TransferWise vs PayPal Comparison

TransferWise vs PayPal

If you run a business that relies on overseas employees or freelancers or if you are an expat, you will know the endless struggle and high costs that come with sending money each month. PayPal is typical choice to start from but sooner or later you will be looking for alternative way for making online payments with lower fees. There are many fees for international money transfers and the exchange rates can easily eat into your budget. Over the years, many people have turned to PayPal to help, but more and more people are looking at other services including TransferWise. It is important that you compare the two services before you determine which one you should be using. Also if you have no any bank account yet or you want to pay without credit card TransferWise is still right choice for you.

The Reputation And Safety

Knowing if a company that will handle your money is legitimate and safe is vital. A scam company could make off with your money and you may not have any recourse or means of getting this back.

Reputation MeterPayPal is one of the earliest internet startups and was created before the dot com bubble in 2000. The company was started in 1998 by 4 enthusiastic people and merged with X.com, which is owned by Elon Musk, in 2000. In 2002, the company went on the IPO and shortly after this it was bought by eBay for 1.5 billion US dollars and became a subsidiary company before spinning off in 2014. Since this time, PayPal has become the largest digital payment companies I the world, has more than 173 million users and a market cap of 50 billion US dollars.

TransferWise, on the other hand, is a more recent startup and was only established 5 years ago by 2 young entrepreneurs. However, it has a chance of becoming the next big success story in the work of digital payments. Since the inception of the company, it has received funding from very notable investors including Richard Branson and Peter Thiel, who is one of the original founders of PayPal. While TransferWise does not make the same amount as PayPal or have the same giant user base, it is slowly becoming a company that many people turn to for internal payments. It is reported that more than $500 million is moved by the company each month.

TransferWise has been authorized as a payment provider by the British FCA while PayPal has approval from the American SEC. The SEC is considered to be more astringent, but both of these bodies are considered to be the top regulators for financial institutes. This means that the bottom line is that both of these companies are extremely reliable.

Comparison Of Fees

When TransferWise was designed, the creators had low fees and transparency in mind. This means that you will be able to see how much you are going to send, how much it will cost you and how much the recipient is going to be getting. The average transfer fee will only be 0.5%. There are certain destinations where it will be 1% and for more exotic destinations the fee will be 1.5%. There are no margins added to the currency exchange fee and this is thanks to the P2P money transfer system in use. TransferWise always offers a better exchange rate than the local banks and there are no recipient wire fees for receiving money from a domestic bank account.

Sending money from the UK to GermanyTransferWisePayPal
Amount sent£1000£1000
Exchange rate1.1181.114
Transfer fee£5£34.20
Withdrawal fee£0£0.50
Amount received1,112.41 EUR965.30 EUR

PayPal is considered a payment provider and the primary use is commercially based. This means that there are costs that you will not know about before or after you have made a transfer. You will not be able to clearly see what you are paying for the transfer and the recipient will often have to pay 3.4% of the funds that they receive. The exchange fees will also be added and are between 3.9% and 4.9%. There are also some other hidden charges that you might not be aware of and results in PayPal typically offering worse exchange rates than the local banks.

When it comes to the fees, TransferWise is a clear winner. While PayPal is easy, quick and reliable it will cost more to use. TransferWise is just as easy and reliable, but you will have a better understanding of the fees involved.

The Speed Of Transfers

It is important to note that TransferWise is not the speediest way of moving money around because of the long compliance requirements. If you are in Europe or the UK, you can be automatically approved by the system by supplying photocopies of the relevant documents. However, for clients from other regions, the process can be a bit longer.

There is also a short period before you are able to withdraw funds to your bank account with PayPal. However, opening a new account and sending money internationally is almost instantaneous. Many people use PayPal because the receipt of money is internal and instant, but if you want to withdraw the money you may have to wait for 2 to 3 business days. If you need to money in cash, the waiting time will be the same for both companies.

The Conclusion

Both of these companies have been created to serve a purpose and many people every day will use these services to move money around. However, if you are looking at sending money to a bank account then you might find that TransferWise is the winner. This is due to the business model and the low overall fees that are applied to their international transfers. If you are going to be making regular monthly payments to international recipients, TransferWise is going to save you a lot of money. I would say TransferWise is same good for private persons and for online businesses.

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