity for expats (like myself) to move their funds without paying large amounts. I have been using these services for a number of years now for different purposes. However, I think that paypal is not the best way for international money transfer. As you say here, It is not clear what hidden charges can occur along the transfer process. I prefer using services as Xoom, Paysera or Transferwise, mentioned here. Depending on a currency there can be found really good exchange rates, and this is more important than charges when you transfer a larger amount of money.

  7. I’ve also had pretty good success with PayPal as an alternative to bank transfers. The only negative experience I’ve had with PayPal occurred when I purchased something on eBay around 2002. The seller did not describe the item accurately and was unresponsive after the sale. Because PayPal refused to give me any satisfaction, I turned to my bank who obligingly issued a chargeback against PayPal. The problem showed up when I sold something else on eBay a few months later. Without warning, PayPal froze my account and demanded an explanation for the earlier chargeback. I explained the situation again, PayPal asked to see the misdescribed item, and I shipped it off. My account was released a week later. The lesson learned is that I now never use the same account for purchases that I use for selling. I’ve had no problem with PayPal for the last decade.

    These days, I mostly use PayPal to transfer money among friends and family. For a while, when her finances were tight, my daughter carried my PayPal debit card in her wallet. If she suddenly needed to fill her tank and found her checking account empty (she does not have a credit card), she could call me. I could make an instant transfer from one PayPal account to another using my bank in Texas as the funding source. She had the money before we hung up and I paid no fees.

    More recently, I helped a friend figure out how to move money from Canada to the United States. It was surprisingly difficult and expensive, despite the fact that the banks were the same in both countries (TD), until I suggested PayPal. She now lives in our intentional community and regularly transfers amounts from $300 to $2,000 through PayPal. We never pay any fees other than the exchange rate, which is always very close to what we find on the Internet.

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