Using a bank is one of the easiest ways of sending money overseas. Unfortunately, it is also the most costly. Here are five cheaper alternatives that are worth exploring.
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Yes – Paypal. When you use Paypal to send money overseas, the currency conversion rates aren’t great but the fees are almost non-existent. It’s also super quick when the person you are paying already has a Paypal account.
When and why it’s cheaper: If you are paying someone under $1000, like an overseas freelancer, Paypal is cheaper than using a bank. This is because they don’t charge a bank transfer fee, which can range between $18 and $32.
#2 A Bank Transfer Minus the Bank
A bank transfer allows you to send money from your account in Australia to another bank account overseas. There are Australian and international companies that specialise in doing exactly the same thing, except with much lower fees and better exchange rates. Some alternatives in Australia include OFX (formally Ozforex) Hifx, Western Union, TorFX and World First.
When and why it’s cheaper: If you are sending more than $1000, ‘non-bank’ money transfer companies are cheaper because their fees are lower and their exchange rates are more competitive. Transfer fees vary between $10-$15 for small amounts. Most companies offer fee free transfers for amounts over $10,000.
#3 Peer to Peer Transfer (P2P)
Transferwise and CurrencyFair are the 2 biggest companies that offer P2P transfers. Instead of going through a bank, they match people buying currency in one country with people in other countries who are selling currency.
When and why it’s cheaper: This peer matching allows them to offer better exchange rates. Make sure you read the fine print. In some cases, if they can’t find a match, the fees and exchange rates could change. P2P transfers can be a much cheaper option for transfers between $1000 and $100,000. You can find out more about P2P here.
You can use Bitcoin to send money overseas but be aware that it can be quite complicated, particularly if you are not familiar with using a digital currency. You’ll have to set up a wallet with a Bitcoin company, like Coinjar, then fund your online wallet with Australian dollars, convert it to Bitcoin and send it to the person you are paying overseas. They also need to have a Bitcoin wallet and will then convert it to their local currency.
When and why it’s cheaper: Bitcoin transactions costs are much lower because you don’t have to go through any banks to send the funds. The exchange rates are better than a bank but you add some exchange rate risk because you are converting currency twice instead of once. You can find out more about bitcoin here.
#5 The Next Generation
The next generation of international payment apps are blockchain based. Blockchain is the technology behind Bitcoin that removes the need to go through a channel of banks to send money from one place to another.
They have similar aspects to using Bitcoin, including the benefit of super fast payments and very low transaction fees. The main difference will be the complexity. You won’t need to set up a wallet and the person you are paying won’t need a digital wallet to get the money.
When and why it will be cheaper: Blockchain technology will allow international transfers to go through in seconds and at a fraction of the cost that bank transfers have. Unfortunately, the technology is still relatively young and needs greater acceptance both from the banking fraternity and regulators. You won’t have to wait too long, though. Watch out for these exciting new solutions in late 2016 and 2017.
Justin Rampono is the founder of The Currency Shop. We help Australians find the best way to send money overseas or buy travel money by comparing exchange rates.
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