Transactions abroad or in a foreign currency


(Tristan Thomas) #1

A few people have asked about doing transactions abroad:

:antarctica::andorra::czech_republic::finland::costa_rica::greece::ireland::paraguay::san_marino::st_barthelemy::seychelles::earth_asia:

Your card should work across the world and we don’t charge any additional fees so you’ll just be charged based on the MasterCard rate at the time the transaction settles (around 2 days after you pay). You can check historical rates using the MasterCard currency tool. According to MasterCard, these rates generally reflect either wholesale market rates or government mandated rates so hopefully that makes your Mondo card pretty useful when travelling!


Foreign ATM transaction, changing debit amounts
What are the actual international rates?
How does withdrawing Cash abroad actually work?
Monzo in Iceland 🇮🇸 [Discussion]
(Alistair) #2

Any plans to allow for multi-currency balances?

Would be great to be able to have euros + pounds + dollars balances on the same card - would save on the currency conversion fees!


(Jonas Huckestein) #3

Hi @aspark, I’d love to hear more about the use-case for that.

Because we don’t charge FX fees and give you the official MasterCard exchange rate at the time, there is no real downside to keeping your money in GBP, unless you are trying to protect yourself from FX rate fluctuations by holding many currencies.


(Oliver Beattie) #4

Quick update: I’ve been working on this (motivated by a recent trip abroad with my Mondo card :us:) and I’m pleased to say that we should be releasing foreign transaction support very soon. :smile:

Specifically, this will mean that transactions made in a foreign (non-GBP) currency will show both the GBP and foreign amounts in the app. Of course, this information will be available in the API too.

Here’s a sneak-peek of how these types of transactions look:


(Alistair) #5

Hi @jonas I guess I am maybe more of edge case but I do have both euro & gbp bank accounts. I travel back & forth between UK & France regularly (home + snow trips) and tend to pay for stuff online in both currencies and also in USD when buying stuff from American companies (e.g. AWS, Freshdesk, Mandrill,…)

While there might be no fees the exchange rates tend to be very different from the mid-market (which Transferwise uses for example) so it is usually best to keep balances in local currencies to ensure the best exchange rate is used - I’ve just grown to assume that if there are no fees - which some high street banks like to bang on about - then the exchange rate will be so rubbish you get screwed in a different way (by the high street banks, not by Mondo). Paypal does help me with that sometimes as you can have the different currencies on one account and it will debit from the right currency balance which is nice but Paypal doesn’t work everywhere.

Nice one @oliver looks pretty sleek way of showing the amount in both currencies.


(James Nicholson) #8

I just had a play with MasterCard’s currency tool.

Comparing converting Pounds Sterling to Euros and back on a random sample of days, the range appears to be less than 0.05%.

For instance, 23 November 2015 was 1.433548 EUR/GBP and 0.697235 GBP/EUR, a ratio of 1.00048 (i.e. 0.048%)

For comparison, TransferWise would cost around 10x this (£4.98 to convert £1,000 to Euros).


(Alistair) #9

Looking at today (8th December 2015) 1€ = 0.714692£ with mastercard but 1€ = 0.7264 with Transferwise.

For a 1000€ with Mastercard I get 714.69£ but with Transferwise I’m getting 722.78£ - sure that is only 8£ better with Transferwise but if you are looking at much larger transfers & well timed one’s where the exchange rate is most favorable in a particular direction, it makes a lot more sense to stick with keeping balances in different currencies rather than going from the day’s rate - look at the difference between 18th March 2014 and 15th July 2015 - that is a huge shift.


(James Nicholson) #10

You’re quite right, that’s really strange. Stranger still, converting that £722.78 back via MasterCard’s rate £1 = €1.388028 results in €1003.24, which doesn’t seem right at all!

Will dig deeper tomorrow :smiley:


(James Nicholson) #11

@aspark I can’t seem to match your numbers:

For 8 December 2015, I see:

MasterCard rate: €1 = £0.720104 [1]
Market rate (used by e.g. TransferWise): €1 = low: £0.72027, high: £0.72772 [2]

That means, for €1,000, you’d get:

MasterCard: (€1,000 x 0.720104) = £720.10

TransferWise:
low: ((€1,000 - €4.98 fee) x 0.72027) = £716.68
high: ((€1,000 - €4.98 fee) x 0.72772) = £724.10

i.e. MasterCard are giving a rate very close to the mid-market rate for the day. Discrepancies were, I suspect, because we picked a day in which the Euro climbed around 1% against the Pound :smiley:

  1. https://www.mastercard.com/global/currencyconversion/
  2. http://www.xe.com/currencycharts/?from=EUR&to=GBP&view=1W

(Alistair) #12

@james looks like the mastecard tool had returned the data for the 7th instead. data from transferwise was the one at time of posting towards end of day.

It does seem that the difference is smaller however this remains the cross-rate so the effective rate might be less favourable - mainly due to most card transactions being much smaller than 1000€/£

*Due to possible rounding differences, the published calculated cross-rates may not precisely reflect the actual rate applied to the transaction amount when converting to the cardholder billing amount.

It also doesn’t reduce the benefit of timing money transfers to happen when the exchange rate is most favourable.


(Alistair) #13

I guess the conclusion is that if you are using Mondo’s card abroad and you are only visiting the country for a few days then just pay by card. If you need cash, use the Mondo card in a local ATM and avoid Travelex / Post Office / et al (making sure to let Mondo/Mastercard do the conversion rather than the local ATM)

As for 1000£ you’ll get 1398€ with Mastercard’s rates but only 1345€ with Travelex (a 53€ fee!) or 1350€ with Post Office (a 48€ fee). [noting these are tested on the 9th at 3:30pm so different day than the aforementioned mastercard & transferwise rates]

This however doesn’t really apply to other banks or credit cards as they do have additional fees above mastercard’s rates. e.g Lloyds current account is 1.5% with min 2£ - max 4.50£ for cash withdrawals or 2.99% + 1£ on card transactions. Natwest/RBS is in a similar range, no doubt the others are too.

I used to use xe.com as the rates were better than the bank’s own but at 1000£ => 1368.9€ it is better than the retailers but no better than visa & mastercard’s rates & Transferwise is definetely a much better choice for those large 1000£+ transfers.

With regards to why having multi-currency account would be worth looking into for Mondo, currently Barclays and a few others do have Euro accounts but they used to charge exchange transfer fees from your euro balance when doing a euro transaction (WTF?!), it seems they’ve reworked the product but still have weird 25£ fees to do transfers from that euro account to another SEPA euro account or 6£ fee if you want to pay into it.

The only one which doesn’t is Citi with the Citigold account which allows GBP, USD & EUR balances tied to the same account & card without any fees https://www.citibank.co.uk/personal/citigold-current-accounts.do but account eligibility is really only for the elite (£75000 balance or 300£ annual fee).

There are a lot of European nationals in the UK/London so it’s not a small market. London is France’s sixth biggest city and if you add up all of the other EU national, that probably is a market of about a million people who could do with consolidating their various accounts into one.


(simon) #14

This is incredible. As someone who’s about to go to NYC for 3 weeks this makes me so happy! Thanks @aspark!


(Richard Dingwall ) #15

I can see there’s a bit of confusion here about comparing mid, bid and intraday exchange rates!

So here’s a quick recap of FX market infrastructure basics, and a comparison of MasterCard/travel shop/ATM exchange rates! :dollar: :airplane:

What’s the price for a Currency?

In a stock or commodities market, contracts are priced in monetary terms, usually the local currency or USD. For example, the current price of an $AAPL share is around $115, and a barrel of oil is $40.

But FX is money itself, so we have to express the price as the rate of exchange for one unit of currency (the Quote currency) for one unit of the other currency (the Base currency). For example:

  • EUR/GBP: I have euros and want to buy pounds
  • GBP/EUR: I have pounds and want to sell them for euros

Exchange Rates

The exchange rate is quoted to several decimal places - usually 4 DP, depending on the currency pair. For example, 1.3914.

Why do we need so many decimal places? It’s not possible to have £0.0001 or €0.0001 in your bank account. But contract sizes in the wholesale FX market can be huge - easily tens or hundreds of millions. At this level, the granularity provided from additional precision allows market pricing to be much more efficient (competitive).

Spot Market

The wholesale market used by banks, governments, investment funds and corporates to buy and sell foreign currency is called the Spot Market. Spot means “on the spot” prices for soonest delivery possible. The standard settlement period for spot trades is two business days.

Around $5 trillion per day is traded on the spot market. It is by far the biggest and most liquid market in the world.

Exchanges

Contracts are traded either over-the-counter by banks, or on exchanges like FXAll, Hotspot, EBS and Currenex. All exchanges use a continuous auction style called a Limit Order Book. The software at the heart of an exchange that manages the Order Book is called a Matching Engine, and must be very fast and reliable.

Normally, trading firms pay a lot of money to see the exchange’s order book contents (called Level 2 Market Data), because the additional information gives them a trading advantage. But luckily for us, Bitcoin exchanges work in exactly the same way, and publish real-time data for free, so we can use that as an example. Here is Coinbase’s live order book:

The order book is divided into two halves. On the left are the Bids (buyers), and on the right are the Asks (sellers). Each side shows the total Liquidity (amount available to buy or sell) at each Price level.

The outward-curving shape of the order book demonstrates basic supply and demand. Buyers (on the left) want to secure the lowest price possible, so there are more buyers at the outside of the book (where prices are lower), than in the centre. Similarly, sellers (on the right) only want to sell for the highest price possible, so they crowd towards the right hand side (where prices are highest). If an order crosses over, then a trade is executed, and the orders that were filled are removed from the book.

The order at the top of the bid (left) side is called the Best Bid, and represents the highest (most attractive) price you can currently sell for. On the ask (right side), the Best Ask is the order with the lowest (most attractive) price you can buy for.

Bid/Ask Spread

The gap in the middle is called the Bid-Ask Spread. In stressed market conditions (e.g. a crash), the spread widens as the risk of loss increases and participants withdraw their liquidity.

The Spread is measured in units called Pips. For example, a change from 1.3914 to 1.3915 is a 1 pip increase.

(Side note: In interest rate and credit markets, the equivalent of Pips are called Basis Points.)

Crosses

Not every currency pair can be traded. For example, as far as I am aware there is no exchange in the world you can trade ILS/NZD directly, because the market is too small (illiquid). Currency pairs like these are ‘crossed’ through another currency e.g. ILS/USD -> USD/NZD. Typically, most currencies can only be traded against EUR, JPY, GBP and CHF, and any direct rates you see are indicative through triangulation.

Official Daily Rates

Exchanges can process many thousands of orders per second, constantly fluctuating the price. So how do we publish a single, official exchange rate for a given day?

We could take the average rate from all trades throughout the whole day, but if a lot of very small trades (say £1 each) and one large trade (£1 billion) were executed, then it wouldn’t be a true representation of the volume traded - it would be skewed towards the small trades. Also, should the measurement be equally weighted throughout the day, or are most people only interested in the end result?

In reality, the most commonly-used official daily exchange rates rates are Fixed based on a 60 second sample at a given time of day:

The WM/Reuters benchmark rates are determined over a one-minute fix period, from 30 seconds before to 30 seconds after the time of the fix, which is generally 4 pm in London. During this one-minute window, bid and offer rates from the order matching system and actual trades executed are captured. Since trades occur in milliseconds, only a sample is captured, rather than every trade. The median bid and offer are calculated using valid rates over the fix period, and the mid-rate is then calculated from them.

Mid Rates

The most common exchange rate you see in news articles and on TV is the Mid Rate, calculated as the average of the Best Bid and Best Ask price.

The Mid Rate can be useful for historical analysis, but it is important not to use it for comparing prices:

  1. It hides the fact that there are different prices for buying and selling (supply and demand)
  2. It is a purely Indicative rate - it is never possible to buy or sell the mid rate because there is no liquidity (orders available) at that price

(Side note: TransferWise uses the Mid Rate but this is unique to TransferWise - they appear to be running a different style of auction with fixed daily rates instead of a true limit order book).

Comparing Spreads

Dealers make money by adding either a Commission (percentage of the total amount), a flat Fee (e.g. £2), or their own Margin to the spread, reflected in the advertised exchange rate. Margin is the most common, and is usually advertised as “commission free”, however the spread can be very wide!

I did some analysis and compared EUR/GBP spreads between various retail FX brokerages, travel money shops and the MasterCard base rates:

  • Wholesale: < 1 pip
  • Retail FX brokerage account: 1 to 5 pips
  • Thomas Exchange: 150 pips
  • ATM in Europe using local currency: 500 pips
  • ATM in Europe using “convert to home currency”: 700 pips (never do this!)
  • Airport foreign exchange shop: 900 pips!

The MasterCard rates are incredibly good. As @aspark noted, if you need to buy €1,000 of travel money, you could save between £10-90 compared to a travel money shop or ATM. :moneybag:


This week at Mondo Towers
(tom) #16

Great write-up. We’d love to publish this on our blog (or cross-post if you want to put it up on a personal blog)?

Transferwise fees seem to add up to about 100 pips of spread - £4.98 on £1000 each way, or £9.96 across 2 trades.


(Tristan Thomas) #17

For anyone interested in this, we just published this blog post by @tom that talks a bit more about how we deal with foreign transactions:

https://getmondo.co.uk/blog/2015/12/15/why-are-foreign-card-payments-such-a-mess/


(Alistair) #18

I think the fact you get charged 30p per transaction explains why the traditional banks see this as a chargeable thing. Hope we aren’t costing you too much!

Would be awesome if you can keep the at Mastercard/Visa exchange rate with no extra cost for foreign transactions long term.

My understanding was that traditional banks essentially make their money by charging retailers for those transactions so do you get any return from that or is it purely a cost?

I guess you will have much lower overheads without the need for branches and the associated staffing for these so this might have a chance of being of being viable :smile:

Have you had a thought about the different products you will be offering once you have a full banking licence yet?


#19

Hi @jonas Would not normally resurrect an old thread, but think my 2c would be more valuable here than in a new question-post.

Two use cases that came to my mind. Use case 1: Renting out real estate abroad (not in UK) and paying expenses, e.g. tax, mortgage, from the monthly rent payments. Reluctant to hold money in any of the local banks. Don’t want to carry any additional currency risk in this situation, so would have to bank with the 3 banks in the UK that have currency accounts in their product range.
Use case 2, similar to above: regular dividends from public companies in continental Europe are paid in euro. I would much prefer to receive them into my main set of bank accounts, in euro and without conversion.

In both situations forced to disperse funds across different banks in different countries, which is not very convenient.

Hope this helps.


(Mattia Ottonello) #20

Hi everyone! I am new here and I was just reading this thread, very convenient to spend abroad getting the real exchange rate without any fees. Is this convenient feature going to apply to Mondo on a long term? Does it apply to cash withdrawal made abroad as well? I am about to go to HK and Thailand and that would be very useful to get cash there without paying any fees or commission! Thanks a lot

MO


(Simon Webster) #21

This will be good as heading to the States in July…


#22

Yes, as previously asked - Is this non-FX fee something that is intended to apply in the long term?

Appreciate that it may be too early down the road to commit anything here yet, but this will be a massive incentive for me (and I’m sure very many others) to make the switch permanent when the current accounts are here