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Business News/ Money / Personal Finance/  The true cost of international transactions
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The true cost of international transactions

When receiving payment for your services in foreign currency, processing charges can range from 2% to 10% of the transaction amount.

Typically, in international wire transfers, the funds end up passing through several banks. (iStockphoto)Premium
Typically, in international wire transfers, the funds end up passing through several banks. (iStockphoto)

India is a huge exporter of services, and growing rapidly. The estimated value of services export for 2022-2023 was $323 billion, up from $254 billion in 2021-22, according to data from the commerce ministry. This includes the income of agencies, consultants, gig workers, exporters and other freelancers who serve overseas clients. If you are an exporter, a freelancer or regularly receive payments from overseas, you would know how much it hurts to pay exorbitant and opaque fees to banks and payment platforms. When receiving payment for your services in foreign currency, processing charges can range from 2% to 10% of the transaction amount. Since the break-up is usually undisclosed and borne by the recipient, these charges cut into your income. Therefore, it is important to clearly understand the common hidden charges.

SWIFT/ wire fees: These are usually fixed or slab-wise charges deducted by your client’s bank overseas while sending the payment. Depending on the country, bank and amount, these charges can be anywhere from $20-75. Your client can pay these charges, or pass them on to you. For instance, if on a $10,000payment, swift charges are $50 and the client opts to pass them on to you, you will receive only $9,950 in India.

Intermediary bank fees: Typically, in international wire transfers, the funds end up passing through several banks and each intermediary (or correspondent) bank can deduct their own fees. For instance, while receiving a payment of $10,000, intermediary banks might deduct $200, or more, as correspondent bank charges. Again, this will be deducted even before the money comes to India, so in the above example, you would receive only $9,750 in India. Both swift fees and intermediate bank fees are not standard and stated upfront; you get to know the quantum of fees only after receiving the money.

Mark-up in forex rate: This is usually where you lose the most money. forex mark-up is the difference between the market rate and the rate you receive while exchanging a currency. Whenever you exchange currency, the forex rate you receive is slightly lower than the prevailing market rate. This difference is pocketed by financial institutions to make a profit on foreign exchange transactions. A web search for ‘USD INR’, gives you the live market rate. So, while receiving a payment of $10,000, you would lose around $250 in forex charges.

Conversion and platform fees: Several fintech platforms and banks have conversion fees or platform fees. These could be fixed fees per transaction, or a percentage of the transaction amount. Often, banks do not mention this fee upfront. These charges are also debited later on from the account, rather than in-line with the payment processed. In either case, one needs to watch out for these fees, since they directly eat into your earnings. For instance, many payment platforms charge around a 4% fee to process international payments into India.

Service fees: Another fee that most users are not aware of is the service fee. Banks and fintech platforms charge for various kinds of services, and often do not disclose these charges upfront. Even post facto, there isn’t much explanation about why a particular service fee has been charged. For instance, several banks charge for issuing FIRC, and call it ‘Inward Remittance Certificate charges’. These are usually 200 to 500 per transaction, but can sometimes go as high as 2,000. In contrast, UPI has made domestic payments in India seamless and cost-efficient. .

In the interim, one can make informed choices by selecting providers with transparent charges and exchange rates, and leverage online calculators to know the total cost of foreign exchange transactions, encompassing all fees and charges.

Movin Jain is co-founder, Skydo, a cross-border payments platform.

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Published: 16 Oct 2023, 09:27 PM IST
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