Hidden charges can frustrate businesses that have cross border operations or need to make international supplier payments, with importers and exporters particularly badly affected.
A whole range of fees and charges are levied on transactions by banks and payment gateways, which often come on top of unfavourable exchange rates. One of the most significant business FX issues these companies face is not being able to access the mid-market rate that is available on the wholesale FX markets.
However, by opening a multi-currency business account with a specialist provider, you can avoid hidden FX charges and access the most competitive exchange rates for your business.
Hidden business FX charges can become a significant cost for those companies looking to expand and grow their international operations, without them even realising they have an issue.
That’s because some banks have chosen to obfuscate charges related to international payments by either breaking them up into a range of small charges that look insignificant on their own or by bundling them into unfavourable exchange rates.
For example, your bank may well charge a cross border commercial payment fee for allowing you to receive international payments. It will probably also charge a transaction fee every time you make or receive an international payment and this fee will vary depending on the currencies involved in the transaction.
If your payment fails, your bank could insist on a chargeback fee as well, which may result in you incurring the commercial payment and transaction fees all over again. For importers and exporters, as well as businesses with significant cross border operations or those who need to make international supplier payments, these costs quickly mount up but are hard to identify.
Many payment gateways, such as PayPal and Stripe, have responded to concerns over transaction fees in order to appeal to those businesses most affected. They either reduce the number of fees and bundle them into a single charge that is easier to understand or they get rid of transaction fees altogether. This latter option might sound like the perfect solution but businesses should be wary of such offers.
Payment gateways can seem like a great option because their fee structures are clearer than banks but the reality is that they can be just as or even more expensive. That’s because, rather than breaking fees out into separate charges, they often roll them up into an unfavourable and expensive exchange rate.
To fully understand whether your bank or payment gateway might not be offering you the best exchange rate for your business FX, you need to understand how they calculate the rate they offer.
Any exchange rate starts off as a mid-market rate, which is also sometimes referred to as the interbank rate or the middle rate. It is the midpoint between the buy and sell prices of any two currencies at any given time, and it is available on the wholesale FX markets that banks, governments, investment funds and some large corporations can access.
However, this is not the exchange rate your bank or payment gateway will offer you. The exchange rate they offer will usually have what is called a spread on it, which essentially is another hidden fee that they are charging you for making an international transaction. What you are offered may be labelled as “0% fee” or “no commission” but, more often than not, the reality is that the exchange rate has been inflated with a spread and the fee you are paying is hidden there.
While many businesses and individuals do not necessarily have access to the wholesale FX markets, the mid-market rate can be easily found by searching online. Therefore, if you search for the mid-market rate and compare it to the exchange rate your bank or gateway is offering, you’ll get a pretty good idea straight away of the hidden fee you are being charged.
If you add this on to the other transaction and commercial payment fees they charge, you might well be shocked to see how much you are paying for every international transaction you make. In fact, it is not uncommon to see businesses charged 5% on every transaction.
Understanding these fees is crucial for all businesses but particularly if you are an import and export business or one that is looking to expand and grow abroad. Having this knowledge may frustrate you if you cannot see any alternative but there is one that these types of businesses should definitely consider.
Many businesses settle for the exchange rate offered by their bank or payment gateway simply because they do not know another route is available. However, businesses looking to avoid hidden fees and unattractive exchange rates should consider opening local accounts and using a specialist fx provider.
This is particularly important for importers, exporters and those businesses with cross border operations or international supplier payment commitments. Opening a multi-currency business account with a specialist FX provider will allow them to settle payments locally and access wholesale FX rates, usually only available to large enterprise organisations or banks.
Furthermore, it makes international payments much easier to manage because you are only dealing with a single master account for your organisation. This account can then be used to access the most competitive exchange rate for a whole range of currencies and used to payout suppliers, corporate clients and individual customers.
OpenPayd’s business Accounts and FX solution allows you to operate a multi-currency business account through a single platform, so you can hold, exchange, pay and collect funds internationally.
To find out more, visit the OpenPayd website and see how our FX management solution can help you to avoid hidden fees while accessing the most competitive exchange rates for your international currency payments.