[mft_]

Are you able to offer any insight (top level, non-confidential, obvs) into how TransferWise works, behind-the-scenes?

i.e. how do they actually enact the exchange of the funds? Do they have a contract with one of the big investment banks? Do they work directly via Forex markets? Can they leverage their scale now to minimise actual exchange costs – for example internally matching up (say) a one customer transferring USD to EUR, and another transferring EUR to USD, so that TW’s costs are minimised?

[rvnx]

In reality, internalised or not, TransferWise makes lot of money in fees. On InteractiveBrokers for example, you pay +/- 2.33 USD in total to convert 100'000 USD to EUR (+ 1 USD extra for withdrawal if you already did one this month).

TransferWise charges end-user 900 USD + spread for the same operation, which is rather comical when you see their ads "banks are scamming you"

[Symbiote]

> On InteractiveBrokers for example

That is not a consumer-friendly site. Is it even practical for the typical case TransferWise targets: sending a few payments a year, or a few a month?

The pricing page for foreign exchange has the cheapest category as under $1 billion -- is transferring $200 something they'd do? I don't know what a "basis point" is, or "trade value".

https://www.interactivebrokers.com/en/index.php?f=4969

[Youden]

Interactive Brokers is by no means a replacement for TransferWise. It doesn't even permit you to send money to an account that isn't in your name.

That said, its currency conversion is the real deal. If you have an account with them (I do), you can convert as little or as much as you like and withdraw it to your own account elsewhere.

I wouldn't recommend opening an account there just for currency conversion but their brokerage offering is fantastic so I'd consider currency conversion a nice benefit that comes with that.

If you want a more direct comparison, Revolut does conversion for free if your amount is under 6k/month.

[jkaplowitz]

I'm not sure where in the provided link you found that, but I am not doubting you found something FX-related in there with $1 billion as a relevant number, since they serve lots of different professional populations.

But yes, they can exchange even a dollar or two. I've exchanged five figures a few times there between CAD and USD, as an American living in Canada and actively using a US credit card.

So far I've found them to be much more affordable than TransferWise, but equally, they are a very complicated broker to use, and it may not be worth the hassle just for FX. They have other benefits that make them worth the tradeoff for me, like good margin interest rates and the ability to provide tax forms complying with both the US and Canadian tax systems each year.

[graton]

Well this page says something about trading less than $1 billion per month:

https://www.interactivebrokers.com/en/index.php?f=1590&p=fx

[jkaplowitz]

Yeah, that's indeed the link that the other poster meant to share. See my reply to their comment parallel to yours for more detailed thoughts and numbers.

[Symbiote]

Sorry, I think I pasted the wrong link.

From the homepage, Pricing → Commissions → Forex leads to the 1,000,000,000 cutoff.

https://www.interactivebrokers.com/en/index.php?f=1590&p=fx

[jkaplowitz]

Thanks. I guess you're right that people like me who don't trade billions per month pay their most expensive forex rates. But it's not a cutoff, just a price tier, and still far cheaper than TransferWise or any other option I know of for exchanging non-institutional quantities of currency.

To clarify the terms in that table: one basis point is 1/100 of 1%, as they themselves clarify in a footnote rather than assuming all readers know it. And trade value is, well, the amount you trade. :) The footnote for that term clarifies that they convert and charge this commission in whatever currency you have configured as the base currency for your account. (For example, I've chosen USD for my base currency since most of my transactions are US stocks on US exchanges, even though I'm in Canada and therefore the legal entity I'm officially dealing with is IB's Canadian arm.)

So, to convert anywhere up to US$100,000 (or its foreign currency equivalent) to any other currency, they charge their minimum fee of US$2 - mathematically, 2 / (1/100 of 0.20) = 100,000. Above that and up to US$1 billion, you take the amount you're trading, multiply by 1/100 of 0.20, and that's the fee.

$2 is a ridiculously low fee to convert five USD figures or less of currency, given that they also directly pass through the very tight exchange rates collectively quoted by their suppliers without building any profit for them into the rate itself.

[rvnx]

You're absolutely right. I just mean that TransferWise has a lot of leeway in terms of pricing policy and that the actual cost of exchange itself is marginal (as counter-intuitive it may seems)

[chx]

> TransferWise charges end-user 900 USD + spread

They don't charge spread. That's the entire point of Transferwise.

> On InteractiveBrokers for example, you pay +/- 2.33 USD in total to convert 100'000 USD to EUR

My understanding is that Interactive Brokers allows access to the forex market , indeed with a low fee, however Transferwise will use mid-market rate which is unattainable via the forex market.

It's trivially visible on Transferwise what are you paying, where can I see the same for Interactive Brokers ?

[graton]

As someone who is interested in transferring money I will admit that I find InteractiveBrokers website confusing. I don't understand how it works. Let's say I want to buy Russian Rubles with US Dollars. How does that work? How do I get the Russian Rubles out? With TransferWise it is very obvious. I'd love to save more money but I'm not sure how to do it with InteractiveBrokers, but I would like to know.

[rahimnathwani]

They don't need to 'match up' individual transactions.

As long as they have a decent float in a bank account in each country, they can just do frequent (daily? hourly?) forex transactions to balance their reserves between countries.

At their scale, if the total amount sent by customers is X, then they probably transact 0.2X in the Forex market.

The frequency of the forex transactions will of course affect costs and exposure. Too frequent would increase transaction costs. Too infrequent and you risk exchange rates moving against you. Too infrequent and you need to hold more money in popular destination countries.

[konschubert]

I hope I’m wrong because I want them to be successful but I’m less optimistic about the optimization potential.

I’d say that they are probably transacting 0.9X or something in that range.

Reason being that, I suspect, a lot of their transfer flow is from richer countries to poorer countries, as payments for services.

Of course that money flows back at some point, but as payments for goods shipped, which typically doesn’t happen through transfer wise.

[rahimnathwani]

You are right. 0.2X is reasonable for a transfer company with a more general audience.

I wonder what % of their total transaction costs are from FX spread and fees. Maybe, even at 0.9X, total transaction costs are dominated by local bank transfer fees.

[raverbashing]

> for example internally matching up (say) a one customer transferring USD to EUR, and another transferring EUR to USD, so that TW’s costs are minimised?

From what I've read, apparently that was their idea since inception, do their own reconciliation as far as they can.