Is PayPal’s Xoom money transfer service a good deal?

Better than some, worse than others.
Better than some, worse than others.
Image: Reuters/Amir Cohen
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PayPal launched its Xoom money transfer service in the UK and 31 other European markets last month. Is it a good deal for people sending money abroad? The answer, when comparing Xoom or any other transfer service, is “it depends.”

Nearly $700 billion of remittances are sent across borders each year, changing funds from one currency into another. Banks and money transfer companies have typically taken a big bite out of those transfers, charging fees that range range from 5% to even more than 25% for some foreign-exchange pairs. Transactions can also take days to process.

Fintech startups are bringing competition to the sector. These days, for example, a savvy customer can often make speedy bank-to-bank transfers from British pounds into other currencies around the world for less than 1%. Here are the percentage fees charged for transferring pounds into a range of other currencies, according to FXC Intelligence, a specialist data provider:

When everything is taken into account, PayPal’s Xoom is usually somewhere in the middle versus its competitors, according to FXC data. “In some cases they are quite competitive, in others they are less competitive versus the market average,” said Daniel Webber, founder and CEO of FXC Intelligence. “We see this across the market generally. Nobody is the cheapest one over everything, or even the most expensive.”

That makes it important to shop around for the best rates. There are a number of variables in play, such as cash versus bank-to-bank transfer, or debit versus credit card. It can also depend on the remittance corridor (the foreign-exchange pair and countries involved), the amount of the transfer, and floating currency rates that are constantly changing. This makes for thousands of different price combinations.

The complex array of charges can be tricky to figure out for a person who isn’t familiar with foreign exchange rates, so looking simply at how much money the receiver will get is the easiest way to assess which service offers the best deal.

Xoom, for example, discloses that it charges a transaction fee and also tells the customer that it makes money through the foreign-exchange rate it charges. But the customer still has to go to another website to figure out the difference between Xoom’s offered rate and the actual market rate. “To be fair to PayPal and Xoom, they’re among the few that say they directly make money from the exchange rate,” Webber said. “Most don’t tell you that. The most transparent is probably TransferWise.”

A spokesperson for PayPal said Xoom’s rates for international transfers are competitive. “Our fees and rates are listed clearly for every transaction for our customers as you can see here,” the spokesperson said in an email. “There are no hidden charges. We are transparent about the exact amount a customer pays and what the recipient receives so that our customers can make an informed decision.”

TransferWise is seen as transparent because, among other things, it shows the total cost of a transfer in the senders’ currency. But it’s not perfect either. FXC data shows that the eight-year-old company doesn’t always offer the best deal. TransferWise also got dinged in 2016 by the UK’s advertising regulator for what it said were misleading claims about how much customers can save on its platform.

The watchdog said TransferWise had manipulated the data to its own advantage and hadn’t made enough comparative informative available to clients for them to make a judgement. A spokesperson said at the time that the company made a page on its website to explain the the calculation in more detail.

European regulators have looked into this issue. In February, the UK’s Financial Conduct Authority published a policy statement (pdf) on payments, as authorities look to make these services more clear and to avoid misleading advertising claims. The EU also has rules requiring payment providers to disclose this information in a neutral and comprehensible manner.

Overall, the influx of fintech firms offering money transfer services means consumers can probably get better deals than ever. “Digital is phenomenal for customers,” said Michael Kent, CEO of money transfer startup Azimo. “It will continue to transform financial services and drive prices down.”

However, he added, “in all aspects of financial services, it always pays to shop around.”