If you've ever wanted to transfer money to another part of the world, you will have had to use one of the global banking institutions and long-established players such as Western Union and MoneyGram. But the service can be slow while the exchange rates used and fees charged give healthy profit margins to the companies concerned but represent poor value for the consumer.
A study by the World Bank three years ago highlighted the size of the profits involved, with banks charging an average 12 per cent for low-value transfers and Western Union around 9 per cent.
Fortunately the market is starting to become more competitive, and in the last 12 months we've seen some enterprising new entrants such as Azimo and CurrencyFair offering much cheaper money transfer alternatives.
Azimo recognised that migrants and UK expats abroad send billions of pounds to other countries each year and has developed an online service that allows you to send money to 125 countries.
The service gives a range of options including payment direct to bank accounts, to mobile phones or for cash collection at 150,000 locations around the world.
The minimum transfer value is £50, and users can send up to £900 without need for ID verification. Lower overheads mean that transfers via Azimo will be charged at between 1 per cent and 2 per cent compared with existing bank and wire services that frequently charge between 4 per cent and 8 per cent. Azimo claims you could save up to £30 on a £300 transfer.
Michael Kent, founder of Azimo, said: "We are here to shake up the money transfer market and how people send and receive money around the world, and as an ethical company 10 per cent of our profits go directly to charity."
Another new player is CurrencyFair, an online peer-to-peer marketplace which matches currency exchange demands.It cuts out the hefty bank margins and results in customers having access to exchange rates very close to the wholesale rate.
Even though banks often offer 'free' international money transfers or 0 per cent commission, the loading on the exchange rate is often a stealth charge and the mechanism used to make a tidy profit on these transactions. CurrencyFair recently analysed the exchange rate mark-up used for a transfer of £5000 into euros and found that the big high street banks charged a margin which added between £165 and £235 to the cost of the transaction, whereas the extra cost through CurrencyFair was just £30.
These new companies have lower overheads than the bigger players and are able to pass on further cost savings by offering a direct service and cutting out some of the middlemen.
In much the same way that peer to peer lending is slowly starting to nibble away at the UK savings and borrowing market, these new money transfer alternatives will appeal to the growing number of price conscious consumers looking to embrace new technology to obtain a cheaper deal when sending money overseas.
Low-cost chance to clear overdrafts
Activity in the credit-card market has picked up over the past couple of weeks, and among the latest new deals MBNA has launched a Fluid-branded credit card.
The card offers 0 per cent on balance transfers for 15 months, falling short of a number of deals where you can get a up to 22 months free. However it does come with a much lower balance transfer fee of 1.5 per cent. After the 0 per cent promotional period expires, the rate reverts to 15.9 per cent APR representative – well below the market average of 18.3 per cent.
The interesting feature is that you can make a transfer from your plastic to your current account and still get 15 months' interest free. There is a hefty one-off 4 per cent fee if you want to take advantage of this, but it could be worth paying if you're looking to repay expensive overdraft borrowing.
For example, if you transfer £1,500 to the card to clear an overdraft with an interest rate of 18.9 per cent, you would pay a one-off balance transfer fee of £60, but over 15 months you would save £354 in overdraft interest charges. Also if you set up a standing order to repay the card balance at £100 per month, you will be debt-free by the time the introductory deal comes to an end.
If your credit record is clean and you are disciplined with your finances, this is a really smart way to use a credit card to your advantage get your bank balance back in the black once and for all.
Independent partners: Bank-beating exchange rates and no hidden fees on all your international payments. Find out more