Understanding the P2P Market for Currency Transfer

What are P2P Markets?

Peer to peer or the P2P markets as they are commonly called are online platforms that allow users to create registered accounts for money deposits. These platforms provide users with either a standard exchange rate or a chance to bid for an exchange rate they prefer.
Upon finalising an acceptable exchange rate, these online platforms then make a match, display the switch in the ownership of funds, and take a day or 2 to remit the exchanged funds via domestic fund transfer. In simple terms, these platforms allow people to send money to anyone, anywhere in the world.

An Example

Let’s say for example Isla is an Australian working in the UK for one year’s time. She earns in UK pounds (GBP) and needs to convert these pounds into AUD before she can transfer them into her Australian bank account and subsequently pay her Australian mortgage. Bill on the other hand is living in Australia and has to send GBP to her daughter studying at Oxford University.
Now instead of both these people individually going to the bank and getting their currency exchanged, they simply sign up on a P2P platform like the CurrencyFair's Exchange Marketplace and deposit their money in their respective P2P accounts. The platform will then match the two and show them the amounts (in accordance with the applicable exchange rates) of AUD and GBP they will each receive.
Once both the parties accept the transfer, the P2P currency exchange service will transfer Bill’s AUD into Isla’s Australian account, while Isla’s GBP would be transferred to Bill’s daughter in the UK. The important thing to notice at this point is that through P2P transfers no money leaves the country – it is simply exchanged.

The Liquidity

In the example above, Bill and Isla were lucky to have matched on a P2P platform. However, there are plenty of times where these platforms are unable to find suitable currency exchange matches for the users or there is a considerable shortfall of a particular currency. In these cases, the P2P platforms will usually provide the currency exchange using their own funds for the price of an extra fee. So, the user always has the benefit of greater liquidity when transacting on the P2P websites.

The Cost Savings

P2P currency transfers offer another attractive feature in the shape of greater cost savings. This channel ideally sidelines the banks and brokers by providing lower rates for currency exchange. On an average, P2P users end up saving between 75% and 90% more than bank users on every international transfer they make. Most of this saving comes from not paying the bank fees that vary between 5 to 7%.
Despite its advantages and the convenience it offers, P2P for currency transfers still remains a relatively new platform. People using the more popular currencies like pounds, euros, dollars, and yen may find it easier to locate corresponding matches across the globe when compared to the people who use smaller currencies. Also, having a large amount of currency to transfer might make it challenging for you to find good P2P matches.

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