‍Painful exchange fees may be a thing of the past for anyone looking to transfer money in or out of China. Microfinance startup Swapsy is disrupting the banking system by making it easier to trade yuan for foreign currencies cheaply and, more importantly, legally.

While a leader with mobile payment systems like WeChat and using QR codes on smartphones, China has yet to produce a cost-effective way to transfer money abroad. China limits how much money both Chinese nationals and foreigners can send to and from the country.

Launched in mind 2017, Swapsy found a home at the EvoNexus incubator in California where its team works to provide alternatives to these limits and fees without breaking the law. The idea was hatched by a group of international students fed up with difficulties changing currencies. The result has been successful so far, responding to the needs of today's global citizens, according to co-founder Sandi Yu.

“It is much easier and more likely for us to travel, study, stay or even permanently move to another country. And yet the way currency exchange is conducted is not too different from how it was done several decades ago," Yu wrote in an email.

Meeting global citizens' needs

There are over 50 million Chinese living abroad, with over 350,000 Chinese students in the U.S. alone. Chinese nationals abroad have similar difficulties, with ATM withdraws from Chinese banks capped at 15,000 U.S. dollars per year as of 2017. As China opens up, more expats and foreign students find themselves spending time in China, but getting money in or out of the country is costly. 

Foreigners can wire up to the equivalent of 500 U.S. dollars a day from a Chinese bank, incurring hefty transfer fees depending on the bank, while withdraws from foreign banks in China also eat up finances quickly. Swapsy is the first affordable way to address this growing global population.

How it works

Another disruptor called Transferwise provides a similar service to exchange money, but it requires Chinese nationality. Swapsy is the first transfer service available to non-Chinese nationals to exchange yuan. The idea is simple. Instead of money crossing boarders and changing currencies, Swapsy helps facilitate transactions from within the country, matching users with bank accounts in multiple countries.

For example, an American in China looking to send home 200 U.S. dollars to pay a student loan might instead pay the equivalent, 1342 yuan, to a Chinese national abroad via WeChat. In turn, the same Chinese national will send 200 U.S. dollars through an E-wallet service like Zelle directly into the American's account.

Swapsy relies on E-wallet systems like PayPal, Zelle, Alipay, and WeChat to facilitate the transfers, and upon testing it, the service seems extremely safe and user-friendly. 

The company charges a small fee through credits that users purchase to perform the swaps, which are by far the least inexpensive option of any currently available transfer. The fees roughly equate to just one percent of the transfer, while banks and PayPal can cost up to 10 percent. In return, Swapsy vets each user through an onboarding process and insures every transfer, creating a safe space for the faceless transfers. "We make sure that each one is legitimate, you are not transacting with a terrorist or a drug dealer on our platform," Yu said.

Going forward with Swapsy

Currently the company swaps in yuan, U.S. dollars, and British pounds, but Yu said they are working to open up other currencies as well. While China goes to great lengths to control money output, it is too soon to tell whether or not Swapsy will ruffle any feathers since it is operating within the law, albeit a law that has not yet encountered such a service. 

As a unique offer, she said there are no real terms to guide them yet. "It is like when Uber or Airbnb first came into existence, it was also a driving force to urge the regulatory authority to cope with these new methods of services," she said.

The service also does not yet provide relief to casual travelers who have no access to Chinese E-wallets like WeChat, which require Chinese bank accounts. "I haven't used WeChat to pay for anything, because I didn't want to go through the paperwork of setting up a Chinese bank account. Because of that, I know I'm definitely missing out on aspects of the China experience," said Corey Girard, a traveler to China.

For those with the correct E-wallets, however, the service has been a welcomed tool. American Xuyen Nguyen works in Beijing but still has some bills in the United States. "At first I was a little apprehensive about sending money directly to someone and trusting that it would work. But out of all the options — PayPal, direct transfers etc — it's definitely the easiest and most affordable option," she said.

Yu and her team want to provide a modern solution to transferring money to and from China. "Currency exchange should be easy and convenient, more affordable and user friendly," she said.