Crypto Vs. Bank Transfers: A Fee Comparison
One of the biggest arguments in favor of crypto adoption is that it can be cheaper and faster to move crypto around than fiat. On its face, that certainly seems to be true: a Bitcoin user transferred about USD$194 million in Bitcoin last month for less than a dollar in fees, for example.
But of course, that’s just the transaction fee. Let’s do a head-to-head comparison to see how international crypto transfers stack up against traditional bank transfers as well as newer, affordable-transfer tech startups like Transferwise and CurrencyFair.
Say you’re in the US, and you’d like to transfer USD$1000 to a friend (or yourself) in Hong Kong.
The old way:
Sending this money via bank transfer, you’re going to pay (on average) USD$43 for the outbound transfer, and your friend will pay an average of USD$8 on their end for the inbound transfer. Then there’s the currency exchange, which varies by bank. As of this writing, USD$1 is trading at HKD$7.83. Let’s say the exchange is happening through HSBC, one of the largest banking and financial services in Hong Kong. For transfers, their rate is currently USD$1 for HKD$7.79.
So, you send USD$1000, and your bank charges you USD$43 (the outgoing wire fee), so USD$957 arrives at your friend’s bank in Hong Kong. Using their transfer rate, they convert that to HKD$7,455, which reduces the USD value to USD$952. Then the bank charges the incoming wire fee, USD$8, meaning that your friend ends up with the equivalent of USD$944. This transfer cost you USD$56. It could also take several days to complete, depending on the banking specifics.
The new way:
Sending this money via Transferwise, you’ll be charged a USD$1.50 fee for using ACH transfer from your bank (or a debit card), and then an additional USD$8.93 in fees by Transferwise, which then converts the money to HKD at the market rate of USD$1 to HKD$7.83. The result is that your friend will receive the equivalent of USD$989. This transfer cost you USD$11.
Competitors’ rates are similar. For example, this transfer would cost you USD$15 via OFX. In both cases, the money should arrive in an hour or two.
Clearly, these companies offer a faster and much more economical service than traditional banks! But can crypto do even better?
The crypto way:
First, let’s assume you don’t already own crypto, so you’ll need to buy some with fiat. The easiest and most common way in the US is via Coinbase, where USD$1,000 will get you USD$985 after Coinbase’s USD$14.68 fee. Then, you need to transfer the Bitcoin to your friend’s address. If you’re OK with a slightly slower transfer of around an hour, the current fee for this is negligible -- about USD$0.06. On the other end, your friend can withdraw the BTC via an exchange like Binance for a similarly minimal fee, USD$3.50 as of this writing. So your friend ends up with the equivalent of about USD$982. This transfer cost you USD$18. It should take around one hour to complete.
However, the price changes significantly if you, the sender, already own a balance of crypto you can send from. It drops still further if your friend doesn’t mind receiving the transfer in crypto and won’t need to withdraw it. In that case, this BTC transfer would cost about USD$0.06 total, since all you need to pay are the miner fees for your non-urgent transaction. Using other cryptocurrencies, the fee could be even less. A NANO to NANO transfer, for example, would cost nothing and complete within a few seconds. However, you’d need to already own NANO, and your friend would need to want to own NANO, to be able to realize that price.
Of course, exchange rates and fees fluctuate from bank to service to exchange, and they also vary based on the amount you’re transferring, so we can’t conclusively say that any approach will be cheapest for 100% of cases.
Based on the example above, however, it’s clear that crypto isn’t the best choice at the moment if you need to send fiat and receive fiat on the other end. In those cases, you’ll probably want to look at sites like OFX, Transferwise, and CurrencyFair rather than looking to crypto.
However, if you already own crypto, or if your recipient is happy to receive crypto, the balance shifts dramatically, and cryptocurrency becomes the clearly superior option in terms of both cost and speed.
As crypto exchanges grow in number, the cost of sending fiat-to-fiat via crypto may also come down.
Chris Naish is the author of Internet Business Insights.