Not very long ago the term foreign exchange, or forex, conjured up pictures of young men in red braces sitting alongside banks of monitors and buying or selling obscure currencies as well as the usual dollars, pounds, yen and euros.
Private individuals or small businesses were of no interest to these forex brokers, they were just too small.
The margin on changing a couple of hundred dollars or pounds was of not of interest. Until now.
High street bank charges
But ordinary people and small businesses have always needed to use the money exchange markets at some point. Expatriates living and working abroad would need to send back some money home either for personal savings or to family. Businesses needed to transfer money to buy some new goods or other service. Or sometimes someone would find an interesting item online such as an example of local handicrafts in a small shop abroad that did not have any faculties for online card payments.
This is when the problems would begin. High street banks charged a fortune for each foreign exchange transfer. These costs became a major burden on some small businesses. It was not uncommon for the banks to charge a 10 per cent commission for any transaction. But smaller transfers were subject to eye-watering fees also.
A private individual wanting to buy and interesting small item from another country would have been better off sending cash in the post to the seller as banks could charge twice as much for the exchange as the cost of the item itself. Fees were loaded onto all sides of the transactions.
Banks also had little interest in this business. They preferred to deal in millions and billions of foreign exchange rather than the spoonfuls a small business may want to exchange.
Cutting out the middle man
Peer-to-peer marketplaces cane into being to cut out this middle man. Now small businesses and individuals can get the best value fro their money. The principle is to bring the buyer and the seller together. These deal with each other directly and work out the best exchange rate for both sides.
It doesn’t always have to be a buyer and a seller. An individual or business can give money to an overseas charity project in this way.
Depending on the time constraints on either side, this process can set better rates than any dealing with high powered forex brokers. Obviously, the platform itself charges a commission for the facilitating the deal. But this charge is far lower than anything offered by standards traders and certainly much lower than the charges levied by high street banks. For the two sides in the transaction, costs are lower and profits are higher.
The peer-to-peer money exchange marketplace is also convenient as it works 24 hours per day, even days a week. There is none of the worry of trying to get to a bank by 3.30pm on a Friday afternoon only to be told that the transaction cannot be completed until Wednesday the following week. Peer-to-peer money exchange has become the future.