7 years ago
There are calls for greater transparency from the banks after new data has been published which reveals that small and medium sized businesses are paying them nearly £4billion pounds annually in hidden costs to transfer money internationally. This is the first time that a study’s been carried out into the rates actually charged by banks for the service.
The number of SMEs doing business in more than six countries will increase by 129 per cent in the next three years according to figures from Oxford Economics. International trade is said to be worth more than £700billion to UK SMEs (McKinsey&Co).
The research, “UK SMEs International Payments Analysis” was carried out by payments consultancy Accourt. They researched six of the top ten banks in the UK to discover the costs. It has prompted concern that small business owners are being left in the dark about additional costs they’re paying.
How are businesses being charged by the banks?
The report claims that 96 per cent of bank revenues from foreign currency transactions within the EU and for an average transaction of £75,000 are concealed from the customer as they are hidden in the exchange rate offered. This hidden ‘spread’ is calculated from the margin that banks add to the exchange rate that they receive from the money markets. Overall small and medium sized businesses pay between 1.12 per cent and 3.68 per cent of the transfer amount due to this ‘spread’. This is in addition to the upfront fee that customers are told about at the time of making a transfer.
The study also found that, in some cases, businesses are having to wait until after the transaction to find out how much they are being charged and how much the recipient will receive. This makes it very difficult for them to choose the lowest cost provider and plays havoc with companies that need to pay invoices overseas. However, there are alternatives such as; specialist foreign exchange firms which have transparent fee structures which businesses can use instead of banks.
Nat Davison, a Partner at foreign exchange and international payments specialist The FX Firm said,
“As a country the UK is a net importer bringing in goods worth approximately £35bn per month. On top of paying a premium to do so, it is ludicrous to think that our importers are unsure from the outset how many Pounds it will cost them to pay for the goods they are buying when making payment through their bank. Our model works differently. We provide our clients with live exchange rates and what we quote is what we send”.
So what were the results?
Accourt identified Barclays as the biggest culprit with a total spread of 3.71 per cent (including fixed fees) followed by Lloyd’s with 2.73 per cent. NatWest (2.40 per cent), HSBC (2.30 per cent) and RBS (1.86 per cent) were middle of the table. Santander had the lowest total spread at 1.58 per cent.
Commenting on the findings Head of Businesscomparison.com Philip Brennan said,
“Making international payments is a basic requirement of many small and medium sized businesses and they deserve to be offered a transparent service. No costs should be hidden and the marketplace needs to be competitive. Banks are only one avenue to use for transferring money internationally and businesses should be encouraged to consider all of the options available to them when making these transactions. It’s only right that the fees are clearly stated before the transfer is made.”