Making a cross border money transfer can sometimes be tricky. In previous posts we’ve talked about transparency and how many consumers are left out of pocket when dealing with foreign exchange – the “rate is transparent” or “zero commission” are often used terms in foreign exchange that conceal the actual price at which the currency is being sold. In a similar vein, cross border payments bring up a whole other set of less than transparent costs that many customers do not realize they are being charged. The banks are particularly guilty of this and by adding on numerous other fees, it is not only consumers that feel the pinch of international payments but the vast majority of businesses as well.
For example, many businesses are often only made aware of the “sending” fee and are surprised when either not all funds arrive or they receive an additional charge after they do arrive. Let’s take a look at other possible fees. The “correspondent-banking fee”: typically $10 – $20, this fee can be charged by any bank that processes a payment of behalf of a sender. However, there may be more than one correspondent bank in the chain that processes the payment, all of which charge a fee.
The “landing fee”, charged to the beneficiary by the beneficiary’s bank, is another fee that often catches customers off guard and is a particular nuisance for businesses. For example, you might be a fashion start-up that sells its wares abroad. You invoice the buyer, they confirm they’ve made the transaction and you expect the bank to do the rest. However, you check your account only to find the full amount hasn’t arrived. You make an irritable call to the buyer to say that the full amount hasn’t arrived but they’re adamant they paid it. You call your bank, only to find out that they charged you a landing fee, deducting up to $10 from your payment, leaving you short! This is one problem that many of our clients ask us about. Unfortunately, it is not always clear when making a cross border payment that the full amount on the invoice has been paid and when a landing fee is taken (which in some cases can be a percentage) it can cause unnecessary friction between businesses.
Some transfers also incur error fees from payments being sent to non-existent or blocked bank accounts. When this happens the bank can charge the sender a “return fee” and based on the returning bank’s policy, they can debit between $20 – $40 before returning the funds. Then there is the “manual intervention fee”, the “cross border federal tax”, the “failure fee”, “crossing legal entities”, we go could on and on…
With so many fees being applied, there has been a half-hearted attempt from the banks at improving the situation for customers. In recent years, all banks agreed to a standard called “sender pays all fees” or “receiver pay all fees” where the sender can decide who will pay for the additional costs. While this might decide who foots the bill, it does not solve the issue of transparency, as the total fees are never known until the funds have been delivered, not before they are sent. To account for this, some banks charge $40 for a single cross border payment in an effort to absorb added costs into an upfront fee but this is still in our eyes, extortionate.
At Currency Cloud we use our own network of local in-country bank accounts to process cross border payments, controlling the fees from end to end. By doing this, we can be very transparent and tell our customers upfront the fees they will be charged. If you do choose to make cross border payments through a bank, remember that you may have to pay more than you bargained for.