Open this lesson in your favourite AI. It'll walk you through the why, explain the demo, and quiz you on the try-it list.
If your product touches multiple currencies, every transaction requires a foreign-exchange decision: which rate, with what spread, when locked, who bears the rate risk. The naive approach (live mid-market rates at conversion time) costs the business 50-150 bps per transaction. Doing it right is one of the highest-leverage product-engineering investments.
FX mechanics and rate sourcing.
Use these three in order. Each builds on the one before.
In one paragraph, explain the components of an FX transaction.
Walk me through what happens between 'user clicks pay $1000' and 'merchant receives €920' — when the rate is locked and what the spread covers.
Given a multi-currency wallet for a global remittance product, design the FX architecture: rate sourcing, spread strategy, settlement timing, compliance disclosure.
Components of an FX transaction:
1. Mid-market rate: the theoretical "true" rate (Reuters, ECB, central bank)
2. Spread: markup added by your FX provider (typically 25-200 bps)
3. Service fee: flat or % charged to the customer
4. Settlement timing: rate-lock window before settlement occurs
Common patterns:
PATTERN A: Real-time conversion
- User pays in USD; merchant receives in EUR
- Locked at the rate at moment of transaction
- User absorbs FX cost; merchant gets EUR net of spread
PATTERN B: Held in customer's currency
- User has a USD balance; spends in EUR
- Each spend converts at moment of spend (rate locked then)
- Customer makes spending-time FX decision
PATTERN C: Multi-currency wallet
- User holds balances in USD, EUR, GBP simultaneously
- Funds transferred between wallets at user-initiated rate
- Lowest FX cost; highest operational complexity
Rate sources (B2B):
Reuters/Refinitiv: institutional quality, expensive ($10k+/mo)
ECB reference rates: daily fix; free for non-commercial use
Open Exchange Rates / Fixer: low-cost APIs, ~5-minute refresh, $50/mo+
Currencylayer / Wise: low spread quotes, sometimes API access
Compliance:
Settlement rate disclosure required in EU (PSD2) and some other jurisdictions
"True cost of FX" must be displayed to consumer
Real-world spreads (mid-2026):
Wise (Transferwise): 25-50 bps + flat fee
Revolut Premium: flat fee, 0 bps weekday market hours
Banks: 150-350 bps + flat fee
Crypto on-ramps: 50-200 bps