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Online Payments

UK banks charge SMEs GBP 4 bln in hidden international money transfer costs per year - study

Wednesday 13 January 2016 | 12:19 PM CET

UK banks charge small and medium sized enterprises (SMEs) nearly GBP 4 billion in hidden transfer fees each year to make international payments, a recent research study reveals.

Moreover, 96% of these fees are hidden from the customer using the exchange rate offered, according to the "UK SMEs International Payments Analysis", which was conducted by payments consultancy Accourt and commissioned by Money Mover, the online currency exchange and international payments service.

International trade is worth over GBP 700 billion to UK SMEs according to McKinsey&Co and recent figures from Oxford Economics show that the number of SMEs doing business in more than six countries will increase 129% by end of 2018. 50% of all UK SME international trade is with Europe. There is a lack of transparency by banks around the fees they charge SMEs and how these fees are calculated.

Additionally, 96% of the revenue for a bank for an average transaction of GBP 75,000 within the EU comes from the margin that banks add to the exchange rate they receive from the money markets – known as the ‘spread’ and the charge is hidden in the exchange rate. Therefore, the SME will never see it - even though it makes up the majority of the amount that the bank charges the SME.

The average total transaction cost charged by a bank to a SME customer on a transfer of GBP 75,000 is 2.43%, or GBP 1,822. Of this cost, GBP 1,807 is based on the spread which is hidden from the customer. Overall, SMEs will pay between 1.12% and 3.68% of the transfer amount due to spread. This hidden charge is in addition to the upfront fee that banks disclose when making a transfer. Including fixed fees, the most expensive bank makes 3.70% on any transfer and the cheapest makes 1.14% for transfers over GBP 100,000.

Commenting on the findings of the study, Money Mover CEO Hamish Anderson said, “When it comes to international payments, it’s clear that the UK’s major banks are overcharging and underserving their SME customers. The UK’s banks are collectively failing to give SMEs the knowledge, transparency and visibility which they need to make an intelligent and informed decision. This lack of transparency is not only unfair and uncompetitive, it’s also costing the UK’s SMEs precious cash in unnecessary fees.”

Cost was not the only issue revealed by the study - transparency also emerged as a key concern surrounding currency transfer services. In some cases, the SME won’t know how much they are being charged or the amount that the recipient will receive until after the payment has been made. This makes it very difficult for SMEs to compare banks and the costs they apply, and therefore choose the lowest cost provider.

In addition, the utility of services offered by banks provide very little in the way of appropriate and useful feature for their customers. SME customers could benefit hugely from offerings that integrate into SMEs exiting financial and accounting systems and processes.

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