Technology Is Making It Easy and Less Expensive to Exchange Currencies Right At Check-Out
By: Cadence Bambenek
Tags: International, Money, Transferwise, Fintech

Illustration of TransferWise’s new borderless account, courtesy TransferWise.

Technology Is Making It Easy and Less Expensive to Exchange Currencies Right At Check-Out

Banks have good reason to be concerned

Upstarts like international money transfer service Transferwise and UK challenger bank Revolut are reducing the friction of living and working abroad — and consequently eating into the profits of legacy financial services in the process.

“One day anyone will be able to send and receive money, in any currency, from friends, customers or companies anywhere in the world, and spend anywhere, never worrying about the exchange rate again,” TransferWise chairman and cofounder Taavet Hinrikus said.

That, according to Hinrikus, is the vision for the borderless account the company launched in January.

Both Revolut and TransferWise’s borderless account allow consumers to spend multiple currencies from their associated debit cards, the former letting users hold up to 26 currencies and spend in 120, the latter allowing consumers to hold and spend 28 currencies.

But TransferWise’s product, especially, signals a shift in the future of currency exchange. If a consumer is traveling and doesn’t hold the local currency in their account, through its so-called intelligent currency routing, Transferwise will automatically select the cheapest currency already held in the account to make an exchange from. This means consumers can make both the most efficient currency exchange and complete a purchase in the same instance, right at retailer checkout. TransferWise says it will charge consumers “low, transparent fees” at the “mid-market exchange rate” to make these currency conversions. This is far cheaper than the price you see at those airport currency exchange counters.

By contrast, Revolut makes an exchange by drawing on the currency in an account that a consumer holds the most of, meaning they could still be hit by high exchange rates.

For now, Revolut is available in Europe, with plans to launch stateside and in Australia, Canada, Singapore, and Hong Kong by the end of this year’s first quarter. Meanwhile, TransferWise is now in the process of rolling out its borderless account more broadly new across the European Economic Area. TransferWise also became profitable for the first time in 2017 and was valued at $1.6 billion in its most recent funding round in November.

But, while one another’s most direct competitors, these two fintechs are not the only ones undercutting the foreign exchange fees charged by banks or changing what can be spent at checkout.

Glint is a startup aiming to allow users to hold and effectively spend gold via its debit Mastercard and the London Block Exchange (LBX), a London-based startup intending to enable consumers to spend bitcoin and other cryptocurrencies through a Visa debit card, converting the less-than conventional payment methods into the local currency when you pay, be it at a coffee shop or local retailer.

While these services are running on the same rails that financial services have run on for the last century, it will still be interesting to see how these continuous iterations on currency exchanges play out for firms that have relied on these transactions for their bottom line.