Understand Peer-to-Peer Foreign Currency Exchange

Anyone who has studied or worked, or even done business overseas has probably come across the problem of how to exchange and send money abroad. Banks and brokers usually charge a premium on the total amount exchanged as well as a transfer fee. But over time, a new niche developed in the market to address this need. A new wave of internet-based, peer-to-peer (P2P) foreign currency exchange services is cutting banks—not to mention their fees—out of the exchange.

Through an online P2P platform, individuals can find and safely exchange currency with individuals in other countries at much lower costs. Most online P2P companies claim to provide up to a 90% cost saving to clients on international exchange and transfer fees. Read on to find out more about how this part of the industry works.

Key Takeaways

  • Peer-to-peer foreign currency exchanges provide users with an online platform where they can exchange currencies with one another.
  • These services cut out banks and foreign exchange services.
  • P2P exchanges provide users with cost savings and convenience.
  • Some P2P companies are regulated by more than one country. 

What Is a P2P Currency Exchange?

Peer-to-peer foreign currency exchanges provide users with an online platform where they can exchange currencies. P2P networks depend on digital transfers rather than the exchange of physical currency. Users rely on an internet connection, which means they can use desktop computers, tablets, and smartphones to make any exchanges.

These services essentially cut out the middleman—banks, foreign exchange (forex) services, and other institutions—by allowing users to make trades between themselves. Since there are no dealers involved, users may be able to get a better rate on their exchange.

Exchanges are particularly convenient for common currencies like dollars, pounds, euros, and yen where there are always many people looking to exchange. Because the platforms depend on connecting individual users in different countries, users of smaller currencies may not immediately find a good corresponding match. Some users may find that certain platforms do not deal with smaller currencies at all, either due to low liquidity or to certain regulations that prevent these exchanges from obtaining a license in the related country. Furthermore, users who want to exchange a very large amount of money may also have trouble finding a match.

How P2P Exchanges Work

Using an exchange is fairly simple. Users register with a P2P currency exchange service for an online account in order to make deposits. Depending on the site, users can accept a given exchange rate or bid on an exchange rate of their choosing. The site then makes a match, shows a change in the ownership of funds, and remits them within one to two days through a simple domestic transfer. No currency ever leaves the country but is merely exchanged between users. Users can send money to any person or business account—even to their own account in another country.

For example, suppose Mary is an American working in Paris for a year and earns euros. She needs to convert them to dollars and place them in her American bank account in order to pay her American mortgage. Meanwhile, John in Los Angeles wants to convert dollars into euros to send to his son who is studying in France. Instead of going to a bank, Mary and John sign up for accounts on a P2P currency exchange website. Mary deposits euros into her P2P account and John deposits dollars into his. The P2P website shows Mary and John how many dollars or euros they will receive for their transfers, and they each confirm the transfer. Within a day or two, the P2P currency exchange service will have John’s dollars transferred into Mary’s American bank account. At the same time, Mary’s euros will be transferred to John’s son in France.

But what happens if there's a shortfall or there are no good currency matches? The provider steps in to provide liquidity. In these situations, the user may be charged an additional fee. For example, if there is no suitable currency match, CurrencyFair, charges between 0.4% and 0.6% to make the exchange with its own funds—slightly more than the platform's 0.25% to 0.3% for peer matches.

Significant Cost Savings

The most attractive feature of P2P foreign currency transfer is the cost savings. By sidestepping banks and brokers, these platforms provide currency exchange at much lower rates. The average saving rate on international transfers for P2P users compared to banks ranges between 75% to 90%. Naturally, the savings depend on how much banks charge, which in most cases hovers between 2% to 5%.

According to P2P foreign currency exchange platform CurrencyFair, a typical bank would transfer £2,000 for a fee of £100 or about 5% of the exchange—£40 for international transfer fee plus £60 for the exchange rate margin. For the same £2,000, CurrencyFair charges just £8.50 or about 0.5%—£2.50 for the transfer fee plus £6 for the exchange rate margin.

Another advantage that these marketplaces offer is convenience. Users can access them anytime from anywhere. They are easy to use for both small and large sums and the transactions clear quickly—usually within one to two days, but users can pay extra for guaranteed same-day or next-day transfers.

P2P foreign currency exchanges aren't just for the everyday consumer. In fact, these exchanges also target businesses. Kantox is an online marketplace that specializes in dealing with mid-cap companies, along with small- and medium-sized enterprises. According to the exchange's website, it has more than 800 corporate clients.

Choosing the Right P2P Currency Exchange Service

Before choosing and using a P2P foreign currency exchange platform, do some basic research. Here are a few tips to get you started:

  • Look for a firm that does high volume—the more transactions, the more liquidity. This is essential for better rates, quick conversions, and smooth transfers. Check the number of currencies the exchange offers along with the time it takes to carry out the transfers.
  • Check that the firm exchanges your specific currencies.
  • Compare the exchange rates and fees of different firms.
  • Check that the firm is registered with the authorized country agency and has all the necessary licenses.
  • Use a firm that keeps customer money in segregated accounts versus common accounts. Segregation offers the consumer better protection if the company ever has financial difficulty.

Do your research before you decide which P2P currency exchange service to use.


P2P currency exchanges move incredible sums of money. CurrencyFair’s website shows a running tally of funds the company has transferred. As of March 2020, it stood at €9 billion. And there are plenty of other services in the market including:

But have financial regulators properly caught on and—more importantly—are consumers safe?

Many P2P foreign currency exchange firms are either based in or have registered offices in the United Kingdom. As registered money service businesses, they are administered by Her Majesty’s Revenue & Customs (HMRC) and must follow the Money Laundering Regulations 2007. As payment institutions, they also fall under the scrutiny of the U.K. Financial Conduct Authority (FCA).

There are two categories within the FCA—registered or smaller firms and authorized. Authorized firms, which are larger, must separate the customers’ money from their own at the end of each day in a process known as ringfencing. This provides better security for the user and a higher chance of recovering money should the company slip into financial difficulty. You can check the Financial Services Register for the FCA status of the company.

Some companies are regulated by more than one country. CurrencyFair in Australia is regulated by the Australian Securities and Investment Commission (ASIC). The firm also has a registered office in Ireland where it is regulated by the Central Bank of Ireland. Another company, moneyswap is licensed as a Hong Kong Money Services Operator and is further regulated under the FCA in the United Kingdom as a small payment institution. International Foreign Exchange is authorized by the FCA in the United Kingdom while its Dubai operations are regulated by the Dubai Financial Services Authority.

In the United States, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) oversees P2P currency exchange firms like VenStar Exchange. Firms are licensed as money transmitters by their respective state banking departments and must follow the anti-money laundering (AML) policies.

The Bottom Line

Peer-to-peer currency exchanges support fast transfers and provide substantial savings over banks. P2P exchange companies are growing at a fast pace by offering a lower-cost alternative to individuals and small businesses. On the downside, the P2P currency exchange marketplace does not fully protect the customers. Users should choose an established and fully regulated firm for currency exchange.

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The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.