Do you need to send money to somebody in a different country? Do you need to pay somebody in different currency and not lose money on exchange rate? Shortly, if you use PayPal for this purpose you would have to pay much higher fees comparing to TransferWise. You should understand it’s not an alternative but different payment system. PayPal’s primary function is to make and receive payments (for goods and services) not to make money transfers. TransferWise is designed for international money transfers at first pace. In this article I’m going to explain main differences of these two providers.
These are topics worth covering when making international money transfers and currency exchange:
- Fees charged for a transfer
- Exchange rate
- Withdrawal fee
- Withdrawal limit
- Time to complete the transfer
Fees charged for a transfer
Standard rate for international transfers using PayPal starts from 3.9% + fixed withdrawal fee and varies between countries, being for example up to 5.4% if you are using this service from Argentina.
On the other hand, using TransferWise you pay just 0.5% fee of the amount you send for most popular currencies and destinations. For example you will pay just £5 when sending £1000 to Europe (EUR currency). There is also flat fee for small transfers under £200 or equivalent. The fee depends on currency and is £2 or €2 for pound and euro transfers. The flat fee is removed for bigger amounts so it’s always flat fee or fixed percent but never both.
Returning back to PayPal. In theory you can apply for merchant account which gives “discounts” if you receive really significant amounts on monthly basis. More money you receive per month less you pay in fees. As you understand it’s not an option for money transfers between private persons.
Comparison of transfer fees
|Currency||PayPal fee||TransferWise fee|
|Australian Dollar (AUD)||3.4% + $0.30 AUD||0.5%|
|Canadian Dollar (CAD)||3.4% + $0.30 CAD||0.5%|
|Czech Koruna (CZK)||3.4% + 10.00 CZK||0.5%|
|Euro (EUR)||3.4% + €0.35||0.5%|
|Hungarian Forint (HUF)||3.4% + 90.00 HUF||0.5%|
|Polish Zloty (PLN)||3.4% + 1.35 PLN||0.5%|
|Swiss Franc (CHF)||3.4% + 0.55 CHF||0.5%|
There is dramatic difference between these two systems when it comes to exchange rate they offer. TransferWise was designed as cheap and transparent solution for international transfers and it operates with real mid market exchange rates. These are rates that you see on Google currencies or XE.com without any additional fee included.
You can personally check exchange rate using TransferWise calculator.
On the other hand PayPal tries to make additional profit by adding margin on top of real exchange rate. It is very typical situation for majority of payment providers, this is how money exchange offices make their income. Sometimes this margin is called hidden fee.
This is an example of how much money you can save just on exchange rate when making a transfer:
|Payment Provider||Amount sent from the UK||GBP to EUR exchange rate||Amount received||Savings on exchange rate|
* Values are based on the exchange rate on 31.07.2017
For intentional bank transfers it is common issue when the recipient is charged a withdrawal fee. It’s the case for PayPal payments (except the US when sending money to a friend or family member) but there is no such fee for TransferWise. The recipient always receive full amount to his bank account without any additional fee.
As mentioned earlier PayPal is free in the US if you send money to family or friends. It’s true regardless if you are sending money to another PayPal account or to a bank account. If you are in the US and get money for services or goods then 2.9% fee applies plus $0.30 of the amount you receive. There is always withdrawal fee charged for all cases. The fee depends on country, currency and withdrawal method. For example, if the recipient is in the UK, the fees would be €0.50, $0.50 or £0.50 depending on the currency he is receiving.
It is good to keep in mind that PayPal performs “account verification” and sets limit for withdrawals to bank accounts. The verification is also needed if you want top up money from your bank account to your PayPal account. The standard withdrawal limit for verified PayPal account is €2500. You can see your limits by entering “More about your account” section in your PayPal profile. If you want to rise the limit you need to contact PayPal.
You can start sending money with TransferWise immediately and you will have certain limits set before you pass verification of identity. Once your account is verified you can send as much money as you need. However they may ask about the nature of payment if you make single payment higher than $50,000 USD for personal account or
$250,000 USD for business account.
How long does it takes for the recipient to receive the transfer?
When sending money via PayPal it becomes immediately visible on recipient’s PayPal account but not yet on his bank account. That means the recipient needs to withdraw money to his bank account and it may take a day or two (normally) to complete. However, all payments received can become a part of a 30-day hold period, which may prolong the period needed for the recipient to get the money.
For TransferWise the guaranteed time to complete the transaction is, in most cases, 24 hours from the moment of arranging the transaction. For the most popular currency pairs and destinations transfers may get completed within several hours. Note that time may vary between countries and currency pairs.
Is PayPal good for businesses?
There was an interesting research done by an independent agency Consumer Intelligence that compares PayPal and TransferWise services fees. The analysis was based on data from various transfers between different locations performed by Consumer Intelligence and their partners.
PayPal fees appeared to be more complex and less transparent:
- There is no upfront fee, but there is a margin added on top of the exchange rate that was 3.18% for GBP to USD destination
- There is a 4.41% fee that recipient pays for the transaction
On the other hand, with TransferWise:
- You get mid-market exchange rate with 0% margin
- Pay only upfront fee that is just 0.4% + £0.80
- The recipient doesn’t pay any fee
To summarise, you pay the following amounts in fees when sending £2000 to the USA:
- £8.76 + $0 with TransferWise
- £65.80 + $117.47 with PayPal
I think the choice is obvious. The complete study has been published on TranferWise blog.
Conclusion: Paypal or TransferWise
Based on all differences covered between PayPal and TransferWise it’s absolutely clear that you can save a lot of money using TransferWise. This would be achieved based on lower (and less) fees, better exchange rate and no withdrawal fee. If the recipient need to get money to the bank account then transfer time will be roughly the same 1-2 days for both. It’s because withdrawal from PayPal account to bank account takes place. This example illustrates how huge your savings can be when sending £1000 from the UK to Europe in EUR using TransferWise:
|Amount to transfer||£1000||£1000|
|Exchange rate (to EUR)||1.118||1.114|
|Amount received (EUR)||€ 1112.41||€ 965.30|
|Your total savings||€ 147.11||-|
* Values are based on the exchange rate on 31.07.2017