Cross-border wire transfers are extremely confusing for the majority of businesses. This leads to situations where unforced errors creep in and with little recourse. We’ve compiled a list of 5 of most common mistakes that small businesses most commonly run into when looking to make a cross-border business payment.
Collecting the Wrong Bank Details
Most cross-border transfers require a bank account/routing number, a full name, and the bank address, although, these details vary from bank to bank. The software system that facilitates wire transfers – SWIFT – requires the specific code of the bank you are sending money to, account number and personal details. Often times, people struggle to obtain this information, sometimes end up providing the wrong information, or don’t know what to do with the information. Naturally, this causes frustration when they realize that their payment was rejected. Each country implements diverse regulations and technical frameworks that can complicate the process. To top it all, not all countries use SWIFT to transfer between currencies.
There are more efficient services out there, such as online or mobile platforms, which have been taking the center-stage in the realms of cross-border payments. Technology has changed the way money moves – in fact, there exist wireless processes that are much easier to use. A company like REMITR provides a fast, easy, and cost-efficient digital payment service accessible online. The biggest difference between banks – most online providers eliminates the need for long waiting times and additional fees.
Looking into Fees
When you wire money through banks, it’s important to remember that there are two main fees, and sometimes, even three. Banks charge a service fee which is typically a flat dollar amount per transfer (which can change depending on how much you spend), or a percentage deducted from the total payout. Depending on the institution, some banks may even entertain a flat fee and a percentage cut from your transfer.
Then, in addition to these service charges that can manifest itself as both an up front fee or a percentage deduction, there is also a hidden markup, most commonly known as a foreign exchange margin. When brokers give you a quote for a live international exchange rate, they manipulate the margin in their favor such that they receive a larger portion of your transfer, and your beneficiary, therefore, receives less.
For example, a European bank may receive euros at an exchange rate of $1 CAD to 0.76 EUR. This means if you were to send $100 CAD to your European recipient, they will only receive 76.24 EUR. Banks will revise these exchange margins to reap more profit from your payment and may offer you a disadvantageous exchange rate of $1 CAD to 0.73 EUR instead, thus your beneficiary is now receiving 72.24, and the bank is taking 4% of your total payout for their own profit.
Some banks will subject your wire transfer to a flat fee, a percentage cure, and a hidden markup- amounting to three total fees- pretty obscure, right? Going through your bank may seem like a good idea due to trust— but, think about all that money you’re losing every time you send money!
Compare Alternative Providers
Now that you know about the hidden costs you end up paying, it would be in your best interest to look into alternatives for making cross-border payments. There are many alternatives out there such as online/digital services that have been increasingly utilized as technology continues to excel efficiency all around the world. When comparing providers, it’s important to look at exchange rates— even a minuscule difference can add up to some immense savings. Services that offer a flat fee as opposed to a fluid percentage typically save you more money, but that’s not to say that their foreign exchange margin will not be hiked up more to compensate for a seemingly low flat fee.
Invest in Time and Security
A huge mistake many businesses make when transferring money to their overseas partners is not looking into delivery times and security. Some payment companies take a day, or some take multiple days. A small bank can take up to weeks to make your payments. If you need to make a fast cross-border, using a non-bank, an online provider is a much faster option.
Mind you, with the establishment of alternative and online money transferring methods separate from banks, there has been an increase in illegal services taking money under the table and disappearing with it. In fact, there have been many cases in which an under-established payment platform receive money from a client, only to completely fall off the radar and disappear with hundreds of thousands of dollars. The last thing you want is your money missing because you didn’t spend the time looking into a reputable payment platform that prioritizes security- one that is regulated by FINTRAC, the Canadian national financial intelligence regulator. Click here to read a recent case from the CBC about how a payment service in Ontario committed fraud. Be sure to look into the reputation of the company and see what publications have said about them online. Check out reviews and see what their portfolio has to offer to ensure legitimacy. A company like REMITR has been widely recognized by press releases all around the world for the contributions they are currently making to cross-border payments and the FinTech industry as a whole. REMITR has been rewarded multiple titles by Forbes for being within the top 20 FinTech startups, and the top 100 brightest startups.
In conclusion, researching and knowing your full set of options when making cross-border money transfers in terms of cost, speed, efficiency, and security is key in determining who would provide the most beneficial service when making business payments overseas.