Why Do We Send Money Abroad And Where Can We Find The Best Rates?
Since the dawn of time, human beings have been nomadic creatures – whenever there has been an opportunity to explore, as a species, we have tended to take it.
Historically, the urge to travel was driven mainly by one of two factors – trade, or empire building / war. Thankfully, in the modern globalised world, although for some, mentioning no names, empire building is still the game, most of us travel for reasons that are more in keeping with the 21st Century mentality.
We travel to further our education, to gain knowledge, to visit friends or relatives who have relocated overseas.
Sadly, many are forced to travel to find better life opportunities, to support families under threat from despotic government regimes, or to escape persecution, and we can only hope we can consign this kind of travel to the history books also.
We still travel for reasons of trade; more than ever before, perhaps. Americans still come to Europe, perhaps only once in a lifetime, to complete a two-week “Grand Tour” of the continent popularised by the Victorians.
Although we have done so since ancient times, as a species we speculate more today than we have ever done before. This may not involve physically travelling ourselves, but it does involve sending money to all corners of the world.
From Marco Polo’s “Trade Mission” to China, in the thirteenth century, to the Tulip Fever that gripped Europe in the 16th Century, to George Soros crashing the British pound out of the single market to skim a profit off of the top, humans have always speculated that, by swapping what we have for what somebody else has we can make a deal that ultimately suits both parties – although more often than not – it ends up suiting one party more than the other.
And that’s certainly the case in the world of overseas money transfers. For many years, the big banks and Money Transfer agencies like Ria and Western Union have gotten away with charging customers looking to send money abroad a premium.
But before we go into that, let look at some statistics that will demonstrate just how vast an industry international money transfer really is.
In 2010, the World Bank estimated that the amount of “remittances”, i.e. money sent from international migrant workers between countries for that year stood at around USD $440 billion.
The report also revealed that more than 215 million people, or around 3% of the world’s population, live outside of their countries of birth.
The US is home to the most migrants, followed by Russia, Germany, Saudi Arabia and Canada. In terms of percentage of immigrants, relative to population, Qatar, 87%, Monaco, 72% and Andorra, 64% lead the way.
Remittances to developing countries were worth $325 of the, and the countries that received the highest volume of international remittances were India, China, Mexico, the Philippines, and France.
The US is the main source of remittances, recording $48 billion of recorded outflows in 2009. Saudi Arabia is the next largest, followed by Switzerland, then Russia.
Interestingly, during the financial crisis, the level of remittances scarcely fell, dropping only 5.5% in 2009, and quickly returning to parity the following year.
But of course, remittances aren’t the only reason for sending money overseas. In terms of volumes, the Foreign Exchange market dwarfs the remittance market.
Currency trading, otherwise known as the Foreign Exchange or FOREX market, is done via over-the-counter (OTC) contracts – to buy, sell, or exchange currencies – and it is by far the biggest market there has ever been, anywhere in the world, at any time in history.
The modern foreign exchange market sprang up in the 1970s; quite simply, it gave companies in different countries the means to buy goods in the currency in which they originated from, but quickly developed into a more opportunistic industry, with vast tranches of currency being sold “interbank”, i.e. between major financial institutions.
The scale is breath taking; The Bank for International Settlements revealed that the preliminary global results from the 2016 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity estimated that trading in foreign currencies averaged $5.1 trillion per day in April 2016.
This represents an increase from $4 trillion in April 2010. Foreign exchange swaps, $2.4 trillion, and spot trading, $1.7 trillion, comprised the vast majority of deals. Forward transactions, where traders “lock in” the price of a currency by buying in advance, currency swaps, and options and derivative products made up the rest of the volume of trades.
So, the market for currencies is vast, thanks to the efforts of traders and the big banks.
But what does this have to do with you – a person looking to transfer a relatively insignificant amount by comparison with the Forex markets, but significant enough for you?
It might be that you have emigrated to a new country, sold your house in the UK and are looking to move that money over to a bank in your new country of residence.
Or you are looking at buying a second home – a ski chalet in the Alps, a villa in Marbella, a country house in Normandy, or Provence, in France.
Or perhaps you have children on a gap year overseas, or on a foreign exchange scheme abroad. Or you are paying to educate your children abroad.
Maybe you are a small business looking to import goods from abroad, and looking to take advantage of a favourable exchange rate. Or looking to pay an employee you have who is based overseas.
Whichever, or whatever it is, you want to make sure that you are getting the best possible exchange rate, and paying fees that are appropriate to the transaction you are making, offering the right level of security, and not extortionate or disguised.
Well, first let’s give you the bad news. The traditional means of moving money overseas, via the big high street banks or using the likes of Western Union, will neither offer you a competitive rate, nor charge you appropriate fees.
You would think, with such a volume of currencies being traded, and the liquidity, that’s ability to quickly convert from currency to cash, so high, that the spread, that’s the difference between buying price and selling price, would be wafer thin.
But here’s the thing – the banks’ reserve those rates for their own exclusive use, and offer you, the individual customer, nothing like the deal they could – to maximise the profit they can make from the customer facing, B2C side of their business.
And on top of that, the banks add fees. Not fair or transparent fees, that ensure the customer pays for security, and safe transfer, with a small commission paid to the bank for arrangement, but hidden, hard to decipher fees that bear no relation to the reality of the service they are carrying out on your behalf.
Thankfully, in todays’ tech disrupted global ecosystem, hundreds, if not thousands of services have sprung up all over the world that offer the customer better rates, lower fees, and a better all-round service.
We are lucky to work with two of the most prominent – Transferwise and Azimo – as well as a range of independent, authorised brokers, with hundreds of years’ experience between them – who can save you serious amounts of money – whatever your reason for moving money abroad.
So now you know a little more about why we send money abroad, and the mind blowing amounts that are sent all over the world every day, for many different reasons, we hope you’ll take the opportunity to use our unique, algorithmic comparison engine. You won’t regret it – we’re pretty sure about that.
