With more and more people looking to manage their money across multiple borders, peer-to-peer (P2P) alternatives for buying and selling currency are growing in popularity.
Midpoint is a peer-to-peer foreign exchange platform that matches buyers and sellers of euros, US dollars, sterling and several other currencies at the mid-point between the "buy" and "sell" rates from global currency markets (the inter-bank rate).
Midpoint operations director, Brad Lemkus, offers advice on how to choose the best P2P platform for your transfer.
What is P2P FX?
P2P FX is essentially a currency marketplace where platforms bring together users looking to exchange money for another currency.
By matching someone selling currency to another user who wants to buy, the P2P provider is able to offer the interbank midmarket rate that the big banks use to trade amongst themselves. If there isn’t an internal match available, most platforms will step in and provide the required liquidity to make up the shortfall and complete the customer orders.
There are many P2P Foreign Exchange companies out there, so how do you chose which one is the best match for you?
Most people don’t know that P2P FX is regulated so the first thing to do when considering a P2P FX company is to check if it’s authorised by your local financial regulator, like the FCA in the UK.
Transparency is the key to any financial transaction, and you want absolute reassurance that you’re getting the best and most straightforward deal possible. Some P2P providers, whether deliberately or inherently, are not providing the upfront information about their services and rates to allow customers to make an informed choice on their currency exchange needs.
So which company is right for you? Different providers offer a better service, depending on the level of the transaction. Midpoint has compared three different UK providers to explain why these P2P FX companies are the best in their class for their respective exchange amounts.
Transfers below £2,000 – TransferWise
TransferWise frequently offers the best fee for transactions below £2,000 charging 0.5% of the total transaction, and allowing the customer to choose what level of rate fluctuation they are willing to accept, up to 2%. This makes it ideal for smaller payments and amounts, such as paying small overseas invoices. But, as there is no sliding scale of percentage charges on larger transactions and on anything higher than £2000, they fall behind other platforms in providing the best value for money.
Between £2,000-£1million – Midpoint
Midpoint offers the mid-market rate regardless of the size of the transaction. Its flat fee of £10 for all transactions up to £2000 makes it slightly more expensive than TransferWise in this space. However, unlike Transferwise, Midpoint has a sliding scale of fees so the more you transfer, the lower the fee percentage. The scale starts at 0.5% and reduces to 0.3% as the transferred amount increases. Midpoint’s fee also includes transfer of funds to the payee – an area where banks (in particular) levy extra charges at their own discretion. A match for funds is also guaranteed within 24 hours, with liquidity provided if a reciprocal match is not found in time.
Above £1million – Kantox
Kantox best serves medium to large organisations with revenues of up to $1 billion without the resources or leverage to negotiate foreign exchange themselves. It deals with such high transaction amounts that it employs its own analysts and economics experts to monitor the markets to give up-to-the second forecasts on rates. The rates are on a sliding scale similar to Midpoint – 0.29% to 0.09% from £1million upwards, depending on the transaction volumes trading per semester.
All three examples here charge fees significantly lower than the banks which range from 2% to 5%, or sometimes even more.
As trust in P2P FX platforms grow, companies such as Kantox, Midpoint and TransferWise are continuing to expand, offering more currencies for exchange.
However, the true test for these companies will be their ability to remain completely transparent. P2P FX companies need to arm the consumer with the information they need to make choices about their transfers, whatever the size. In an Internet age, customer information is an abundant commodity; they can make an informed choice and will not tolerate smoke and mirrors as before.