Why transferring funds through a currency broker might get you a better deal than the banks

Text: Chris Graeme; Photo: Joaquim Morgado (American Club of Lisbon)

When small and micro companies decide to open an office in Portugal, one of the last things some tend to consider is the cost of transferring funds to open up the venture and cover the relocation costs.

In fact, the same goes for digital nomads and overseas relocators in general, who don’t think to plan a cash transfer in advance and simply leave it to their banks, not even considering if they are even getting a good deal on the rate or not. This is equally true for companies purchasing products from and paying suppliers in a non-EU overseas jurisdiction.

I caught up with Sarah Davey, a UK currency exchange consultant for Spartan FX Foreign Exchange at an event organised by the American Club of Lisbon.

Sarah moved to Lisbon from London around six months ago as one of the many young, mobile and ambitious professionals who have chosen to relocate to Portugal for the business opportunities and lifestyle it offers.

I was puzzled as to why any non-EU relocator moving to Portugal and finding a property would not use a high street bank to transfer their money. After all, they are bigger, and bigger means more transactions, which in turn means cheaper rates, right?

Wrong! Sarah says that currency exchange is not a core business for many banks as they make more money off other products and services. This can be seen with older and larger banks that have got a system that is old and antiquated and essentially needs modernising. These changes cost a lot of money, so there is often “a sticking plaster approach. “It works, but is not as efficient as it should be”, she explains.

“When you’re moving money abroad as a business there are three aspects to take into consideration. Price is the first thing when comparing exchange rates offered by a bank or a foreign exchange company”, says Sarah.

Sarah stresses that private exchange and transfer companies can offer a cheaper deal based on a given day’s current exchange rate which is particularly useful when dealing with large currency transfers.

“It’s always worth shopping around because the number of businesses I’ve talked to that have checked the rates against their banks are really shocked to see that they are not getting the competitive rates they had been expecting”, says the specialist.

The second problem that Sarah has found is that many people and businesses don’t consider the advantages of using a currency exchange specialist enough.

“It tends to be a last minute thought because whether it’s a business or an individual relocating, they are focused on the tax, the visas, and the clients, and it’s not until they get that invoice from overseas that they think about it, and that makes these transactions more expensive”, she explains.

The third important aspect Sarah points to is even though technology has moved on, the compliance side of things and the checks that banks have to do have got more complicated and as a result payments get held up.

“Banks are limiting how many transactions you can do in a month. All of a sudden, you’ve left it till the last minute, but you need to make this payment yet find your money is being held for two weeks”, she says.

“We can broker against this beforehand by looking at the exchange rate and buying currency in advance, or we can step in with the bank to get the compliance done by checking beneficiary account details and ensuring the money isn’t intercepted and sent to the wrong account”, she adds.

Above all, the currency brokerage also has extra tracking in place, so “we know when the money is in the beneficiary’s account”.

“There is a lot more involved in the process and we can ensure that the client is getting their money on time. And because delays in transfers and payments via banks do happen, we as experts often speak on panels and webinars with tips on moving money and what needs to be done”, she advances.

The main message, says Sarah, is that people need to be thinking about cash transfers in advance and not leave everything to the last minute only to find transfers getting caught up for weeks unnecessarily.

“We’re helping SMEs, and private individuals that don’t have the support of a treasury that large companies have, aren’t getting competitive rates, and need our kind of expertise,” she adds.

And Sarah can really save money for her clients since Spartan FX gets its liquidity from the banks at a reasonable ‘wholesale’ rate because of the quantities they are buying.

“We put our spread on it and then sell it to the client at a more competitive rate than the client would get from the banks because they are dealing with a smaller amount of transfer and charge money. Also, with less overheads, we can be more competitive. The savings for customers can vary on anything from 0.5% to 3-4% on larger transfers, and we have even had cases of extreme savings of 8%.”

CLIENTS LOOKING FOR A PERSONAL TOUCH

Sarah says that as a sector currency exchange has come full circle, back where it started. “If you are an individual and you are buying a holiday home in Portugal, for example, and are spending a large chuck of your life savings; or you are moving to Portugal from the UK or another non-EU jurisdiction, it’s a big decision – a move that is quite life-changing. Often clients want to speak to a consultant and prefer a personal service, because at the end of the day it’s not their area of expertise and perhaps they need help”, she stresses..

This is particularly true for companies that are using banks for their currency transfers. Since starting out 20 years ago, Sarah says that although technology has advanced considerably, there is also more compliance involved, and since the Covid pandemic there has been a lot more fraud, with fraudsters becoming cleverer in how they intercept e-mails.

“I’ve seen it with customers in companies where bank details have been changed and money redirected to a false account. We offer a very secure transfers service with the highest levels of security”.

But what about those relocators who want a one-stop-shop service, and are looking for a company that deals with the headache of finding a residential property or a business premises, dealing with the Portuguese tax authorities, the visa paperwork, obtaining residency, finding a solicitor and an accountant, and also want the transfer of currency from or to a non-EU jurisdiction like the UK, US or elsewhere?

“We also have synergies with relocation specialists as part of providing an end-to-end solution for a smooth transition from one country to another or, in the case of second home buyers, as part of a team of consultants that can help them with the minefield of bureaucracy linked to buying a property, or opening a business, and transferring the funds in order to be able to securely do that”, says Sarah.

HEDGING YOUR BETS

Foreign exchange specialists like Sarah can also offer a hedge against fluctuating currencies. “We’ve seen fluctuations of anywhere between 2% to 10%. Here we can provide a few different options. First, people can buy currencies in advance at a fixed rate and we can hold an amount if you don’t have a bank account yet in Portugal.

“Second, we can fix the rate for a future date which removes the impact of volatility. For this you will only require 10% of the deposit.

Sarah points out that this can be useful if you don’t have all the money at the time when you specify the transfer amount for a later date. Of course, if the rate subsequently moves in your favour, you are locked into the fixed rate you won’t be able to benefit.

“The key thing at the moment is inflation and interest rates, as well as the global fluctuations caused by wars, etc. that affect currency rates.”

One example is transferring Swiss Francs to Sterling. “The rate now is the best we’ve seen for many years, so it’s quite a good time to be buying in terms of selling Swiss francs and buying UK pounds”, she adds.

The client might have a tight budget and may not be able to afford to risk the rate being less favourable, especially if they are buying a house, so fixing the rate can be useful. “We have tools that help us to keep an eye on the rates that are important for business transfers”, she says.

GUIDANCE, NOT ADVICE

Sarah emphasises that the currency transfer industry is about offering guidance and not advice.

“We’re not currency traders shifting money around from one international currency to another to earn our clients money, like a financial adviser would be doing.

As a sector we’re regulated as deliverable, which means the funds have to be provided for a specific reason and cannot be for speculative trading.”

Sarah says that what she finds interesting about the world she works in is the range of clients she deals with.

“I’m offering one product here, but all of our clients and businesses are so different. From a business perspective there are so many people transferring money for different reasons and to different degrees.

“For some businesses, 80% of their business involves foreign transactions for paying suppliers, for example. Some of their business may only involve 5% of transactions. However, it can be anything from pharmaceuticals to clothing and beauty products. We even have clients in the UK like garden centres that are importing exotic plants. We also have clients such as digital nomads and companies that outsource departments to other countries such as India or Portugal,” she says.

“If a company in Portugal imports from a non-EU country and has to pay the supplier, then they would need us. When it comes to exporting, like from Portugal to the US, what is sometimes done is the purchaser in the US will pay them in euros. Sometimes it might be better to charge them in US dollars if you are selling your product in the US – it’s worthwhile and more competitive.

Another reason might be that the company you are selling to is too large and important to you that you don’t want to lose the contract, so you charge them in dollars”, Sarah explains.

NOT JUST ON A NEEDS BASIS

Sarah says that as a company, Spartan FX tends to employ people and train them, up before they are actually needed, based on demand from companies in any particular country, so they are ready when required.

“I work with companies that can offer business to us such as law firms and when I was in the UK I was still working with companies in Portugal”, she recalls.

However, Sarah says she wasn’t sent to Portugal because of an uptick in demand, rather, as she says, “I decided to move here because I fell in love with Portugal personally”.

And does she eventually plan to start up her own business as a currency broker in the country? Sarah says no, since she likes the way Spartan FX operates and does business, combining effective operations and sales.

“Currently we have 13 people in the UK, with one member in Cyprus. We don’t need to have an office in every country. As a broker, I don’t actually need an office since much of the work is done over the phone. In the example of Portugal, a lot of our customers are dealing with us before they relocate”, she explains.

Sarah says there are challenges working in Portugal, but says that it’s a bonus that everyone speaks English, although she is taking Portuguese lessons.

“At the end of the day, it’s all about relationships, and being based here helps. We might eventually have more currency exchange consultants here, but for the moment I’m the face of the company in Portugal”, she concludes.