How Does Knightsbridge FX Always Have Great Exchange Rates?

When researching exchange rates on the internet, one will find that there are a number of firms claiming to offer better exchange rates than the bank. How can that be possible? How do firms like Knightsbridge FX always have great exchange rates?

They call the banks every morning

In order to always have great exchange rates, you have to check to ensure your rates are better than your competitors. Knightsbridge FX calls the banks every morning to find their rates, and makes sure their rates are better. In fact, their rates will save you 1-2% over your bank’s exchange rate.

They buy in bulk

Knightsbridge FX has been referred to in news outlets as “the Costco of foreign exchange”. Knightsbridge FX takes advantage of their large transaction volume to pool the funds of individual transactions to “buy in bulk”. They then pass these great exchange rates onto their customers, thus passing on the savings.

Why don’t the banks do the same thing?

The next logical question would be to wonder why banks don’t do the same thing that Knightsbridge FX does. Surely, the banks have a larger scale and could pass the savings onto the end consumers in the same fashion that Knightsbridge does. However, the major banks do not do this. Why don’t they?

The major Canadian banks all have a very large and well-established consumer base. They have built relationships with millions of Canadians across the country, and most Canadians are very familiar with their domestic banking provider. For this reason, the banks know that Canadians are most comfortable transacting with them, and are willing to pay a premium to transact with a familiar entity such as their local bank. Banks are also perceived to be a “safer” place to exchange your currency than some of the third party currency exchange firms, and some consumers are more inclined to pay the heftier exchange rate for this.

Another reason the banks marks-up it’s exchange transactions substantially is because there is a cost associated with fulfilling the order. Carrying a myriad of currencies available for purchase at all times comes with a high cost of inventory, and forces the bank to take a position in many different currencies. Additionally, fulfilling the order can require substantial costs in the form of wages. The bank needs to pay a teller to converse with you, take your order, and put it into the banks system. The back office of the bank then has to execute the transaction. All of these different costs are offset by the bank by charging a premium on your exchange rate.

Conclusion

In order to always get the best exchange rates, it takes due diligence and a commitment to customer service. The banks are under no obligation to offer you the best exchange rate, because doing so would hurt their bottom line. If that wasn’t the case then every bank would do it, as they all clearly have the resources required to give clients better exchange rates.