When a financial service such as currency exchange has been forever dominated by banks and brokers, the emergence of a new means of conducting such transactions can seem understandably a little daunting. After all, the services are based upon an exclusively online presence, where you will be conducting a transaction with an anonymous stranger, often with quite substantial amounts involved.
At first glance it may seem to be just too high a risk – or too much of a break from routine – to look further into the P2P system, but as companies and individuals are becoming ever more confident using technology the market for these transactions has grown incredibly quickly. This article is going to challenge some of the key misgivings that might prey upon the mind of prospective new users, and highlight the potentially massive advantages the system has over traditional methods of currency exchange.
Your funds are ring-fenced and secure
A peer to peer site that operates from the UK has to meet the standards set by the FSA just like any other financial service operation. They have to prove that they have the assets to facilitate their operation and of course, being web based, use industry leading protection. As all of the user funds are kept in separate ‘pots’ not directly linked with bank accounts, they are untouchable and cannot be hacked or removed. Likewise, transactions between users only take place when the funds are in place – no transaction can be undertaken when this is not the case. So to put it bluntly, nobody is going to run away without paying!
You will save money – potentially a lot
P2P exchanges are typically extremely close to the midmarket inter-bank rates. While specialist brokers usually charge between one and two percent commission, and banks often closer to five percent, P2P typically hovers around the 0.5% figure that reduces even as low as 0.15% when larger sums are involved. Compared to a leading high street bank, it’s clear to see that the potential savings are enormous.
P2P lending works smart
So how can P2P sites operate and turn a profit while charging such lower amounts than mainstream banks? This is a fair question and requires a three part answer:
- P2P sites have very little overheads compared to banks with hundreds of retail branches and tens of thousands of staff.
- Banks have simply been profiteering on currency exchange for so long they have become brazen about being essentially a monopoly able to set rates at whatever they like.
- P2P exchange cuts out any middleman thanks to having accounts set up across the world to dispense funds from directly. You are literally buying say an American Dollar or British Pound that will be transferred to your account in that country directly. They bypass SWIFT (the typical international banking system) that is, in fact, anything but! It’s slow, expensive and inefficient.
Other advantages of P2P currency exchange
Of course getting your money at a stunningly low price is by far and away the greatest benefit, but there are other advantages to P2P transactions. Compared to brokers that use SWIFT they are fast – it depends who you use, but the larger the site typically the faster – often 48 hours is around the average time for the funds to appear in your account.
P2P websites also hold their own reserves on currency in the markets that they operate within, allowing for users to still buy currency cheaply even if there is no other peer to match up with when looking to make an exchange trade. They can provide transactions in less used currencies still at a better rate than banks – so users are not limited to working directly through the peer system.
It is ideal for those with overseas investments, rental properties, or other sources of income such as wages paid in a foreign currency that need to be converted into Sterling. The potential savings on those with international interests – especially small/modest sized businesses – can really mount up. What’s the point in just giving it away to the banks when you don’t need to?
