South Africa’s uncertain economic and political climate has put unprecedented pressure on the Rand. From February to December 2015, the Rand weakened against the US Dollar from R12.50 to R17, more than 35%. This has resulted in an increased number of people who wish to diversify their assets in offshore safe haven markets, and therefore an increase of outflows of personal wealth.
The majority of people transferring their money offshore do not have a proper understanding of the fees related to these foreign exchange transactions nor what their options are in terms of saving money by way of receiving preferred exchange rates.
South African bank charges are some of the highest in the world and a large part of these banks’ revenues are derived from foreign exchange payments. Private individuals and SME companies that import and export, generally deal with their own banks’ branches or call centres. They receive retail foreign exchange rates when they could actually be getting a “preferred” rate via a foreign exchange intermediary, potentially saving them thousands of Rands on each payment. Once payment documents for foreign exchange transactions have been submitted to a bank’s branch or call centre, clients don’t have much control on when the payments get executed. Banks generally deal with large transaction volumes and therefore payments can take hours or even days to execute, but if the exchange rate is moving 10-15 cents in a few hours, the cost to clients can be significant.
Foreign exchange intermediaries acquire their licences from the Financial Services Board of South Africa and need to undergo a Reserve Bank approval process before they can enter into a relationship with a partner bank. Partner banks offer preferred exchange rates to their foreign exchange intermediaries, which they in turn can pass on to their clients, in order to save them money.
By closely monitoring the movement of exchange rates and executing payments upon instruction, these intermediaries are able to offer a bespoke foreign exchange service to all of their clients.