With Coronavirus causing many of us to move back home, visit our family and care for them, currency exchange is yet another obstacle in our economy. Buying the BRL from the US or UK can be very costly, with most banks classing it as an exotic currency.
At the best of times, a high street bank will provide currency exchange with a 2% or 3% spread - meaning you will have lost that amount in thin air from the total value of the transaction. But with the Brazillian Real being categorized as an exotic currency, 3% may wind up being the best-case scenario, as it may be as high as 4%.
There is an alternative, though. Money transfer companies, such as UK broker Currency Solutions, among others, are likely to provide a GBP to BRL transaction for under half the price.
The headline news here isn’t the exciting alternative that fintechs are providing, it’s actually the dissuasion from relying on high street banks. For too long, banks have been getting complacent; exploiting customers’ loyalty by providing lacklustre remittance services.
Sure, banks are the best solution for many things. A business loan from a bank will likely be the cheapest on the market. But even then, they’re terribly delivered with long waiting times and ruthless credit checks.
For many years, we have relied on banks for their convenience. Seeing that our paychecks and savings tend to be in a bank account, it’s easier to use that debit card when spending money abroad. Even if you were to find a better bank, it would be an ordeal to sign up to and transfer the money across.
It’s not just the currency margin that banks take, but it’s the old technology they are running on. Most banks cannot compete against fintechs when it comes to app development, because they’re too big to be versatile and adapt to the environment. Sending money abroad with a bank takes time, and on top of the slow process, there are usually flat fees involved too.
PayPal is no better
There are some online payment solutions that should be providing cheaper alternatives but actually cost more. PayPal’s currency and transfer fees are extortionate. Again, the high market share and convenience is a driving factor in their lack of competitiveness.
From GBP to BRL, PayPal currently charges 4% plus a flat fee of £0.30. If you wanted to send £10 to your friend for last night’s beers whilst on holiday, £0.70 (aka 7%) of the transaction would get lost.
If this is scaled up to the purchasing of a house, the fee would be closer to 4%, but the charge would be £4,000 when buying a £100,000 house in Brazil. Right away, this has eaten into your profit yields as an investment or prevented you from getting a more expensive house that you really wanted.
PayPal often charges international fees even if the currency is the same, and more fees on top of that if it’s a business transaction.
Currency Solutions, as mentioned earlier, is exactly what it says on the packet: solutions to the current currency problems. As opposed to being an overarching provider of financial products like a bank, Currency Solutions specialises in one thing, and that’s currency.
There are actually a growing number of money transfer companies right now, all competing against one another. Currency Solutions is just one of many, but they do have a certain USP for many clients, as they have a local payment partner in Brazil meaning that they serve as the best option when you transfer money to Brazil for cheap.
Customers are reassured that they will receive a better rate here than any bank, and there are no fees on transfers over £3,000. Dedicated account managers mean that customers can be guided through with phone support, making large investment transactions all the more secure.
For example, sending £10,000 to Brazil will result in BRL 73,822 being received right now with Currency Solutions — a 7.32 exchange rate. The mid-market rate would result in BRL 74,936. Thus, the fee is only around 1%, compared to a bank which would be around 4%, where only BRL 72,000 would roughly be received. In fact, TransferWise — a famously fantastic money transfer competitor — would send the recipient BRL 73,558.
This is the best BRL rates, and a lot of money saved. This is particularly important when dealing with investments and large transactions. These are costs that can easily be mitigated with no effort. In fact, it’s less effort to send money with money transfer companies because they’re totally online and designed for fast, convenient payments.
All things considered
In a time of Coronavirus where the economy is in turbulent times, costs are high and there’s endless friction in visiting other countries, investors, expats and small businesses must keep costs down where they can. Currency isn’t the only way to save money of course, but it’s one that requires no effort.
Other ways to save money when travelling to Brazil is triple-checking your rights to compensation in the event of flight cancellation and buying 3rd party insurance if that company looks currently unstable. Booking closer to the departure date makes sense, but don’t leave it until there’s a week or two left because prices begin to rise.
Finally, when booking accommodation, it’s almost always cheaper to pay once you’re already in the country. This is nothing to do with currency exchange (although hotel booking websites do have poor rates), but because they charge more for overseas tourists online. Once there, walking into a hotel and asking for the rates is usually cheaper.
If you cannot travel without a robust itinerary and certainty, try phoning or instant-messaging companies directly instead of paying through accommodation marketplace brokers - as they are usually cheaper given they’re avoiding the commission.