Dubai is known for being a millionaire’s playground. Through the use of influencers, networking, and state-of-the-art infrastructure, it is home to some of the biggest luxury brands and hospitality services in the world.
Whether it’s auctioned at networking events or buying goods through UAE brand outlets, there is one issue. Almost all of the UAE’s population is made up of expats – 88.52% to be exact. Between all of the luxury travelers and high-paid expats, a lot of the purchases are being made with foreign currency.
This may not sound like a big problem on the surface, but traditional bank transfers are expensive and time-consuming. They’re sluggish and expensive at the best of times, but it seems UAE banks have been notoriously awkward for a long time now.
If we take the common purchase of a property as an example, the average price of a villa in Dubai is 2,134,295 AED, which roughly translates to $581,000. But, when considering a fairly typical currency margin loss of 4% (the ‘cut’ that banks take when offering a worse-than-market exchange rate), around $23,000 is lost in the transaction – and that’s before any flat fees are taken. Of course, the bigger the purchase, the more money lost.
Furthermore, when purchasing an item in person, you’re more likely to use a credit card. And, it’s not just those MasterCard and Visa fees that are commonly talked about, though these do add up for the merchant, but rather it’s additional fees that many merchants in UAE add on when making a credit card purchase at a POS terminal. This is often 2% slapped onto the item’s price is usually justified as being a way to pass on their credit card fees (i.e. Visa transaction fee) onto the customer.
Credit card fees often range from 1.5% to 4%, which creates a similar situation to the above money transfer. However, this is if you’re using Dirham. When using your credit card from back home and the base currency is not Dirham, the exchange rate you’re going to get can be subject to similarly poor exchange rate margins as above, creating a double whammy.
How to pay for something in UAE
But, fear not, because we do not need to rely on the outdated practices of banks. There are a few options that specialise in accommodating exactly these needs – the best way is a designated service. Both money transfer companies and currency brokers have their own selection of services that facilitate large payments at very competitive exchange rates.
Many money transfer companies will offer a spending card. This spending card allows you to essentially use a debit card with money in your multi-currency wallet, despite it not being a bank, and the exchange performed on the spot will be a much more competitive exchange rate. With fees and margin included, you’re looking at around 1% or lower.
However, there are a few issues here. You still may be subject to the same credit card fees, and the money transfer provider may not be a suitable place for very large sums of money. In this instance, you want to use a currency broker which will have a free dedicated dealer. The dedicated dealer can help guide you through the process, and even set things up for you on your behalf.
If the large ticket item is in the future, they may suggest purchasing a Forward contract to lock in an exchange rate. This covers you in case your base currency, let’s say the euro, crashes against the Dirham, which is pegged to the US dollar. Some may also be experts within the field of your purchase, perhaps giving advice on insurance or how to manage a property purchase.
Many currency brokers also offer preferential rates for larger sums, meaning the margin decreases because you’re buying in “bulk”. But conversely, this might make them an average choice for small-to-mid-range items like a 2,000 AED handbag. In this instance, a money transfer may be the preferred choice simply for their convenience and consistent fee structure at lower amounts.
Finally, it’s worth factoring in how specialised to the UAE market the currency broker or money transfer company is. Don’t just take their facilitating Dirham payments as sufficient, but ask if they have offices in the UAE, as this is a great indicator that they know the local market well.
Final Word
The UAE may be one of the best luxury markets in the world, but it’s far from the perfect place to conduct overseas transfers. However, with a push towards alternative finance solutions, costs can be kept down. And, it’s not just avoiding bank fees, but it’s more convenient too. Many money transfer companies have better mobile apps than high street banks, all whilst currency brokers can often process cross-border payments faster than banks.
