Take all your overseas profit, and hack it down by 3 to 5%.
No, those aren’t just flat wire fees. They’re actually hidden foreign exchange fees that are eating directly into your profit margin.
Many SMBs don’t have the head count to negotiate with half a dozen banks — if they even realize how much they’re losing.
From a background in banking, Pourash spent a decade working in all three facets of foreign exchange: sales, trading, and operations. “This is where I really developed a passion for international trade and cross border payments and all the issues that lie within,” he said.
Tigerflo provides low cost and transparent global banking and payment solutions to small and medium sized businesses.
Because small and medium sized businesses don’t always have the resources to focus on global banking issues.
“A lot of small and medium sized businesses don’t even know what they’re getting charged in foreign exchange,” Pourash said.
Foreign Exchange Payments Losses
Small and medium sized businesses are necessarily pretty lean. They’ll talk about other issues, but when it comes down to payments and foreign exchange exposure, they don’t have a good understanding of what it’s costing them.
Tigerflo is pretty targeted in the southern California market yet has a diverse group of businesses as clients. “The ones that we’re trying to focus on is companies that have annual revenue of anywhere from a million dollars to a billion dollars,” Pourash said.
There isn’t a single industry that doesn’t need education about foreign exchange and how to protect themselves during the fluctuations.
The Problem for SMBs in Foreign Exchange
“The biggest problem is non-transparency and non-standardization of pricing,” Pourash said.
He jokingly calls it the used car dealership model — where the less you know is the more you’ll end up paying.
“In the payments industry, especially in foreign exchange, large corporations get extremely competitive pricing when it comes to foreign exchange because they have the resources or the volume needed to bid out their trades against multiple banks,” he said.
But the SMB segment is disproportionately impacted by unfair foreign exchange practices because they don’t have access to the same resources to keep these margins competitive. They can’t call multiple banks or run after a lost payment all day long.
SMBs need a more specialized and a simplified set of solutions. “Our definition of that is a payment provider that is obsessively transparent and fair about pricing, and also provides excellent personalized customer service,” Pourash said.
Average Losses in Foreign Exchange
“A lot of companies don’t even know what they’re getting charged,” Pourash said.
Tigerflo provides free analysis for prospects, and this is what they’ve found.
- Midsize businesses: 1-3%
- Smaller businesses: 2-4%
It varies from company to company, obviously, but even the big companies can be oblivious to the charges — up to 5%.
“It’s eating into your profit margins, right? You’re giving up 3 to 5% of whatever you get from overseas. That’s a huge percentage of your profit that you’re giving up,” Pourash said.
Educating SMBs in Foreign Exchange Solutions
Businesses don’t want to account for their losses.
Which is strange. But a lot of the time, they assert that all they get charged is a flat wire fee.
When that couldn’t be more wrong.
“That’s been the biggest challenge for us to educate businesses that you’re getting 3% less when you’re getting these payments from overseas,” Pourash said.
“When we show them the math of how much they’ve been charged in the past, then they’re more cognizant of it and more open to working with other providers than just their banks,” he added.
It’s simple math to compare the foreign exchange rate to the historical rate — and to explain what’s actually involved in foreign exchange fees.
“You do that math for them and then they start realizing this does make sense,” he said.
With the influx of FinTech companies, it’s also becoming easier to collaborate with banks to serve clients. “Banks are more open to partnering with financial technology companies because they’re realizing that attrition is going to happen regardless,” Pourash said.
Likewise with SMBs. “SMBs are definitely more open to working with a non-bank now than they were a few years ago,” he said.
That progress will keep accruing in the next 5 to 10 years with more partnerships and alliances.
“The future will look like banks and FinTech companies working hand in hand to better serve the needs of the client,” Pourash said.
This post is based on a Payments Innovation podcast with Pourash Pant of Tigerflo.
Until next time!