People have been using money transfers for ages for several reasons: to pay an international client, to send money back to one country, to buy a product abroad etc. Even Western union was created in 1861! Can you imagine? However it is still outrageously expensive to transfer money. Here is a brief explanation why and how it could be cheap.
Why are money transfers expensive?
Most people use 2 alternatives to make a money transfer internationally: they use either their banks or actors such as Western Union or Moneygram. Unfortunately there are the most expensive options you could go for. Let me tell you about my experience.
Recently I met a French girl who lives in London like I do. We ended up talking about money transfers as she needs money from her parents each month to pay for her daily expenses. She told me how shocked she was by the outrageous fees she was paying for each transfer. Once, they send her 100€ and she ended up paying 10€ in fees! She could not believe that Western Union took 10% of the total amount on such a small amount of money.
I used to work in Switzerland and live in France. So each month I had to do a money transfer from CHF to EUR to make sure I could pay for my rent etc. As many of my colleagues I was using my bank to make my transfers but I rapidly realized that I was paying outrageously too much as well. Each time I had to pay a fixed fee, a variable one and what is called hidden fees. Hidden fees are quite hard to detect, hence their denomination, and they are reflected in the exchange rate applied by the bank: they use a poorer exchange rate than the real one and make money on it!
How can you make money transfers cheaper?
There is no apparent reason for us to pay such a lot of money in money transfer fees each time we need to send money. Recently new actors arrived on the market such as Transferwise, Azimo or World Remit and they are very competitive in terms of prices because the fees you are paying are around 2%. Nothing compared to the 10% of Western Union or my bank.
The reason they manage to cut-off the costs is because they use opposite currency route: meaning you send CHF to EUR, they wait for someone to send EUR to CHF. So they almost never have to buy currencies. Such operators are called P2P, peer-to-peer.
I guess you’ve understood that it is time to stop using your bank or any old dinosaur like Western Union or Moneygram and go online to make a money transfer!