Is Peer to Peer Foreign Exchange The Next Big Thing?
The peer to peer way of doing business has gained a lot of attention in the last few years. Peer to peer trading takes away the middleman – instead of money being borrowed, lent, or otherwise transferred via a business, the entire transaction takes place from individual to individual – or using groups of individuals, with money moving in opposite directions.
Peer to peer lending has become incredibly popular of late, so it seems only natural that a peer to peer money exchange system would be the next logical step. The system works quite simply from a user’s perspective, but the question is, can you trust it?
How does it Work?
Most peer to peer systems work using a simple concept. If you want to transfer money to, say, someone in America, you would transfer your money to a holding account in the UK – paying in British Pounds. Once the funds clear in that holding account, the person in America would have their money transferred to them from an American bank account that holds the right amount of currency in US Dollars. The money never leaves the originating country, a network of accounts (and some company reserves) are used to ensure that everyone gets the right amount of money.
Is Your Cash Safe?
Assuming that you choose a system that is recognized by the Financial Conduct Authority, you should have no problem with peer to peer exchange services. The only risk might be if the company you worked with ran out of reserves. However there are risks with all online transfer companies. Your best choice is to pick a company that is recognized by the FCA. This means that you have at least some peace of mind that the company is reputable. However, there is no compensation scheme – if a company goes bust while your money is being held by it, there is nothing to guarantee that you will get it back.
There are, however, two kinds of registration system with the FCA. The most basic is “FCA Registered.” All this means is that the FCA knows that the company exists. Being FCA registered does not mean that the company is safeguarding your money in any way. Only relatively small financial organizations are allowed to be FCA registered. Bigger companies with high trading turnovers must be FCA “Authorized” and this means that the company must keep their customer’s funds separate from their day to day trading funds. This means that if the firm does get into financial difficulty, your money should have been safeguarded and you will have a greater chance of getting it back.
Peer to peer currency trading is a promising system, and something that is worth looking into for smaller foreign currency transactions. It may never replace dealing with traditional financial establishments completely, but it does serve a useful niche in the currency markets and offers good value for money for people who need to send occasional payments abroad.