Transferwise vs PayPal

If you need to transfer money abroad, or run a business with your customers overseas PayPal or Transferwise are your best bet.

While banks have been around since forever, these two fintech mega successes have emerged in recent years and truly shaken up the money transfer business – especially if you need the ability to “Request Money”.

It appears that both strive put the user experience and convenience at the heart of their product and sending or requesting money with either of these two companies is so much better then it was in the dark ages when we used banks.

What’s more is that they are both fairly cheap and convenient to use, especially when compared to your bank.

However, one must still rise to the top! In this battle of PayPal vs Transferwise, we compared both companies based on the following categories:

  • Cost
  • Speed
  • Convenience
  • Security

While we fully recommend you to read the whole article to see exactly how each service performed in each category, for those of you who need can’t wait (after all, time is money) Transferwise is the overall winner especially if you want the most money to arrive.

Here is a Video from Transferwise that we though was pretty funny…

For most people getting the most funds from A to B is the most important and on this score Transferwise is cheaper and faster than PayPal.

PayPal did have a clear advantage in that many people already have a PayPal account but this came at a steep price. However, if you and the person you are sending money to are already signed up and don’t mind paying more, PayPal could be the service for you.

At this point you have to ask yourself if getting up to 6% less is an acceptable for the convenience. Now that might not sound a lot but if you are getting paid a good proportion of your income this way or you are paying others – this can be a significant loss and worth making the switch.

A final thing to consider is that there are many variables depending on where you are transferring money. For example, the currency you are using, how you pay into the service, etc. To ensure you get the best price you could always get a quote from each company before sending your money. Generally though you will be hard pressed to beat Transferwise so we recommend taking a look look as this could easily result in hundreds if not thousands saved each year.

Now, before we move on to how we arrived at these results, let’s firsts take a quick look at the history behind each company.

PayPal

PayPal for Money TransfersOf the two companies, PayPal is the one you probably know the most about. It was founded in 1998 and rapidly expanded after becoming the payment method of choice on the auction site eBay.

It has continued to grow to the point where I would be willing to bet that a significant number of the people reading this already have a PayPal account set up and have probably used it.

However, before PayPal came along, everyone had a bank account. Yet we all know that this didn’t stop PayPal from tearing up the financial rulebook.

Perhaps now is the turn of…

Transferwise

Transferwise was formed in 2011, as Money Transfer Company with a few distinct points of difference – ridiculous transparency on its fees + it does enable you to request money from others overseas + the fees charged throughout the process are much less.

Like PayPal before it, Transferwise has grown rapidly over the years and now claims to send over 800 GDP every month!

It uses an innovative Peer to Peer transfer model that allows users to transfer money without technically sending their money to another country. This allows Transferwise to really reduce the amount they charge in transfer fees and it is a big reason behind its success and your savings.

So, now that you know a little about each of these companies let’s move on to finding out which one is actually the best at sending your money abroad. First, let’s take a look at the cost of sending money with each company.

Cost

For many people out there the best money transfer service will always be the cheapest. After all, the extortionate transfer fees are exactly the reason why you want to avoid using your bank and perhaps why you are looking beyond PayPal because of their high fees.

The overall cost of a money transfer service will generally come down to two different measures. These are the exchange rate that you are given and also any fees that are added on.

In addition are the fees added by your bank or your credit card company. These would most likely be the same on either service anyway.

Exchange rate

Exchange rates are one of those things. We all see on Google, or our finance apps, or on the news what the exchange rate is but we all also know we are never actually going to get that rate.

It is a commonly accepted fact that financial companies will always try to skim a little of the top making the actual amount we receive less than the exchange rate we see.

Well, hold on a moment.

When it comes to your exchange rate, what you see is what you get with Transferwise! Transferwise uses the mid-market rate and doesn’t actually make any money from the transfer rate. This basically means that when it comes to exchange rate, it would be very hard for anyone to beat Transferwise.

PayPal, on the other hand, say that they take the wholesale rate provided by banks and then add on an extra 2.5% – 4% to calculate the exchange rate you receive.

3.5 – 4% is what they charge for currency exchange. (2.5% is what they charge to exchange currency in your own account.)

Here is the chart they publish:

Exchange Rate Costs for PayPal

In our tests, even a bank will outdo PayPal for anything above about $300 but this is dependant to countries and amount.

Fees

You can see on the screenshot below that the fees for PayPal range at between 0.5% to 7.4% of the total amount transferred or slightly more if you are using money from a credit or debit card

Fees for PayPal

 

 

 

So the total cost to use PayPal

= Exchange Rate + Fees

= (2.5 + 0.5) to (4 + 7.4)

= 3% (min) to 11.4% (max) 

For most people, in the USA, UK, Europe, Canada or Australia for example and get paid or pay someone in those same countries;

Total Cost = 5 – 6% (Lesser known currencies will be higher)

By contrast the fee for using Transferwise is 0.5% for most major currencies.

However this can increase if you use different currencies. For example, sending GBP (UK) to CNY (China) will be charged at a rate of 1.5%.

Basically, when it comes to fees, with both of these services you will pay a slightly different rate depending on the currency pairing that you choose. However, what is clear is that due to the 2.5% extra that PayPal add to the exchange rate, sending money with Transferwise is almost always going to be your best option.

Winner: Transferwise is the clear winner due to its use of the middle market exchange rate and its relatively small transfer fees.

Speed

Like with cost, speed, is important and also highly dependent on the currencies you choose.

Transferwise claim that most transfers will be completed within 1-4 working days once they receive your payment. When I set up a transfer of USD to EUR it claimed that the money would arrive within 1-2 working days.

The average amount of time a PayPal payment takes is 3-5 business days. So again, while this is certainly slower than some transfers with Transferwise, it is at least competitive with other types of transfer.

Winner: Once again Transferwise is the winner here. While both companies say transfers can take up to 5 days, for many currency pairings a transfer with Transferwise will only take one or two business days.

Convenience

Both companies make signing up for their service very easy. I signed up to Transferwise by simply typing in my email address and choosing a password. Incredible! You can also use Facebook or Google to sign in if you please.

This is part of Transferwise’s overall strategy of making sending money abroad as simple as possible.

Of course, PayPal is no slouch either. Signing up for PayPal requires you to type in a few more details before your account is open but it really isn’t any hassle at all.

Also, while it may seem like you need to give more details to PayPal before signing up than you do with Transferwise, in reality, before making your transfer you give some extra information to Transferwise anyway.

After signing up to either service, you will have to transfer money to your account from a bank account in your home country. Alternatively, you can use a card to make a payment although this may be slightly more expensive.

One place where PayPal may have the edge is the simple fact that it is such a popular service. This means that there is a fairly high chance that you and the person you are sending money to already have a PayPal account!

If this is the case, not only will you save time when it comes to signing up to the service but sending money to another user of PayPal is ridiculously easy. All you need to do is type in the email address associated with their PayPal account, choose an amount of money that you want to send, and then confirm the transfer.

In all honesty, it is almost scary-awesome how easy it is to transfer money internationally using this method.

Winner: This winner of this category really depends on the person you are transferring money to. If you need to transfer money to a bank account then Transferwise is the winner. On the other hand, for sheer ease of use, if the recipient has a PayPal account already then PayPal is the winner.

Security

When it comes to transferring money, security is one of the most important factors. Luckily, for anyone considering using either PayPal or Transferwise, both these companies are about as secure as it gets.

As both companies do business throughout the world, they are regulated by various services depending on the country you use them in. This makes them incredibly safe. Here is a list of who regulates PayPal in each state while here is Transferwise’s security and regulation for each country it operates in.

If you need any more evidence about just how safe these companies are, then you can take a look at the numbers. As mentioned above, Transferwise transfers over 800 million GDP a month while, according to this article from way back in 2011, it is estimated that in 2011 PayPal was processing $315.3 million in payments every single day.

Basically, both of these companies are highly successful and this kind of success only comes if they are able to provide a certain amount of security to their users.

Of course, one place where they don’t have much of an influence is on human error. When transferring money, make sure you know and/or trust the person you are sending the money too as once it’s gone it can be hard to get it back.

As well as this, it is worth remembering that both these services put ease of use at the forefront of their customer experience. As we saw with how easy it is to transfer money using PayPal, all you need is the email address of the person you are sending money too.

Because of this, it would be worth making sure that you change your passwords regularly and choose a long, difficult to break password when using these services.

Winner: Hard to tell these two companies apart when it comes to security. As long as you are careful with who you are sending money too and keep your account details secure, you should have no problems using either service.

Conclusion

Overall, if you are looking to send money as cheaply as possible then Transferwise is usually going to be cheaper than PayPal. It does not make money off the exchange rate and only charges a small percentage of the overall transfer as its fee.

It is simple to sign up to, easy to send money with and should even be quicker in many situations than PayPal.

However, that doesn’t mean that PayPal doesn’t have its place.

PayPal is well known and as such, it can be a convenient option and is likely to be especially useful for small amounts where the fact that they take a percentage won’t result in you losing that much money.

For amounts more than about $300 we highly recommend comparing Transferwise as your solution – it could save you a bundle.

Basically, check out either option, see how much it will cost for you to send money using each service, and then you can come to a good decision about which is the best money transfer option for you!

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