FX Fees: What Are They Really Costing You?
Cross-border retail trade is growing, online and in stores around the world. But not all banks and payment service providers (PSPs) are catching up with what customers and merchants need: a seamless international payments experience.
The problem is that foreign exchange fees (FX) continue to act as a barrier, for customers and merchants, especially when some foreign currencies incur prohibitively expensive charges.
There’s an unfair unbalance to the bid and ask prices for currencies that governments and large corporations pay – within the $5 trillion daily currency trading market – and the costs passed onto merchants and their customers. Some PSPs are transparent about these costs, whereas others conceal the real cost and overcharge retailers.
Costly Loopholes in FX Fees
Retailers that generate revenue in foreign currencies should take a closer look at fluctuating exchange rates. Keeping track of these every day should give you an indication of the revenue you are bringing in from overseas customers, but PSPs have long-since found room to manoeuvre within these figures for their own benefit.
More forward thinking payment providers focus on transparency and delivering great service. But there are still some that look for ways to exploit differences in currency prices.
Firstly, take a look at the terms and conditions. What does it say about when the exchange rate will be applied? Loose interpretations can easily lead to increased costs for customers. PSPs should be applying this based on the daily mid-market rate; however, be careful to ensure this is set at the right time, not only for your business but the country where your customers are.
Some PSPs only show customers the payout in their local currency, rather than the gross income from a foreign market, making it easier to hide inflated margins, especially for more “exotic” currencies. Not only does this mean merchants are losing money, but it could have tax implications too.
Merchants should not only demand, but expect transparency from their PSPs when it comes to cross-border trade. If a payment provider doesn’t make it clear when currency prices are applied, then it should be a red flag. It is also worth shopping around for the best prices, especially if you do business in countries where the currency is considered “exotic”, and therefore more expensive.
The world is more connected than it has ever been. Don’t let excessive foreign currency charges prevent your business from international expansion.
For more on PSPs have a look at this blog post on How To Choose A Payment Service Provider.