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When choosing to use a non-bank payment firm, the most crucial factors to consider include fees, exchange rates, market navigation, personalised support, and potential risks. Here's our advice.

Pound Sterling Live has spent years working in the foreign exchange market, delivering independent and award-winning foreign exchange news. Our staff have also worked and interacted with international payment providers and have this advice for any potential clients looking to use a money transfer provider. The key pointers are:

1) Exchange rates and fees
2) Beating the bank
3) Beating the market
4) Advice and guidance
5) Setup
6) Safety and pitfalls

Industry Updates

Wise's Fee Reductions Come With a Rub
RationalFX Clients to Suffer Significant Losses as Safety Procedures Were Not Followed

There are six things you should consider and be aware of when choosing an international payment provider.

1) Exchange Rates and Fees Are Still the Motivating Factor

When we first started Pound Sterling Live, we assumed that businesses and speculative traders would form the bulk of our audience. We soon realised that individuals looking to make personal transfers would make up the majority. (Thanks to Colin Lawrence at TorFX for the initial insights on this!).

Most people want to know where an exchange rate is going next. An extension of this inquiry is whether they will receive the best exchange rate when it comes to paying.

Our surveys and feedback from the UK's largest retail transfer providers confirm that what matters most to people are the rates of exchange offered by the payment company.  It was true then, and it is still true today. (There are other issues to consider, such as service, the provision of advice, and trust, all of which we deal with below).

With price being the key initial consideration, providers who offer the best exchange rates in the market often rank the highest for uptake.

"The number one reason they move, we’ve learned, is price. If they can save money, then they will move, and they’ll go through onboarding into a new financial services product," says Wise's CTO, Harsh Sinha, in a recent interview.

2) Beating the Bank

Banks have long relied on a captive market, which has seen them offer exchange rates well below the market rate quoted on financial website dashboards.

This generates profit but offers poor value for foreign purchases or settlements. Banks are definitely your safest bet, so why do people move away from them? 

A foreign exchange services firm can deliver exchange rates closer to the market rate than the bank (this is the 'spread'.)

Some, like Wise, actually offer the market rate but earn their money through a fee. But it's the same thing: Wise's fee is just another way of presenting the spread that all other FX firms offer. It's a strong marketing propostion that has meant Wise has become one of the largest players in the field.

Here's a snapshot example:

Horizon Currency vs. Wise: Horizon Currency is a typical UK-based payment provider that says it can match the Wise proposition. The spread they offer on a Pound-Euro payment is 33 pips, which means when the market exchange rate is 1.17, the rate Horizoin offers is €1.1667. Wise offers the market rate (nice and simple), but they charge a fee of 0.33%. Therefore, for a one pound payment, you receive €1.1640. Importantly, the % stays the same regardless of the size of the payment.

3) Beating the Market

Numerous financial products and strategies can help people and companies better time their payments, minimise risk, and maximise purchasing power.

The trouble is that these have typically been developed by banks for their big clients. 

Modern money payment companies are now able to offer these to everyone.

This can help you maximise your international transfers by improving your market timing or offering you access to tools and products that can remove uncertainty from the process and ensure the exact amount reaches its destination at a minimal cost. Examples include a) orders - when your rate is hit, the payment goes out b) stop-loss and limit orders - where maximum and minimum rates are agreed. c) other strategies - a good firm will offer you the market insights to gauge where the balance of probabilities lies. i.e. is the market more likely to go higher than lower? They can also help you execute your payment in packets to average down risk.

An example of a useful tool comes from Corpay, a major international payment provider for both individuals and businesses. They offer a service whereby you can lock-in today's exchange rate for up to two years. This is an obviously important offer for those looking for certainty and minimising the risks of your exchange rate falling. For instance, if you buy a foreign property, you would want your funds locked in to guarantee the purchase.

4) Advice and Guidance

When Pound Sterling Live launched in 2013 the international transfer industry was dominated by companies that would give you access to a dealer who you could talk to. They would offer guidance and personal assistance when it came to making payments, timing the market and getting setup. 

With the move to all-things fintech and AI, these services have fallen away. This is largely because firms are trying to drive down margins, and people are a big cost. This means big companies, such as Wise, can't offer regular clients access to a personal dealer. Sure, you get their cool tech, but sometimes a person-to-person relationship is important here.

Some examples of companies going out of their way to help clients include a Whatsapp service at Horizon Currency. I know their head dealer fields WhatsApp messages as late as 10PM some nights. Most, however, offer access to their dealers during regular office hours.

Lumon has a reputation for a good dealing team, as do TorFX and Currencies Direct.

5) Setup Speed

Getting an account set up does require you to provide some details in order for payment companies to meet compliance regulations. This ensures the companies do not illegally send money, fall foul of money laundering rules.

Unfortunately, this can be a source of frustration for many would-be clients, particularly those who are not comfortable handing over details.

A good money tranfer firm always asks for the source of the funds that are being transferred; which is a cornerstone of proving illicit funds aren't being moved.

Examples for proof of funds would be savings statements, documentation of the sale of a house, or proof of an inheritance. Some find providing this to be invasive, but it a necessary.

Good payment companies strive to make the onboarding process as smooth as possible.

A good payment company will try to get the majority of its clients setup and 'live' in at least two hours. Others can take a while longer, which can lead to frustration.

6) Safety: Banks are Still Best, but the FCA is Doing a Good Job

Banks are, without doubt, your safest option when it comes to holding money. The UK goverment guarantees deposits in the event of failure and ever since the 2008 crisis banks have significantly beefed up their balance sheets and risk management strategies.

Foreign exchange companies are not banks, and if they go bust, you could be in trouble. (RationalFX is the latest high-profile company to go under, and we are monitoring developments with impacted users. Pound Sterling Live has reached out to the administrator to establish the facts around this case. We will report back here when we get a response.)

However, the FCA has stringent regulations regarding money transfer regulation. An example is companies' requirement to ring-fence client funds in an account with tier-one banks. This ensures your funds are never mingled with the company's funds, and it is usually bad practice that results in companies going down.