You may have noticed that the buying and selling rates for dollars differ slightly in companies that offer services in dollars. This is known as the "spread," and it's a common practice in the financial industry.

According to Investopedia, the spread is the difference between the exchange rate at which a broker sells a currency and the rate at which the broker buys the currency.

The spread concept is a staple in the fintech industry. Whether using dollar cards, saving in dollars, or investing in dollars, most platforms use third-party exchange rate services. The difference between the buying and selling rates reflects the rates we receive from these services.

Here's why it happens…

Unlike a traditional bank, most fintech platforms don't store physical dollars in a warehouse. When you fund your wallet with Naira and want to invest in dollar-denominated assets, they don't have physical dollars sitting in a warehouse to exchange them for. Instead, they rely on third-party exchange rate services that have these reserves that provide us with real-time market rates.

These third-party services base their buying and selling rates on the foreign exchange (Fx) market, which is dynamic and fluctuating. The buying and selling rates are influenced mainly by supply and demand for the Dollar. The scarce Dollar means that supply is low compared to the demand; hence, the need for the black market.

In essence, the spread reflects the market dynamics. It's how private companies navigate the Dollar scarcity where having excess supply is not feasible.

I hope this helps…

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