SMEs Blinded By FX ‘Fog’ & Losing Thousands

Tony Crivelli
February 20, 2023

While cross-border payments and money sent abroad have increased in the last few years, the big banks in Australia and the UK haven’t offered much more clarity on their FX charges - let alone reduced them. 

In a recent article in The Age, the Australian Competition and Consumer Committee (ACCC) chairman, Rod Simms stated that despite some improvements since the start of the ACCC’s sector review three years ago, there was still a way to go. He stated that:

‘Three remitters continued to provide inadequate transparency to their customers by only partially disclosing their fees, having unduly complex prices or lacking a customisable online price calculator.’ 

The ACCC initiated the review of the foreign exchange sector as it found that customers using Australia’s big four banks to send USD or GBP abroad during 2017-2018 would have saved over $150 million in fees - if they used an alternative low cost currency transfer provider. 

In context, the ACCC’s review showed a saving of $A500 could have been made when sending $US7000 abroad. 

The same can be said for the big five banks in the UK too. With around 90% of the SME market, the majority of these banks still fail to publicly disclose currency conversion mark-ups prior to payment, with some hiding them altogether. 

Import and export has changed rapidly since the start of the pandemic, and even more so since new EU trade deals have come into place, but the state of play for SMEs remains stuck in the past. 

Finance journalist George Nixon shows in an article for This Is Money how complex FX fees and their acknowledgement is amongst the major UK banks. He demonstrates how inconsistently they display their mark-ups, how far ranging they can be - in some cases between 0.75% and 2.6% - and the various ways in which they account for margin in their small print. 

It’s becoming increasingly clear that confusion is serving as a barrier to better rates for SMEs particularly as, in the words of Martin McTague from The Federation of Small Businesses (UK):

'many SMEs simply don't have the time or capacity to shop around for the best deals on international cash transfers.'

While there is the EU CBPR2 regulation, which states that customers are provided with ‘the estimated total amount of the credit transfer in the currency of the payer’s account, including any transaction fee and any currency conversion charges in a clear, neutral and comprehensible manner’, there is some dispute on its application to businesses. 

The banking trade body, UK Finance, commented that the regulations don’t apply to cross-border business banking payments because of the PSD2 EU regulation - essentially a corporate opt-out that nullifies the previous regulation. And so, more confusion and complication ensues. 

The ACCC’s review, on the other hand, has seen an improvement in overall transparency as foreign exchange services now provide an online calculator to more easily compare prices. As a result, the major banks are being forced to offer more competitive products, which is certainly a positive step but hardly one of innovation or true support for the non-corporates. 

In both the UK and Australia, the emergence of better tech, and new low-cost service providers means that there is a start of a shift for SMEs who work with multiple international suppliers, or whose customer base is overseas. But there is plenty more to be done given their contribution to the economy. 

The National Federation of Self-Employed and Small Businesses found at the start of 2020 that SMEs:

  • Made up 99.3% of businesses in the UK
  • Accounted for three fifths of employment and, 
  • Contributed to around half of turnover in the UK private sector. 

The December 2020 report by Australian Small Business and Family Enterprise Ombudsman (ASBFEO) found not too dissimilar numbers for its own country. 

The ASBFEO report found that in 2018-19 ‘small business accounts for between 97.4% and 98.4% of all businesses, depending on whether you define a small business based on number of employees [former] or turnover [latter].’ 

The issue of time and expertise remains an issue for SMEs doing international payments regularly, as does the lack of support from banks, regulators and industry bodies to incite real change. There is a particular fogginess in the world of FX, one that could be argued hasn't been lifted thanks to these three large entities that potentially can’t fully appreciate the depth of the issue. 

As a result, it comes down to other SME-focused software providers and advancing fintechs to fill in this gap. 

McTague pointed out that ‘if the sums small businesses are losing to mark ups on cross-border payments annually were tallied up and presented to them transparently, some may well make changing providers a priority.’

It’s this piece of the puzzle that needs hyperfocus because without context, particularly personalised and tailored context based on a business’ own data, FX volatility and margins will continue to seem abstract and to an extent, irrelevant. 

An easy tool like Fluenccy’s Currency Score clears up the abstract and makes those figures and measures far more comprehensible - without the jargon. The margins and FX risk shown for a single business’ international invoices serve as a stark reminder of how much overseas payments account for, but more importantly, how much is lost on the transaction itself. 

Being able to clearly see the year’s numbers is the first step in making change a priority. As the saying goes, ‘you can’t move forward if you don’t know where you’ve been’.

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