Midpoint's peer-to-peer engine directly matches businesses and individuals with offsetting currency requirements resulting in the elimination of the ‘spread or margin’ component from all transactions. By doing so, users avoid the cost of the bid-ask spread levied by traditional banks and brokers – often from 2%-5% and instead uses the midpoint of the real-time interbank market rate. For its services, the company charges a single flat fee depending on the amount of the transaction. The foreign exchange rate is set at the time the currency match is made, and the rate used is always the midpoint of the prevailing Interbank rate. The technology eliminates the spread imposed by market makers and the need for a middleman or broker. This mechanism help prevents discrimination against smaller sized transactions as all users receive the same midpoint interbank rate at the point of transaction. Despite its nomenclature, peer-to-peer foreign currency exchange should not to be confused with P2Pcryptocurrencies, digital or alternative 'currencies' such as bitcoin that rely on decentralised public ledgers and blockchain cryptography as a medium of exchange.
History
The application of the peer to peer concept in foreign currency exchange began in 1999 when Mark Van Roon applied for a US patent for a . Whilst the concept of peer to peer transactions was not in itself novel, its application in forex transactions resulting in a multi-currency netting process that satisfy offsetting currency needs was revolutionary as it promoted fair and transparent access to foreign exchange by reducing inefficiency and 'bank spreads'. This system forms the basis of Midpoint Holdings Ltd’s peer-to-peer currency exchange service. Other companies that provide a similar service, include: CurrencyFair, an Australian-based company, launched in April 2010; TransferWise which began operating in 2011; Kantox also established in 2011; and PeerFX launched in 2010.
Technology
Midpoint's patented engine matches currency pair orders on a reciprocal basis by harnessing the peer-to-peer capabilities of the internet. In simpler terms, if User A in the UK wishes to purchase US dollars for pounds and User B in the USA wishes to purchase pounds for dollars, both orders are matched at the midpoint of the prevailing interbank exchange rate. The same principle applies to more sophisticated environment where more than a single party and counter-party pair are involved. For a 3-way group or even higher orders, consider an example where User X wishes to purchase US dollars for pounds, User Y wishes to purchase pounds for Swiss francs, and User Z wishes to purchase Swiss francs for dollars, Midpoint's patented technology performs multilateral netting for all three trades at the prevailing interbank market midpoint rates eliminating the need for a FX broker. As the matching engine relies on matching orders via the internet, Midpoint's technology eliminates counterparty risks for its users as funds are held at segregated trust accounts. The company is authorised and regulated by the UK Financial Conduct Authority as a payments institution.
