How Wise Determines the Currency for Transactions

When you initiate a transaction on Wise (formerly TransferWise), the platform employs a sophisticated algorithm to determine the appropriate currency for your transaction. This process ensures that your money is converted in the most cost-effective manner possible. Here’s a detailed breakdown of how Wise determines which currency to use and the factors influencing this decision.

1. Currency Conversion Mechanism

Wise uses a real-time, mid-market exchange rate to convert your funds. The mid-market rate is the midpoint between the buy and sell prices of a currency pair, which is generally considered the fairest rate you can get. This is because Wise doesn’t add a markup to the rate, unlike many traditional banks and currency exchange services.

Key Steps in the Conversion Process:

• Source Currency Identification: First, Wise identifies the currency from which you are sending money. This is based on the account or payment method you’re using.
• Target Currency Determination: Next, Wise identifies the target currency, which is the currency of the recipient's account or the currency you have chosen to convert your funds into.
• Mid-Market Rate Application: Wise applies the mid-market rate for the currency conversion. This rate is sourced from global financial markets and reflects the most up-to-date value of your currencies.
• Fee Deduction: Wise deducts a small, transparent fee from the total amount being converted. This fee is displayed upfront and is based on a percentage of the transaction amount.

2. Factors Affecting Currency Conversion

Several factors influence which currency Wise uses for your transaction:

• Recipient’s Currency: If the recipient has an account in a different currency from the one you're sending, Wise automatically converts the funds to the recipient’s currency.
• Destination Country Regulations: Some countries have specific regulations regarding the types of currencies that can be received or sent. Wise adjusts to these regulations to ensure compliance.
• Wise Account Settings: If you’re using a multi-currency account, Wise allows you to hold and convert funds in multiple currencies. The currency used for conversion may depend on your account settings or preferences.

3. Real-World Examples

To illustrate how Wise determines the currency for a transaction, consider the following scenarios:

• Scenario 1: You’re sending $500 USD to a friend in France. Wise identifies that the source currency is USD and the target currency is EUR (Euro). It applies the mid-market rate for USD/EUR, deducts the fee, and converts the amount into Euros.
• Scenario 2: You have a Wise account holding funds in both USD and GBP. If you want to convert $100 USD to GBP, Wise will use the mid-market rate for USD/GBP, apply the fee, and credit the equivalent amount in GBP to your account.

4. Advantages of Wise’s Currency Determination

• Transparency: Wise provides a clear breakdown of the exchange rate and fees, so you know exactly what to expect.
• Cost-Efficiency: By using the mid-market rate and charging a transparent fee, Wise ensures that you get the best possible value for your money.
• Flexibility: Wise’s multi-currency accounts and real-time conversion capabilities offer significant flexibility for managing international transactions.

5. Summary

Understanding how Wise determines the currency for transactions helps you make informed decisions about sending and receiving money internationally. With its focus on transparency, cost-efficiency, and real-time conversion, Wise stands out as a leading choice for currency conversion and international transfers.