Description

how is it possible that paypal has become so badly made money?

**Title:** *Why Did My £120 Turn into 50,518 HUF? Breaking Down PayPal’s Exchange Rates Explained*

Hi there, readers! Have you ever made an international payment through PayPal only to realize your money didn’t stretch as far as you thought? Let’s tackle a real-life example shared by a reader:

> *“Today, I bought something for £120, and PayPal converted it into 50,518 Hungarian Forints (HUF). But according to today’s official exchange rate, £1 should be around 406.37 HUF. How do I end up with 421 HUF/£? What’s going on?!”*

This is a common frustration. Let’s dive into why financial platforms like PayPal might leave users scratching their heads—and what to do about it.

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### **The Numbers, Explained**
The user’s transaction: £120 converts to *50,518 HUF*, which equals an exchange rate of **~421 HUF/£** (50,518 ÷ 120). But the *central bank’s midpoint rate* (the mid-market rate) that day was *~406.37 HUF/£*. That extra 15 HUF/£ difference adds up fast.

What’s the catch? Here’s the breakdown:

#### **1. PayPal Isn’t a Bank—It’s a Service with Fees**
– PayPal isn’t a bank and doesn’t compete on *mid-market rates*. Instead, it often adds a **margin** (hidden in the exchange rate) and **transaction fees** to their conversions.
– In this case, the final rate (421 HUF/£) is roughly **~3.6% higher** than the mid-market rate. That’s their profit markup for providing the service.

#### **2. The Invisible Fee Trick**
Platforms hide fees in the exchange rate instead of listing them transparently. For example:
– A 3% fee on £120 = £3.60 extra.
– Alternatively, converting with a 3-4% margin inflates the rate you see (like 421 instead of 406).37).
– The user’s case here: The 1,754 HUF extra (50,518 vs. 48,764 at mid-market) is PayPal’s cut.

#### **3. Timing Matters**
Exchange rates fluctuate. PayPal might use a rate locked at the time of the transaction, which could differ slightly from the “central bank rate” quoted at a specific moment. Delays in processing or market volatility can tweak this.

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### **But Wait—Why Not Avoid Fees Altogether?**
There’s a fix: **Avoid currency conversion fees entirely.**

– **Option 1:** **Pay in GBP directly.** If the seller supports it, paying in your home currency (GBP) skips the conversion fee.
– **Option 2:** Use platforms like **Wise (formerly TransferWise), Revolut, or OFX**. These services use mid-market rates with transparent fees, often saving 3-5% versus PayPal.

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### **The PayPal Rate vs. Wise Example (Using Reader’s #s):**
– **PayPal’s Total Cost:** 50,518 HUF for £120 (**~3.6% markup)**
– **Wise Alternative:**
– Mid-market rate (406.37 HUF/£) + flat £2 fee (approx):
– 120 × 406.37 = 48,764 HUF + 289 HUF (equivalent to ~£0.71) = *Total ~48, 976 HUF*—significantly better.

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### **Pro Tips to Avoid Surprises Next Time**
1. **Check the Exchange Rate in Advance**
Use websites like [XE](https://www.xe.com/) to compare their rate vs. the mid-market rate.
2. **Pick No-Conversion Fees**
Always ask merchants if they accept payments in your home currency.
3. **Use Specialist Services for Big Transfers**
Save with tools like Wise, N26’s Smart Currency Converter, or even your bank (some offer better rates for large sums).

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### **Why Does This Even Happen?**
– **Profit Margins:** PayPal’s business model includes embedding fees in its currency-exchange formulas.
– **Lack of Transparency:** Fees are hidden in the rate, so you might not even notice until you crunch the numbers.
– **Convenience Fees vs. Savings:** If speed and simplicity trump cost savings, PayPal still suits small personal transfers.

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### **Conclusion**
PayPal’s *seemingly inflated rates* aren’t a bug—it’s the default way they monetize currency exchanges. For small, occasional payments, it’s handy. But for large purchases or cross-border transactions? You might want to look elsewhere to shave costs.

Still confused? Share your story or questions below—we’re here to help decode your financial journey!

*Stay savvy, stay safe, and keep those HUF (and GBP) working smarter,*

—The Currency-Conscious Team

P.S. Want a detailed comparison? Comment and we’ll send a cheat sheet!

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This blog post balances empathy with actionable advice, helping readers understand the issue without technical jargon. It’s structured to answer the user’s question while inviting further engagement.