£4.1bn – the cost of exchanging currency through banks
A study by Capital Economics found that SMEs are losing literally billions of pounds through hidden fees levied on their currency exchanges by banks. But let’s look at the specific numbers gleaned from the research:
“Exchange rate mark-ups on international payments charged to small and medium-sized businesses add up to £4.1 billion, equivalent to £755 for every small company, the research found.”
£4.1 billion. Four point one billion pounds! Banks are chiseling small companies out of a sum of money larger than the GDP of Fiji. Split between each business, £755 makes that loss painfully relatable and hammers home the real issue inherent in the exploitation the report details; for small businesses with tight margins, every penny matters – lose too many of them and you’re out of business.
So SME owners can ill afford to have their operating costs artificially inflated by opaque institutions to whom every penny also matters, albeit only in the context of greed. It’s robbing the poor to feed the rich.
But how do they do it? We’ve looked at this before, back when Kiki Loizou reported on Lloyds having told their foreign exchange traders that ‘companies with an annual turnover of less than £25 million could be charged up to 1.5% extra in each trade’, compared to the bank’s higher-value, ‘premier’ customers who made larger exchanges yet got off lightly with lower fees.
“Smaller organisations lost almost ten times as much as big business and the cumulative bill has risen significantly over the past six years, with losses of about £3 billion for small and medium-sized businesses in 2010.”
Essentially, the hidden charges are a regressive fee geared towards benefiting those that least require preferential treatment. And the reason it’s allowed to continue is because ‘one in five companies which transfer money overseas at least every fortnight said they had no idea how their bank charged them for these transfers.’
This tallies with the figures from our own study – ‘Breaking out of the FX status quo’ – which sadly revealed that 80% of small businesses are simply unaware of the hidden fees imposed on their currency exchanges, and are also unaware that there are much simpler and more transparent alternatives available to them.
Even though Lloyds has vaguely suggested it will ‘review its charges’ following Loizou’s reports earlier this year, Hurley notes that ‘the recent Competition and Markets Authority investigation into banking for small businesses did not consider the fairness of transparency of exchange fees.’
In short, it seems that the status quo is set to continue for the foreseeable future, and if companies that frequently exchange currency or make international payments want to see change they will have to vote with their business.
For the record, we offer an extremely low, fixed 0.2% fee on all currency exchanges, of any size. Sign up with freemarket now to use our very simple, wholly transparent platform that gives customers access to institutional rates, and complete control over their own exchanges and payments.