Exchange Foreign Currencies for Free with Revolut
There used to be this commonly thrown around “statistic” about how only 20% of Americans held a passport, of course implying that they’re just a bunch of ethnocentric tools, who only understand the world through a stars-and-stripes lens. Turns out that both statements have a bit of truth to them. As recently as 2003, just 20% of Americans held a passport, though the number has doubled since then according to the BBC:
As for American ethnocentrism, let’s just say all developed countries are a bit guilty when it comes to being obnoxious backpackers. But we’re not here to talk about which country’s citizens you’ll find being the loudest in hostels (we’re looking at you Israel), but rather to talk about the needs of international travelers and expats when it comes to exchanging foreign currencies for free.
Sure, everyone says they’ll offer you currency exchange services for free, but the reality is much different. Take for example companies like Travelex. Here you have a company that offers services to travelers like foreign currency exchange. You’ve probably seen their stalls in key airports where 40% of all travelers pass through, stalls like this one:
Maybe you’ve been one of the 2,000 customers they service per hour at these locations, offering foreign exchange services “so you don’t get ripped off”. Turns out, they’re the ones who are ripping you off. The next time you’re in an airport, take five minutes out of your busy schedule and check out one of these currency exchange outlets. Notice how there is always a group of confused Chinese people milling about? That’s because they’re trying to figure out why the rates being offered are so far removed from the actual rates (also referred to as “spot rates”). Look at this rubbish:
That’s a rate we took right now on their website. Using xe.com, we can see that in fact the rate right now is .8243. They’re charging you $87.46 for their “free service” which involves sending you the cash prior to leaving on your trip. What’s the alternative here? Simple. When you get to your destination, use the ATM.
With a large known bank like Citibank, we’ve withdrawn money from countries as obscure as Papua New Guinea, Rwanda, and East Timor (look it up), including probably 100 different other countries around the globe. “But what about ATM fees?” you might ask. Turns out there’s an answer to that conundrum as well. Well, at least if you’re from the greatest country in the world – America (see what we did there?).
In good old ‘Murica, there’s a firm called Charles Schwab which will refund all your ATM fees if you’re a banking customer. As long as they don’t screw you over on the exchange rates too bad (they don’t but you should always check), you’re practically pulling out money for free. So, what about the other 194 countries out there that can’t become Charles Schwab clients? The solution may come in the form of a startup called Revolut that just became a unicorn.
Founded in 2015, London-based startup Revolut has taken in a whopping $336 million in funding so far, with the lion’s share of that coming in the form of a $250 million funding round that closed just yesterday.
Update 02/24/20: Revolut has raised $500 million in Series D funding at a post-money valuation of $5.5 billion to bolster its current offering in existing markets, as well as launch lending services for retail and business customers. This brings the company’s total funding to $837 million to date.
The first time Revolut came across our radar was back in October of last year when we wrote about 8 POS Payment Technology Startups to Check Out. One of these was Revolut, a startup that at the time was “developing an app-based platform that allows users to transfer, exchange, and spend money in 26 different currencies wherever Mastercard is accepted”. Fast forward to today and it looks a whole lot different.
Revolut describes themselves as “the only banking alternative designed for your global lifestyle”. Whenever people start presuming to know anything about our lifestyle, we usually tune out, but in this case, they may be on to something. Here’s the basics of their “freemium” offering which allows you to exchange foreign currencies for free:
The free offering gives you a free USD checking account, an international bank account number (IBAN) which stores euros, and free bank transfers for 25 different currencies using Interbank FX rates which are more or less “spot rates”. While this means that you can exchange foreign currencies for free, the catch is you only have about $275 in ATM withdrawals for free before they start charging you. That’s why you might upgrade to the “premium” tier which costs about $9.64 cents a month and gives you $550 in ATM withdrawals for free. Our American readers may be thinking, whoopee-doo, but this must be a service that people need because Revolut now has more than 1.5 million people using their platform.
If we assume that 30% of all their customers are paying, that translates into a run rate of $57.8 million a year. Of course, it’s not just premium accounts where Revolut makes money. They also charge fees on foreign exchange rates in order to help offset fluctuations. Fair enough, and that also helps add to their profits. Revolut has now processed more than $10 billion in transactions, while at the same time saving their customers $160 million in fees. Earlier this year, Tech Crunch wrote about how Revolut is adding customers at an astounding rate, between 6-8 thousand customers a day. Now, more than 350,000 people open the Revolut app every day, and they’re now looking to expand into the United States as they develop additional products.
Most Americans can’t manage to save any money, and Revolut’s latest product may provide a solution to that problem. It’s called “Vaults”, and it’s all about setting up a plan to save money by doing clever things like rounding up dollar amounts and stashing the cents in a virtual piggy bank:
Think about how handy it might be to save up enough money for a vacation, then just exchange it for some currency to spend abroad. Or you might want to send your money back home to your family, in which case Revolut has you covered as well with their Money Transfers service which allows you to send money to bank accounts in more than 120 different countries, again at spot rates. Of course there’s plenty of competition in the “money transfer” space, as we highlighted in our article on 9 Money Transfer Alternatives to Western Union. Lastly, if you’re the type of irresponsible person who thinks cryptocurrencies make good investments, then they’ve got you covered with a service that lets you “hold and exchange Bitcoin, Ether, and Litecoin at the best possible exchange rate”:
As veteran travelers, we don’t see a use case for Revolut in “our global lifestyle” since we just use Charles Schwab and Interactive Brokers to accomplish everything we need. With that said, there are plenty of people who can’t sign up to use these platforms and will find Revolut to be very useful for exchanging currencies for free.
There is one additional currency exchange use case we’d like to throw out for all you MBAs out there who are looking for an idea to run with. Many of us have stacks of notes from decades of traveling, and we’d like to send these somewhere and get some greenbacks in return. We don’t want to sit there and sort them out, or fill out lengthy forms, so just make it as hassle free as possible. Let us know when you get that sorted please.
For all you 129 million Americans with passports who want to exchange foreign currencies for free, just remember our earlier advice on having an ATM card from a major bank and looking for companies likes Charles Schwab that refund ATM fees. For use cases that involve intra-bank transfers, Interactive Brokers all the way. We love them.
Most people don't know that Interactive Brokers is the biggest online brokerage firm in the U.S. and the only firm we know of that allows you to buy stocks directly on 125 different foreign stock exchanges. We've used IB for many years as a cheap platform to exchange currency, for trading stocks on foreign exchanges, and for trading shares in U.S. stocks. Click this link to get started.