Why are bank charges like icebergs?
Posted on the 23rd August 2016 in SME blog
Foreign exchange and international payments are tricky markets to navigate as a business. Whether paying suppliers, accountants or rent, it’s usually obvious exactly how much you’re paying. The foreign exchange market is very different, and here’s why.
Whereas the majority of prices you encounter in the rest of your business remain relatively stable, the exchange rate between two currencies can vary on a minute-by-minute basis. If your suppliers suddenly raised their prices by 20% one day you’d asked questions, however, most businesses just consider exchange rate fluctuation to be a cost of international business. Unfortunately, this is the unavoidable nature of the market. The problem arises because banks like to take advantage of this volatility.
Banks, while advertising “0% fees”, “free transfers” or “£15 transaction fee”, are actually hiding their true fees (you see why they’re like icebergs?). The truth is, every time a bank offers you an exchange rate outside of the market rate (the rate at which the largest banks and financial institutions trade) they’re making a profit at your expense. Let’s say £1 is worth €1.19 at the market rate, banks may offer the rate of €1.18 – for each £100 you sell, you should be buying €119 euros (at market rates) but with banks you’re only actually receiving €118 (the miss €1 being the hidden profit made by the bank). It may be easy to ignore this as being a small cost, but let’s imagine you want to sell £1,000,000; suddenly you’re €10,000 short. Banks can set their exchange rates wherever they want and often set much more unfavourable rates. See how this can really add up? (For more bank manipulation, see the forex scandal of 2015).
Banks are hiding up to 96% of transaction fees in their exchange rates
We commissioned one of the world’s leading payment specialists to investigate these hidden fees and they found that hidden fees can account for an astonishing 96% of the total transaction cost of sending money overseas, depending on the fixed fee you’re paying. By offering a rate lower than the market exchange rate, they can make a profit of up to 4% of the transaction value per trade. That’s £3,000 in an average transaction of £75,000.
It’s not just the cost that shocked us, it’s the complete lack of openness and transparency.
This is what we’re going to change.
Money Mover provides a platform for businesses to make and manage all of their international payments easily and at low cost. Of course, we charge a fee for international payments, but we’re completely up-front and transparent in our prices. We’re empowering businesses to make informed decisions by showing both the rate we’ll give you and the market rate.
We challenge you to ask your bank about the rate you’re getting!
For more information, visit us at www.moneymover.com.
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