One of the irrepressible trends in modern business is that it is becoming ever more global. Once upon a time, transacting internationally and conducting trade across borders was largely the preserve of import/exporters, multinationals and of course travel agents. However in the globalised, digitalised world that we find ourselves inhabiting in 2022, all kinds of different businesses in all manner of shapes and sizes are buying, selling and or even hiring internationally.
One of the (numerous) challenges that this presents is that of international money transfer fees. For sure, international bank transfer fees can be considerable and any business sending or receiving money overseas will need to keep a close eye on them.
In this post we will examine this phenomena much closer.
Why Businesses Use International Payments
There are many different reasons why a business may need to send or receive an international payment. An industrial business might buy essential raw materials or parts from overseas (such as microchips from China or timber from Germany), an online jewellery seller may have lucrative customers based in Dubai and a financial services company may outsource its workforce globally by using IT contractors in India.
In all of these cases, the business will need to either send or receive money overseas and the money will also need to be changed either to, or from, a foreign currency along the way.
The easiest way to do this is by using a bank, although this will also prove to be the most expensive.
The Cost of Transferring Money Internationally Using The Banks
A business can quite easily send money overseas from its main business bank account. All they need to do is get the sender’s IBAN (International Banking) details and the bank can handle the transfer relatively painlessly.
However, whenever a bank conducts an International payment, they levy a transaction fee. In the US, these fees range from $2.50 all the way up to $50 with some outliers. Not many businesses are too happy to be paying fees like this all too often.
Furthermore, whenever a business uses their bank to send money internationally, the bank is responsible for changing from the business’s native currency, into the recipient’s currency. This means that the bank also handles the currency exchange rate and rather than offering the standard market rate, they use a “marked up” rate which is generally around 3% worse and effectively keeps the 3% difference for themselves.
Once fees and markups are applied, international transactions can end up costing a business 3- 4% more than they should.
When it comes to receiving money from abroad, the sender’s bank is responsible for handling the currency exchange and as such the sender will suffer the mark up. However a business will still be hit with an international transaction fee simply for receiving the payment into their account.
If this is all sounding a bit alarming so far, don’t worry much. Further in this post we will look at cheaper alternative ways to transfer money – specifically we will look at how much does an international wire cost and how much money it can save you.
How International Bank Transfer Fees/costs Are Hidden
Despite the significance of these costs, banks are not all that clear or transparent about them and some would even deem them as “hidden”. While banks do publish transaction fees in their terms and conditions, business owners do not usually have these to hand when they are arranging transfers.
Furthermore, unless a sender actively goes out of their way to check the up to date, market exchange change rate then they may not even realise that the bank is applying a different one. Usually, a bank will inform a sender the sum total of how much a transaction is going to be cost but it is not always clear how much is “capital” and how much is fees and markups.
Costs Per Country For International Bank Wires
As we said earlier, banks are free to set their own transaction fees and exchange rates. Consequently, fees and mark ups vary significantly between banks domestically, and internationally.
Additionally, the fees and mark ups which a given bank applies may also differ depending on the origin or destination country of the payment. For example, UK banks offer lower fees and better rates for British account holders sending money to the EU, then they offer for the same customer sending money to India.
Alternatives To Banks
The good news for cost-conscious business owners is that there are alternatives to the banks. Money transfer specialists are financial services providers whose business model is to offer fast and cheap international money transfers. While fees and markups vary, they are often many times cheaper than the banks.
There are many different money transfer providers out there and the niche is very competitive. One of the fastest growing and most well regarded providers is Wise (formerly Transferwise) who offer some of the most competitive fees on the market.
Final Thoughts On International Money Transfer Costs
In summary, sending and receiving money from all over the world is fast becoming an omnipresent reality of modern business as are the corresponding fees. However while the banks continue to bank with their high fees and markups, money transfer specialists are undercutting them and winning customers over.
As the costs of any foreign transaction vary depending on a number of variables, it is not possible to advise exactly how much a business can save using a money transfer provider such as Wise. However, to find out how an international transfer using Wise could cost, a business can quickly open an account up and get a fast, clear and transparent quote.
