3 reasons why your small business is spending too much on international payments (and what you can do about it?)
Posted on the 20th April 2016 by Susan Curtis in SME blog
The UK SME sector is growing and is increasingly international in its focus. For UK SMEs, international trade is worth over £700bn.
The Eurozone is the UK’s largest trading partner, but non-EU trade has also grown rapidly in recent years. The USA is the UK’s second largest trade partner, accounting for 9.8% of international trade, with China hot on its heels.
Research from Oxford economics reveals that SMEs expect international revenues to grow from 40% to 66% in the next three years, while those doing business in at least six countries will jump 129%.
Here are 3 reasons why your small business is spending too much on international payments and what you can do about it.
SMEs are unaware of the cost of foreign exchange
The key issue for SMEs is they are often charged up to 4% and higher using the more traditional payment providers to transfer money.
The cost of a small fixed fee is normally advertised, however this makes up only a few percent of the total transaction cost, with up to 96% of the profit on a foreign exchange transaction being hidden within the spread. The spread refers to the difference between the rates that a provider can buy a currency compared with the rate that at which they sell that currency to a customer.
For example, a typical SME transfer of £50,000 into Euros will incur an average transaction cost of 2.43% (£1,215) whereas the payment provider may only advertise the transaction fee, usually between £10 and £25.
Difficulty in comparing prices
The total costs of international payments are often hard to deduce. In general, the SME must either already be a customer of the payment provider or must make the actual payment first in order to deduce the total transaction cost.
Any quotes available from the websites of such providers, which can be gained without signing up, are also usually only indicative quotes. This means it’s very unlikely that you’ll actually get the exchange rate presented.
Unfortunately, without going through the application process for each provider it’s very difficult to compare providers in terms of the costs they apply, and therefore choose the lowest cost provider.
Lack of transparency and hidden fees
In general terms there is often a lack transparency from traditional payment providers on currency exchange rates and margins. Each one generates its own FX rate for the day and it is provided by an internal system which customers do not have access to.
In some instances, the exchange rate is not even provided before confirming the payment so it is unknown to the customer how much is going to be charged for the transaction.
So what can you do about it?
With a lot of providers SMEs are often not provided with the information that they need to make intelligent and informed decisions regarding the best methods to use for their international foreign exchange.
SMEs should look at alternative independent providers that deliver equivalent services to their bank but provide the transparency, utility and cost-effectiveness they need. Independent providers show their customers exactly what they are paying in fees and provide definitive figures for the currency amounts to be transferred, as well as providing the features and functionality to make the whole process quick and seamless.
In an increasingly globalised economy, it’s becoming more important for businesses to look elsewhere for better currency transfer services in order to help them scale and compete with an international market.
Read our independent report in more detail at www.moneymover.com/bank-charges/.
Other articles you might be interested in
- The challenge of proving your address
- Anti-Money Laundering – Minimising risks with electronic identification
- 3 reasons why your small business is spending too much on international payments (and what you can do about it?)
Get tips, articles, news and updates delivered to your inbox
The easy way to send secure international payments
Money Mover is the new, secure and low-cost way for individuals and businesses to make global payments in a range of currencies.
We’ve designed it from the ground up to take the hassle out of foreign exchange and international money transfer.Register for free