’Tis the season of goodwill, a time to consider those less fortunate. Christmas brings out people’s charitable side and a generous spike in donations, but what happens to our money once we hit the donate button?
UK charities have come under fire from the True and Fair Foundation, which claims that one-in-five spend less than half their income on good causes. Pressure is mounting on charities to show they spend donations wisely.
Charities that donate money abroad typically use a bank or broker that will usually charge a transfer fee – which might be anywhere between £20 and £40 – and a spread (also known as margin) which is built into the exchange rate.
The spread is what hurts international charities the most because sending money to developing countries incurs wider forex spreads. The more frontier the economy, the higher the spread for local currency conversion.
UK charities are losing up to £50 million a year in transfer fees and uncompetitive exchange rates, according to research.
Large charities have more leverage to negotiate with their bank or broker, but smaller to medium-sized charities might not have the same bargaining power.
However, a rising number of FX specialists are offering bespoke services that can help charities slash their currency costs when deploying cash abroad.
Charities must introduce the process of competitive tender to their forex transactions to get the best rates.
This is one of the guiding principles of Charitytransfers – a recently launched service which claims to have helped save charities an average of 75.8% on their international payments.
It offers a free audit of a charity’s previous FX trades and works with five brokers – Global Reach Partners, Monex Europe, Currency Cloud, TorFX & Currency Direct and Velocity Trade International – which compete to offer the best possible exchange rates.
This is useful for smaller to medium-sized charities, which are most poorly served in FX markets and often rely on just one or two brokers.
Charitytransfers works with 13 UK-based medium-sized charities that donate to regions such as Africa and central Asia, and is gaining traction with larger organizations.
Founder Jack Blackmore says: “Charities can maximize the value of money sent abroad through the use of a more flexible and pro-active approach to FX. That can be done via competitive tender, access to advice and working with exotic currency specialists.”
Karis Kids helps children in Uganda that have been orphaned by Aids by linking UK families to Ugandan families – support of £62 a month goes towards things such as clothes, food and school fees.
It receives about £140,000 a year in donations and is well funded, says its treasurer Edward Law, but last September he started to question the charity’s rising FX costs.
“We were sending out some funds and the exchange rate didn’t seem quite right to me,” he says. “I rang them up [XE Trade] and said “that seems too high” and they came back with a different exchange rate.”
This triggered him to explore alternative providers, and he switched to Charitytransfers. Now Karis Kids doesn’t pay a transfer fee and Law estimates a 1.5% average saving on margin.
“We used Global Reach, and I have a number of people who ring me and look after me,” he says [“It is a] much more personal service.”
He believes more charities could benefit from analysing their currency costs and shopping around.
How low can you go?
The next frontier of FX is peer-to-peer (P2P) currency exchange platforms, which encourages users to trade currencies with one another, bypassing banks and brokers altogether. These could help charities save even more money.
Kantox is one such platform that offers live mid-market rates for close to 150 currencies. Its fees for using the platform are clearly published on the website, ranging from 0.09% to 0.29%.
|Philippe Gelis, Kantox|
Philippe Gelis, co-founder and chief executive at Kantox, says: “Some [providers] will give a very tight spread to convince charities to onboard as clients, and then increase the spreads to make more money.
“In some cases, they hire people from charities to look more friendly, but in the end screw them the same way the banks do.”
P2P is a revolutionary idea that could save charities thousands, if not millions, but caution should be exercised, says Ignacio Garcia, founder of Best Buddies España. Best Buddies is a global, non-profit organization that helps people with intellectual and developmental disabilities.
Garcia has tested Kantox by using it in a personal capacity for more than a year, and is convinced. He believes it could save Best Buddies thousands on FX transactions.
“Charities need to be aware of different technologies and new services, but need to have a degree of conservatism to avoid problems with using these services,” he says.