You could be paying out more than you think if you send international currency payments to suppliers, outsourced service providers or other group companies. This lost capital could be put to better use growing your business or improving your cashflow but instead it is funding the inefficiencies of an outdated legacy banking system.
Shopping around is not easy
When choosing to send payments overseas, businesses often find that exchange rates and the inherent charges within international payments are opaque and difficult to fathom. Furthermore, it’s not easy to shop around as banks often don’t even reveal their exchange rates until after a deal is done. For years, the investment industry has been subject to ‘TCF’ or Treating your Customers Fairly rules where the fair treatment of customers must be central to the firm’s corporate culture. However, this ethos is a long way from being migrated into the world of foreign exchange.
The bottom line is that if you are an SME using a bank to send payments abroad, you are losing money at the point of conversion because the exchange rate will not be competitive. You might try to compare exchange rates across several providers, but the concept of making an informed decision in FX is far from a reality.
What is the real exchange rate?
The only way of determining whether you are getting a good deal on exchange rates is to compare them to the ‘interbank’ rate. This is the wholesale rate at which large financial institutions exchange vast amounts of currency with each other. Live mid-market exchange rates, which are based on the interbank rate, can be found on sites such as Google Finance or Yahoo Finance.
The banks will add a mark-up to the interbank rate when dealing on behalf of a customer, but they are not obliged to reveal what this mark-up is. Their largest customers will receive exchange rates closest to the interbank rate whilst smaller clients will be subject to mark-ups as high as 5% in some cases.
The process of converting a few thousand pounds or converting several million pounds is the same so is it fair that the small guy is bearing the cost whilst subsidising the bigger clients?
The ‘honeymoon period’
Just like a newly wed couple, the relationship between a client and their FX broker can start off on a high as the broker may have won the client over by offering exceptionally good exchange rates at the outset of the relationship. Once trust is established and the client relationship becomes comfortable, the broker may then gradually make their rates less attractive in the belief that the client will not notice. Clients should therefore be on guard to watch out for the end of this ‘honeymoon period’ which is similar to the way insurance companies increase their premiums for loyal clients whilst heavily discounting them to win new ones.
Fair, transparent pricing from CurrencyWave
The business of transacting commerce overseas can add complexity to a business, but the movement of money into other currencies should be simple.
CurrencyWave believes in a fair and transparent pricing system that offers clients complete visibility of its pricing model. It does this by openly displaying the live interbank rate alongside the exchange rates it offers to its clients. In addition, the mark-up it applies to the interbank exchange rate is disclosed up front to the customer and will remain the same throughout the lifetime of the client relationship.
This unique transparency gives clients confidence that they are achieving optimum efficiency in their FX dealings. It also guarantees that the honeymoon period will last far beyond the initial early stages of the customer life cycle.More Insights