By Farah Khalique
In a nutshell, P2P FX platforms work by matching up buyers and seller of different currencies. So, instead of dealing with a bank or broker, SMEs exchange currencies with one another or with individuals.
There are a number of platforms to choose from, including Midpoint, Kantox (who we've featured already) and TransferWise, and many more.
TransferWise has targeted London commuters with bold advertisements, which Transport for London tried and failed to ban. “F¥€K: your bank is overcharging you on your overseas money transfers” may not be the most subtle of messages, but it makes a fair point.
Opaque pricing is a problem when it comes to currency transfers, says Mike Hampson, executive director of Midpoint. Midpoint offers mid-market foreign exchange rates and its transaction fees are clearly advertised on its website, whereas banks typically bundle them up in the final price.
'Customers say that their bank or broker has given them the midpoint but they haven’t,' says Hampson. 'There is a lot of education [required] amongst consumers, small businesses and even bigger businesses on how to question current providers.'
Rupert Staines, managing director for Europe, the Middle East and Africa at advertising platform RadiumOne, prefers to use Midpoint rather than a bank, citing cheaper costs and a clear pricing structure.
'I think what they provide is a system that disintermediates this space, and I’m a big fan of taking out the middle man because in this day and age [the middle man] doesn’t add value.'
The only reason SMEs don’t use these platforms more is because they simply don’t know enough about them, says Staines.
The downside to P2P platforms is that it is not always possible to internally match buyers and sellers. However, they do have the option of using external wholesale liquidity that typically comes from the banks, so it is always possible to complete a trade.
The more SMEs use these platforms and trade with one another, the less they need to rely on banks.
Farah Khalique is a freelance business and financial journalist, with a keen interest in writing about non-bank financing solutions that can help SMEs grow their business. She has written extensively about banking scandals and has made TV appearances on Sky News and The Wall Street Journal Live to comment on topical issues including money laundering and bankers’ bonuses. Follow her on Twitter @FarahKhalique