Going global is the way to go for small businesses and over 58% of them are already there because they have international customers. This trend is only growing because globalization offers great opportunities for SMBs. However, taking this step is anything but easy and extremely high costs of international money transfers are one of the reasons why.
Both transferring and receiving money from abroad is a struggle for small businesses because they are in a very disadvantaged position. Having no access to premium bank accounts, they don’t get favorable transfer terms. This means that the cost of the transfer can very well eat up their profit margins.
But the good news is that today there are alternatives to banks and this industry is growing busier. Business owners now have access to the same, and sometimes even better terms, than huge international corporations get from their banks. Seizing the best of these opportunities can be the exact thing you need to bring your business to the next level.
How Much Do International Money Transfers Really Cost?
The cost of an international money transfer varies from bank to bank, it also matters whether you are receiving a payment from a customer or paying your suppliers abroad. However, one thing always remains the same when dealing with banks, and it’s the fact that you are paying a lot. Quite often you’ll be paying more than even you thought you did because not all bank fees are transparent.
Remember, fees are what banks make money from, so there are quite a few of them charged on every transaction, especially one as complex as a cross-border transfer. The fees you should be looking out for in bank wire transfers include:
- Bank-to-bank transfer fee
- Cancellation fee
- Disbursement fee
- International transfer fee
- Investigation fee (charged if you check on the status of the transfer)
- Payment method
- Receiving fee
- Percentage of the transfer amount
- Margin
Fees should be rather straightforward if you get a complete list of them. But it’s the margin that truly makes international money transfers through banks so bad for small businesses. Also, it’s very often a hidden charge, so you might not even know why you’ll be losing your profit margin in a single transaction.
The margin is a payment applied to international money transfers because it’s connected to the currency exchange rates. You see, there’s the mid-market rate that the global currency markets run on. But banks add their own margins to this rate, which can vary greatly and is unregulated.
The result is that with all fees and currency exchange margins included, you might be losing as much as 10% off every transaction. Some banks are still so backward that they might charge you even more.
For a small business that’s trying to go global these losses are unacceptable. And we also shouldn’t forget that there are other additional costs involved in doing business internationally. Taxes, marketing, and many other challenges that small businesses face when going global all contribute to reducing the number of companies that try to take this step.
But, without a doubt, the unreasonably high cost of bank money transfers is the deciding factor in this.
How Small Businesses Can Make and Receive International Payments for Cheap
The solution to the problem if expensive bank money transfers is to transfer money through different providers. Today, you have multiple options as new money transfer companies seem to appear every week. And when you look at their money transfer rates compared to banks, you’ll be able to see that these transfers can cost you less than 3%.
In fact, that’s the absolute maximum you should expect to pay. The level of competition in this market is getting high fast and unlike banks, money transfer companies are racing to get the lowest rates possible.
The demand for this service is so high, it’s no surprise that these businesses are getting a lot of support. The top companies among them manage to collect hundreds of millions in funding. For example, TransferWise managed to get $292 million in secondary funding at the beginning of the year. Now the company is valued at $3.5 billion.
This is the company that got its breakthrough due to the fact that it used set fees and transparency, things severely lacking in this business. But now another giant of this industry, WorldFirst is applying the same principles but taking them a step further.
It now offers all its customers set pricing depending on the total volume of transfers per year. It’s an incredible opportunity for businesses in particular because with this pricing you might be paying as little as 0. 5-0.15%.
This money transfer company was recently purchased by Alibaba and this change in pricing is a sign that the change of ownership went very well. As these rates are some of the lowest and terms are definitely the best on the market now, they are sure to prompt other companies in the industry to offer similar deals.
This means that small businesses out there will get more opportunities to make and receive payments from abroad for cheap. The coverage of these money transfer services is growing rapidly, which means that soon more small businesses will be able to enter the international arena. This is great news for the global economy as a whole because it’s small and medium businesses that are the main drivers of GDP for many countries.
Therefore, when they benefit, everyone benefits by extension.
However, many companies today are still hesitant to trust these money transfer companies. Another problem is that these services are only available for a handful of countries today. Therefore, some small business owners have no other option but to go to their local bank.
The latter situation is slowly changing, so if you are caught in it, you can only wait for these services to become available in your country.
As to the trust issue, you can be sure that the leading money transfer companies use the same methods of digital security as top banks. Therefore, you can be 100% sure that any transfers you make through them are as protected as it’s possible to make them today. And these companies are constantly improving their security.
Therefore, you shouldn’t allow mistrust of all things new to prevent your business from seizing the opportunities offered by going global. However, remember that you should research the company thoroughly. The most trustworthy among them today are the ones that are at the top of popularity lists.
By Jane Koval