Exchange rates: Hidden bank fees stall mirco firm growth
Micro firms conducting business overseas are increasingly at risk of being swindled by UK banks that are charging small businesses with hidden fees on international money transfers, a new study has found.
With close to £4bn in hidden transfer costs raked in by the country’s most popular high street banks each year, 96 per cent of the revenue banks receive from the average foreign exchange goes unseen by owners of small businesses.
The study, dubbed “UK SMEs International Payments Analysis” – the first of its kind by consultancy Accourt and online currency exchange service Money Mover – showed a chronic lack of transparency surrounding transfer fees charged to small firms and how the fees are calculated.
Known as the “spread”, the vast majority of the amount banks make from small firms comes from the margin added to exchanged rates from money markets, without firms seeing them.
Small business owners are likely to pay anywhere between 1.12 per cent and 3.68 per cent of the transfer amount due to spread on an average transaction of £75,000 in the EU, the study found.
Money Mover CEO, Hamish Anderson, commented: “This lack of transparency is not only unfair and uncompetitive, it’s also costing the UK’s small businesses precious cash in unnecessary fees.
“The UK’s banks are collectively failing to give small businesses the knowledge, transparency and visibility which they need to make an intelligent and informed decision.”
Barclays was found by the study to be the worst culprit, charging 3.68 per cent on EU transactions of £75,000, with Lloyds and Natwest also faring poorly, charging 2.71 per cent and 2.38 per cent respectively. Santander represents the best option for small firms – the bank charging a lower average rate of 1.55 per cent.
The study revealed small business owners were frequently left in the dark about the amount being charged, without knowing the amount received by a recipient until after a payment is made. Firms were therefore unable to compare banks and fees to choose the lowest cost service.
“In an increasingly globalised economy, business should review how they move money across borders. There are much better ways than banks,” Anderson added.
A better option for small businesses with currency exchange requirements might be a currency broker. A broker can update owners with regular money market movements and be able to secure more competitive and tailored exchange rates, whilst introducing strategies to manage risk. Unlike banks, brokers can often fix attractive rates for up to two years ahead of trade.
During the week commencing 11 January, research compiled by Business Banking Insights revealed which UK banks provide the best all-round services to companies with under ten staff. Amongst the institutions leading the way was Santander, as was the Co-operative Bank and Metro Bank, with major banks like HSBC, Lloyds and Barclays all receiving similarly average grades for business services.