Banks failing to meet foreign exchange needs of small firms
The foreign exchange needs of UK micro businesses with sights set on expanding to international markets are not being met, a new study has shown, with firms experiencing poor service, hidden costs and a lack of appropriate products when using banks’ currency transfer services.
Research conducted by foreign exchange company World First amongst 1,000 small business owners found that 52 per cent felt that their bank did not understand their currency transfer needs. The study demonstrated that 53 per cent of small firms admitted to being confused about the charges applied to international currency transfers, whilst 49 per cent said that banks failed to offer a full range of appropriate foreign exchange products.
Furthermore, 30 per cent of those surveyed said that they did not think their bank acted in their best interests when managing foreign exchange needs.
Eight of the UK’s most popular high street banks were found to be the most expensive when it came to foreign exchange costs, whilst alternative finance lenders often offered the cheapest rates. However, despite the reported dissatisfaction of small business owners, 65 per cent said they would still use banks for their currency transfer needs, with just under half admitting to simply using the same bank that they had an open business current account with.
Commenting on the findings, World First CEO, Jonathan Quin, said: “Small businesses collectively transfer around £78bn a year, so there is now a huge responsibility on the industry and policy makers to better educate businesses on the benefits of a well-managed currency strategy.”
Warning small firms about the likely volatility of currency markets in the year ahead, Quin added: “Not only can a currency strategy offer certainty and security, there are also significant cost savings to be had. If the UK’s small businesses saved just one per cent on annual foreign exchange bills, this would amount to £780m in total savings nationwide.”
International money exchange and transfer companies like World First are increasingly used by businesses as a trustworthy and cost effective alternative to banks and other traditional providers of foreign exchange. Firms such as Transferwise, Worldpay, Currency Direct and even PayPal tend to have lower fixed fees, faster and cheaper transfer speeds and more customer support than banks.
Last month, another study published by consultancy Accourt found a chronic lack of transparency surrounding bank currency transfer fees and how those fees are calculated. In total, 96 per cent of the £4bn in foreign exchange revenue received by UK banks each year goes unseen by small business owners.
The UK SMEs International Payments Analysis showed that the vast majority of the amount banks make from small firms comes from the “spread” – the margin added to exchange rates from money markets – which small firms rarely see.