Foreign exchange products: TransferWise and Revolut
/As long-time readers know, I listen to a lot of podcasts, and so I end up hearing a lot of podcast ads. A few months ago, I started hearing ads for a new international payment service called TransferWise. As someone who has occasionally needed to send money overseas for things like tuition, and receive money from abroad for things like voice acting work, I’m familiar with how complicated and expensive the process traditionally is. Of course, people who send monthly or weekly remittances abroad pay even higher fees, as a percentage of each transaction.
Then today Doctor of Credit wrote about another similar service, albeit one with a slightly different business model. I’m not sure what has caused this outbreak of new streamlined international payment services, whether it’s less strict enforcement of anti-money-laundering laws or a new central bank agreement on currency conversions, but the products certainly appear easier and more transparent, if not cheaper, than traditional money transfer services.
I did reach out to TransferWise’s PR department to schedule an interview for my podcast, The Manifesto, but haven’t heard back from them. In the meantime, I did a little research and wanted to share some thoughts on these new products.
TransferWise
Sending Money
TransferWise’s main selling point is its transparent up-front pricing. All you have to do is create a free account to see the exact conversion rate and fee you’ll pay to send any amount between any two currencies. For example, to pay the 22,900 Czech koruna tuition fee at the Olomouc Summer School of Slavonic Studies, you will pay a $3.13 ACH debit fee and $6.46 to TransferWise:
You can send money by entering your recipient’s local bank account details (e.g., the Czech bank account details of a recipient of Czech koruny, the IFSC code for an Indian recipient of rupees, etc.), IBAN number, or other destination-dependent information.
Receiving money through TransferWise is slightly more complicated, and varies depending on whether you’re configuring a business or personal account.
TransferWise Business Accounts
Setting up a business account to receive money is relatively simple:
First, you need to set up a “multi-currency account.” Unlike sending money, which is allowed with a free registration, receiving money requires a (one-time, I believe) payment of $31 to receive bank details for 7 “local” foreign currency accounts:
Note that these are not the only currencies you can receive funds in; rather, these are the seven currencies you receive local bank details for. If you’re being paid by a client in New Zealand, it may be cheaper or more convenient for them to send money to a New Zealand bank than to a US or British bank, for example. You should be able to provide those bank details to anyone in any country to receive money, but any inbound transfer will be converted to the currency of the bank whose details you provide.
TransferWise Personal Accounts
Setting up TransferWise personal accounts to receive money is a little more cumbersome, although should be slightly cheaper in practice. That’s because instead of paying a single flat fee to receive your bank details for all seven local currencies, you instead have to make an initial deposit into each currency you want bank details for. The amounts for each currency vary slightly so I’ll simply list them here:
Euro: 20 EUR
US Dollar: 20 USD
Singapore Dollar: 30 SGD
Australian Dollar: 30 AUD
British Pounds: 20 GBP
Hungarian Forint: 6,000 HUF
New Zealand Dollar: 30 NZD
If you already have an external account denominated in a given currency, then you can make a same-currency transfer for a nominal fee. If you are making a deposit from a different-currency account (e.g. making a EUR deposit funded with a USD account) you’ll also have to pay TransferWise’s conversion fee. While this is a bit cumbersome, I don’t think there’s anything necessarily nefarious going on here: for personal use, most people probably only need a foreign currency account in a single currency, for example someone with relatives in Europe or Britain may only want to move money between USD and EUR or GBP, and so ends up saving money by making an unnecessary “deposit” into their account compared to paying to open up 6 additional accounts they’ll never use.
One obvious reason you might set up a TransferWise account in your home currency is to receive payments, international or domestic, without revealing your “real” bank account information to the payer, especially if you’re receiving payments from an untrusted source or simply a country with weaker bank privacy and security standards than your own. Most of us have throwaway bank or credit union accounts we can use for those purposes, but most US banks still charge fees when you receive international payments.
If you receive frequent or, especially, small international payments, a TransferWise account may make sense as a payment target since receiving money is free (oddly the help page appears to be out of date and lists “USD, GBP, EUR, AUD, NZD, and PLN” as the currencies you can receive for free — they do not offer Polish local bank details, and do offer Hungarian and Singapore local bank details). You can then make a “withdrawal” by sending your total balance to your regular US bank account for a nominal fee (for example, $4.23 for an outbound transfer of $1,000).
TransferWise Debit Card
Finally, personal TransferWise customers can order a debit card (for a $9 fee), which has two purported benefits. First, if you spend money in a currency you have in your account, then the money is deducted from that account without charging a currency conversion fee. In other words, if you are planning to travel to Europe, you can move money into your EUR account ahead of time and not pay foreign transaction or foreign currency fees. Second, if you spend money in a currency you don’t have in your account, you pay TransferWise’s conversion fees and get their conversion rate, but still avoid those foreign transaction and foreign currency fees. Most, but not all, premium credit cards no longer charge those fees, but some still do, and most no-annual-fee credit cards do, so it’s not hard to imagine people for whom a $9 TransferWise debit card might offer real savings, compared to their other options.
The third, unadvertised benefit of the TransferWise debit card is a way to reduce the cost of withdrawing money from your TransferWise balance. Buying a single $0.88 Walmart money order, or even two $0.99 money orders from Western Union, will end up well below the $4.23 TransferWise wants to charge for the same $1,000 withdrawal. TransferWise wants you to keep money in their ecosystem, and you want to get it out. The debit card appears to offer one easy way out.
Revolut
Doctor of Credit’s writeup of Revolut was focused on its function as a high-interest savings vehicle, for obvious reasons, but it’s actually slightly more interesting than that. Like TransferWise, it’s actually a platform for making both same-currency and foreign-currency payments, especially to other Revolut users. You can imagine the pitch meeting: “Venmo for the globe-trotting elite,” “PayPal for the rootless cosmopolitan.”
Revolut Savings
Revolut’s pays interest based on two calculations: free accounts earn 0.25% APY, and paid accounts earn a base 0.5% APY, with an additional 4.5% APY paid on the amount in your savings account up to the amount you spent on your debit card that month. The obvious problem with this scheme is that at face value it seems to require you to have access to twice as much money as you plan to earn interest on. After all, you need the same amount of money in your Revolut spending account as you do in the savings account in order to earn the maximum interest on the latter balance. There are two reasons that’s not quite right.
First, let’s look at a brute force calculation of how much you earn and pay when you attempt to maximize your Revolut interest as a traditional high-interest checking account, like those I’ve written about many times in the past. Using some round numbers:
A $10,000 savings balance earning 5% APY will earn $512.67 in interest per year;
12 months in the “Premium” plan will cost $119.88 in monthly fees;
In order to earn 5% APY on your balance, you’ll need to spend $10,000 per month on the Revolut debit card (technically slightly more over time as your savings balance grows). At $0.88 per $1,000 Walmart money order, this comes to a total of $8.80 per month, or $105.60 per year (obviously use your own liquidation costs in your own calculations).
That gives a total annual interest income of $287.19, or an APY of 2.87%. That’s not great. Not terrible, but not great. Note that in this calculation that you don’t need to keep the money in the spending account all month: you only need it available on the day you make your money order purchase. In fact, there’s no reason you couldn’t transfer your savings balance to your spending balance on the first of every month, spend it all, then redeposit it immediately and transfer it back to savings. You’d miss a few days of interest each month, but you’d be earning interest on the same pool of money.
Second, since qualification is monthly, you can use Revolut savings opportunistically to earn a high interest rate on large balances you can only pay with a debit card. The obvious example is a school which allows semester bills to be paid fee-free with a debit card, but that adds fees for credit card payments. Moving $40,000 to a Revolut savings account on the first of the month, and then making a $40,000 tuition payment at the end of the month, should meet all the requirement to trigger 5% APY on your entire balance. Those with especially large estimated tax payments might also decide to trigger a 5% APY on their payments just 4 months of the year instead of all 12.
Note that by my reading of their terms, you can’t easily swap in and out of paid plans, so if you plan to try something like this, you should commit to it for the whole year or you’ll have to pay at least a $19.98 “break fee,” plus any months of unused benefits. They do claim to offer a discount for annual memberships but I couldn’t easily find any public information about it.
Revolut Travel Benefits
Remember above I mentioned that Revolut was supposed to be a payment app for hip globetrotters, and paid plans come with a number of benefits that might offset their obnoxious fees. Unfortunately, their US site doesn’t provide many details about them. Here are the ones that jumped out at me, in no particular order:
Lounge Key Pass. This is, near as I can tell, virtually identical to Priority Pass, in that it offers “discounted” entry into participating lounges, and the participating lounges more or less perfectly overlap with Priority Pass. Just as with Priority Pass, it virtually never makes any sense to use this benefit, unless you can use…
SmartDelay. Ordinarily, Lounge Key Pass membership gives you access to participating lounges and restaurants at a cost of $25 per person. “Premium” and “Metal” Revolut subscribers get free access to those same lounges and restaurants for themselves and one (Premium) or three (Metal) guests after their flight has been delayed for one hour. Essentially, you enter your flight information into the Revolut app, and if the flight has not departed one hour after scheduled, you receive the free Lounge Key passes. The passes do not have to be used in the airport you’re delayed in, but they do expire after 48 hours. Any possible mischief here is left as an exercise for the reader.
Overseas medical, delayed baggage and delayed flight insurance. These have the potential to be extremely valuable benefits…but the website provides no information about the terms and conditions of the benefits.
Conclusion
In my casual research, I gathered that despite its primitive website and missing language about important benefits, Revolut is actually a fairly established company, with many satisfied and not-so-satisfied customers in Europe and elsewhere. Having just planted their flag in the United States, they’re no doubt still getting their ducks in a row regarding many of the benefits they claim or pretend to offer, and that naturally makes me hesitate to take any of their promises at face value.
TransferWise is a more traditional Silicon Valley startup (they brag about having Peter Thiel as an investor, which I would reconsider were I in charge of marketing), but I appreciate their upfront pricing and extremely functional interface.
Finally, I want to touch on something that I thought about while looking at both companies: foreign currency diversification. Traditionally, retail foreign currency trading is done using either very short-term financial derivatives, or foreign-currency-denominated bonds, rather than buying and holding foreign currencies directly. Obviously a lot of us have piles of euros, koruny, and lats lying around at home leftover from previous trips, but it’s relatively complicated (not to say dangerous) to invest in foreign currencies directly, since consumer US bank accounts don’t hold foreign currency deposits.
Both of these companies allow retail investors to spread their cash across multiple foreign currencies with low exchange fees and, in the case of TransferWise at least, no monthly fees. For folks uncertain about the shape of the future economy, I can see potential value in distributing some amount of cash across a range of foreign currencies, not in the belief that any one of them will collapse or any one will skyrocket in value, but on the chance that one or all of them could do one or both.
TransferWise does have a referral program but the rules are so convoluted I won’t bother sharing my personal referral link. As I mentioned above, I’m trying to get in touch with their PR team and have asked for a promo code I can share with readers for free multi-currency accounts or something of that nature that might actually provide some value.
