Peer to Peer FX prepaid cards are a recent development in the prepaid market, but the premise is simple. You need to exchange money; people abroad need to exchange money too, why not use technology to arrange a swap and save money?
What is peer-to-peer foreign exchange?
Traditionally, if we needed foreign currency, we'd go down to our local bank or bureau de change, hand over our sterling, and receive some currency based on whatever exchange rate they decided was reasonable (or they could get away with).
In larger towns, there was some competition, but not much, and by and large British travellers could 'like it or lump it.' Of course this wasn't purely a British phenomenon as travellers the world over were at the mercy of foreign exchange businesses. However, what if travellers from the UK, who perhaps needed Euros, could swap their cash with travellers in Europe, who wanted pounds? Both parties could cut out the middle-man, and get a far better deal.
Well, that day has arrived. Technology has enabled startup businesses to quickly establish an international presence, connecting travellers from a myriad of countries and allowing them to swap their travel money at the touch of a button.
Initially, these businesses focused on the more substantial sums transferred by large companies (or those buying foreign property) via banks or international money transfer businesses, where the savings they offered were considerable. However, quickly on their heels were businesses which catered to the lower exchange values associated with foreign travel - the mass market.
Prepaid peer-to-peer exchange cards
Being able to exchange currency with people from every corner of the globe is all well and good, but unless you happen to have a bank account that facilitates deposits in multiple currencies, any foreign currency deposits will simply be exchanged back into sterling (defeating the purpose) - Step forward the prepaid currency card.
Travel prepaid cards have become increasingly popular in the last decade because they provide a simple and secure way to take money abroad. Traditional foreign exchange businesses still issue most of these prepaid currency cards, but although there's more competition than ever before, they are still middle-men - needing their cut to stay in business.
However, a new breed of prepaid travel card is rapidly challenging the established order. Combining the advantageous rates available through peer-to-peer exchange with the utility of currency prepaid cards - Peer-to-peer FX cards.
How do prepaid peer-to-peer foreign exchange cards work?
Every peer-to-peer FX card operates in a slightly different way. Of course, they are not run by charities, so you will need to pay something. However, if you get the right card, and minimise fees where possible, you can get great deals on your foreign exchange.
So, what are the fees they charge, and what should you watch for when comparing products?
Exchange fees - Although these cards offer a cheaper route for exchanges, most still charge. Charges might be applied as a fixed proportion of the transfer, a tiered percentage based on the amount transferred or even tiered based on the time frame within which the transfer is required.
Transaction fees - Although getting the best exchange rate is a big part of the equation when sourcing the cheapest travel money, you need to ensure that good exchange fees are not offset by high transaction charges. Transaction fees are paid (or not) when you use your card to make purchases (eg. chip and pin purchases). For credit and debit cards they are often around 3%. They are usually lower for prepaid cards, but if you like to ‘pay-on-plastic’ when abroad, then check these fees before you apply.
ATM fees - ATM operators normally charge financial institutions for the use of their machines, so it is not surprising that these fees tend to be passed on to consumers. However, the rate they are a passed on at can vary widely, and these fees can be minimised since many card providers encourage higher load values by offering free withdrawals over a specific amount.
Set up fees - Set up fees are unusual for prepaid travel cards. However, setting up an account, producing and mailing a card is not free, so you have think, how are they making this money back if they are offering a free card? Usually it's in the form of other fees. That does not mean that you should avoid fee-free cards, but you should have a good understanding of where they will make a return if they are offering them. Assuming you're unlikely to pay through the nose, they can be a great bet. If not, don't discourage yourself from paying for a card - free doesn't always mean cheap!