SMEs facing hidden costs for international payments

Small and medium enterprises in the UK could be paying up to £4 billion a year in hidden charges on international money transfers. According to a new report, 96% of the costs charged to make international payments are hidden from the customer as they are built into exchange rates.

The study, titled ‘UK SMEs International Payments Analysis’, was conducted by payments consultancy Accourt on behalf of online exchange service Money Mover. It looked at the costs incurred when making a money transfer within the EU via a UK bank.

The total cost of making the transfer ranged from a low of £1,187.15 (Santander) to a high of £2,775.82 (Barclays). The average transaction costs charged by a bank to an SME customer for an EU transfer of £75,000 was £1,822, or 2.43%.

International trade is worth more than £700 billion to UK SMEs and half of all SME trade is with Europe. For smaller businesses operating on tight margins, these costs could be extremely important, especially if they rely on raw materials or other supplies and services from abroad. In a worst case scenario it could represent an extra burden that could contribute to an SME requiring business recovery or other insolvency measures.

The overall cost is not the only issue. According to the report, the way the charges are worked out and presented to the customer also lacks transparency.

All the banks in the research charged fixed fees of between £4 and £25 for the £75,000 transactions. By far the biggest part of the costs, however, came from the ‘spread’ charged on foreign exchange rates.

The foreign exchange rates between a currency pair like pound sterling and the euro can change at any time. The banks build a buffer zone into the exchange rate they offer and this is known as the spread. SMEs will end up paying between 1.12% and 3.68% of the total transfer amount due to this element which, the report claims, is hidden within the bank’s exchange rate and not advertised up front.

By Phil Smith

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