I would prefer they settle on Monday also tbh
@krisknez, why do you believe that Revolut couldn’t do what the subject of this thread suggests, which is explained in more detail at the top of this thread?
I don’t believe I understand it much. I think Revolut is currently doing a great job.
You said you use your other bank’s card on weekends because Revolut’s rate is bad? My bank does not use the middle market rate but the sell rate when exchanging money which is between 1-3% off the middle rate and I have a good feeling that MC does the same. Looking at it that way isn’t Revolut still better to use even on the weekends?
I certainly do understand it. I’m an eFX consultant for investment banks so I have deep professional knowledge and experience of this subject matter.
I agree that it indeed is, but not with respect to weekend markups.
Revolut’s rate is good. It’s Friday’s closing rate, but Revolut adds a 0.5% fee to protect itself against market movement on Monday morning. Your bank most likely uses the MasterCard (or Visa) rate and then adds a 1% to 3% FX fee despite not being involved in the FX process. Tandem, on the other hand, uses the MasterCard rate and gives 0.5% cashback, so it’s 0.5% better than the MasterCard rate.
So does my Aqua Rewards… for a subprime credit card it’s actually shocking how it beats Revolut on rate by what I’m assuming to be 0.8% including the markup + cashback (0.5)
Revolut really could do better.
Revolut should remove markup
On the contrary, there is a solution. Delay the FX until Monday’s WMR 4pm London fixing.
Yes, but there is still an uncovered risk. Even with, say, a 5% authorization margin, what happens if markets move 10% before the settlement? As a private person, the risk is negligible, but for Revolut this could turn at least theoretically into a big loss. So what happens is that they have to buy exchange rate insurance. Someone has to pay for this (currently, we do with the markup).
Revolut could increase the margins for specific currencies when volatility is expected, for example before elections and referendums (which often happen at weekends) and other market turmoil.
Can I ask what currencies regularly undergo 5-10% changes in their value?
It’s impressive if they have furthermore they would encounter this loss anyways if it were to happen to a currency after trading it
Revolut is still not a bank with proper risk management / controlling, and capital adequacy. Everything they offer is completely risk-free, and most of their services are actually processed by third-parties. It’s basically a very large hobbyist project of re-selling services.
Yes, they could increase margins. But the risk would still be larger than zero, which is why they are not doing it. When you start taking risks as a financial institution, you are entering a completely different world of regulations and accountability.
GBP in late October 2019, quite possibly!
They are already imposing a 0.5% margin at weekends, which would not protect them against a 5% to 10% move. So what are you saying? That Revolut fails to protects itself currently with only a 0.5% margin or that a more flexible margin wouldn’t protect Revolut?
Revolut is not holding any currency. They don’t incur losses if a customer’s currency weakens.
But if in your account you have £100, and they allow you to spend €100 over the weekend, and if then the pound crashes and your 100 GBP on Monday is only worth EUR 50, they lost EUR 50. That’s why they are insured against such fluctuations. And that’s why we pay markup.
Of course it protects you because it’s backed by a real financial company (insurance / someone who hedges for them), and covering risk costs something. Of course, the smaller the risk, the smaller the costs. If they authorized with a healthy margin, the risk would drop to almost nothing, so I’m all for it. But I’m just saying it’s not just a small process they could change in an afternoon.
edit: sent too early
Nobody is hedging for Revolut if it uses Friday’s closing rate + 0.5% margin for the weekend, and the market then moves on Monday morning by 5%. It’s a loss.
It is implausible to suggest that Revolut has insurance against such fluctuations. Where do you get this information from? I don’t believe that Revolut even hedges against fluctuations; it merely adds a 0.5% or 1% markup depending on the currency pair. If the market movement on Monday morning is more than 0.5% or 1%, then Revolut makes a loss.
if the reserved amount isn’t enough to cover Monday’s real exchange they can still take the rest as if it was offline, and you are due to pay later anyway. Revolut wouldn’t lose money, but as per today’s mechanism they would.
That’s just an implausible assumption on your part.
there is also no proof for your claim