Unsure why, other than surmising that people don’t really understand the breadth of work the deliverable FX sector is capable of handling, one of the most common assumptions made is that firms like Prime Cap only deal with 'sizeable' currency conversions. Not so!
It is certainly true to say that the benefits of the improved spread/rate we offer are more clearly evident on big(ger) conversions because 3% of £100,000 is numerically greater than 3% of £1000, but, that does not mean that a company, ours in particular, will arbitrarily turn away smaller payments just because of the amount.
In fact, you’d be accurate in thinking that the business with 100 clients doing small amounts regularly is more stable than the firm who has just the one client doing a bigger sum once. Diversification is key to a good currency dealer being able to consistently deliver a competitive margin to all their clients.
With this in mind there are a couple of ways you can approach making smaller regular payments and there is just no reason why you should be put off of using a cheaper specialist just because of erroneous assumption…
1. LOWER TRANSFER FEES -
In the same way that an FX firm can pass on the benefit of it’s wholesale buying power when it comes to the actual rate of exchange, so too can it pass on the benefit of economies of scale when it comes to the processing and associated costs of sending money abroad. The two costly aspects of sending a payment are the cost of wiring it and the margin within the rate of exchange and your bank will always charge you more for using their platform.
It might cost you £16 to send a payment to Spain using your UK high Street bank. At the same time, because they do many many more payments than you a day, week or month, it might only cost an FX business £5 (or less). Hence, the FX firm can undercut your bank on the associated costs. In fact, this is precisely what companies like TransferWise sell themselves on. Their ads state 80% saving vs. your bank. This is because they charge you £3 rather than £30. It is clever and it means you get a saving, but, as the savvy among you will have noticed, it does not tell you anything a bout their rate of exchange per say. Also, although it doesn't matter because a saving is a saving, they're not 'giving' you a payment cheaper; they're actually just sending it in a different way. It is a very clever strategy and it took them a while before they attracted enough clients to reach critical mass in terms of asking a profit, but, ask yourself...are you really going to send £250,000 over an app?
2. A BETTER RATE OF EXCHANGE -
Foreign currency companies have smaller margins for a number of reasons and are able to negotiate their costs from the whole of market. This means that either by locking in a rate (which we will come to) or by transacting each month, you will pay an average of about 2% less vs. your bank on a foreign exchange conversion simply because they will take less off the top of the euro they're selling you.
One of the particularly appealing things about a non-bank company is that you can actually call them up each month to compare their rate against anyone else. Doing this sort of thing manually gives you the option to suspend a payment if the rate is particularly poor, or increase the amount you send when rates are good. Either way, you'll be talking to someone who knows what you're trying to achieve than a call centre operative who rarely gets questions about currency let alone have any control at all over what rate you might receive were you to opt to use them.
As touched on above, you will definitely be paying less to send the funds internationally, so, all in all the whole process should be more cost effective by the rate and the payment cost and dealt with more efficiently because all staff at FX firms like Prime Cap know what they are doing when it comes to sending payments…you wont need to be on hold to get through to the correct department if you have a question or want to change an aspect of your payment. At Prime Cap we enable you to do all this online (if you want to), a bit like online banking, but, you have a direct and dedicated telephone link to your dealer who a) can see what you see and b) can anticipate precisely what you may need help with, then and there.
3. AUTOMATE THE PROCESS -
Some companies offer what is called a ‘regular monthly transfer service’. Generally this is a direct debit service that allows you to determine how many pounds are debited for conversion or how many/much of the foreign currency you want to buy each month. We think these ‘plans’ do not offer the level of competition you deserve; in addition to which it is sometimes difficult to compare the rates used, because, under the direct debit clearing conditions you may not know precisely when your money was converted - is it on the day they debit your account, or is it on the day they credit the broker?
It is not particularly transparent, but, it is very convenient.
The best of both worlds comes if you select a standing order payment for your monthly mortgage amount. You are the one who controls this in a far more direct way than with a direct debit. Using the standing order method means that you broker converts funds when they receive them…not necessarily when they are doing all the other payments for that month. This means you will get a real time update as to the rate you got and as to when funds will arrive ‘at the other end’.
This way is generally more competitive for you and still allows you to plan for unexpected moves in the market. What this way does not do is debit you to the tune of a certain foreign currency amount, but there are simple ways to accommodate for this. Undertaking a simple analytical exercise with Prime Cap's dealing team will enable you to offset any rate movements and equip you to manage your monthly transmissions more transparently.
Anecdotally, having worked at on the very first non-bank FX firms to offer a structured 'Regular monthly transfer', we can attest to the fact that the rate of exchange should be far far more competitive on those products than they are. The company has some 10k clients. Let's say 20% of them send £1000 per month for the overseas mortgage and using their regular transfer service. So, the company is therefore converting £2,000,000 each month. Typically the firm in question would apply a rate with a 3% 'mark up' on it. They did so because they knew they banking competitors did not offer such a convenient service and so they had little commercial incentive to improve their rate. We don't think it fair, even in the face of the costs to send a payment, a business should make a revenue of £60k when all they're really doing is performing a debiting exercise on a set day each month. Maybe that's just us.
4. FIX A LONGER TERM RATE
If we were to agree that the average payment towards a foreign currency mortgage is in the region of €1200 then, over the course of a year, someone might need to buy €14,400, let's say. Do you think that when exchange rates are good someone would be inclined to lock in that rate for a longer period? It not only allows them to forecast and know their expenses, but, it may begin to constitute a saving if the rate were to depreciate?
In the same way that a business can buy the currency it needs to settle an invoice prior to the date on which the settlement is due, an individual can buy however much currency they need/want and simply pay for it further down the line or on a month by month basis.
The average rate of exchange from sterling to euro for 2016 was 1.28. This means the average cost of someone’s €1200 mortgage was £937.50. If one had locked in a 12 month rate in February of 2016 when the rate was 1.40 they would have saved themselves £919.29 for the year – nearly a month's mortgage payment.
When I see people chasing reductions of £150 on their utilities or moving bank accounts for £50 I find myself frustrated that more people do not mend the roof when the currency sun is high. Yes, the caveat to using a forward contract for your monthly payments is that you may have to lodge 10% with the company you take out the contract with. In theory, therefore, what your saving on the rate of exchange simply remains with the firm until the 12 months is up. That is the way to look at it…
So, to conclude, FX firms can reduce the fees you pay when you send your monthly payment. They can also ensure that you are paying fewer pounds for that same fixed foreign currency amount. You can sit back and allow Prime Cap to take care of the payment and, if so inclined, you can cement your monthly payment for a year.
Bear in mind that these types of tools and tricks don’t just relate to mortgage payments. They come in to their own with any smaller regular payment whether you are a business or private client.