If you are planning a holiday abroad or travel often, you have probably noticed how currency exchange eats into your money. Every time you change money, your bank applies fees. In many cases they are ridiculously high.
Contents
- Why banks overcharge on currency exchange
- Fintech services as an alternative
- Where the real cost of an exchange is hiding
- A simple way to compare offers
Why banks overcharge on currency exchange
Banks trade with each other at the interbank rate. This is the true exchange rate. You, however, are given a different one, because the bank adds its margin on top. As a client, you usually cannot see the fee applied to you. The only thing you see is how much foreign currency you received.
Withdrawing cash abroad can be even worse. First you pay for the currency conversion. Then the ATM may charge its own fee, and the bank may add another one for a foreign currency withdrawal. In the end, getting some cash in a foreign country can cost a significant amount.
Fintech services as an alternative
A practical solution is to use fintech services instead of a traditional bank. Financial technology companies usually take a different approach. They focus on the client rather than on short-term profit.
Companies such as SharPay know that the traditional exchange model leads to significant overpaying. SharPay offers much lower currency exchange fees. It also offers convenient cards that make financial operations abroad even simpler. The same provider handles mass payouts when you need to send money to many people at once.
The cheapest exchange is the one you do not have to make twice. Keeping euro and crypto in a single digital wallet means converting once, at a moment you choose, instead of paying a margin on every incoming transfer. SharPay shows the rate before the conversion is confirmed.
Where the real cost of an exchange is hiding
Most providers advertise a small percentage, or none at all. The cost usually sits somewhere else entirely.
The markup on the mid-market rate. There is one reference rate — the mid-point between buying and selling on the interbank market. Everything you are offered is that rate plus a margin. A service charging “0 % commission” simply moves the margin into the rate. The only way to see it is to compare the quoted rate against the mid-market one at the same moment.
Double conversion. Say you pay from a euro balance for a purchase priced in dollars. If the merchant settles in a third currency, you convert twice. Each hop carries its own margin. Holding a balance in the currency you actually spend removes the extra hop.
Dynamic currency conversion. A terminal or checkout may offer to charge you in your home currency. In that case the rate is chosen by the merchant’s provider, not by your card issuer. The convenience is real and so is the markup. Declining and paying in the local currency is usually cheaper.
Weekend pricing. Currency markets close. Conversions over the weekend are quoted with a wider margin to cover the gap until they reopen. Where a transfer is not urgent, Monday is cheaper than Saturday.
A simple way to compare offers
Ignore the advertised percentage. Take one amount, say 1 000 euro. Ask each provider exactly how much lands on the other side, in the other currency, after everything. One number, same moment, no interpretation required.
And check the transfer rail while you are at it. Inside the euro area SEPA arrives within one working day. SWIFT takes 3–5 days and can lose a fee to each intermediary bank along the way.