There are a number of cost components to making and receiving international payments, most of which are far from transparent to customers:
Currency conversion rates : Banks charge huge margins for currency conversion to the majority of businesses and individuals. They tend to fix rates once a day and therefore need to incorporate enough margin to protect against intraday rate volatility.
In addition, the level of price discrimination is extortionate – they get away with it because they can; businesses and consumers have been kept apathetic to using better alternatives.
Correspondent bank fees : These relate to the network of banking relationships that are utilised to complete an international transfer. Each correspondent bank skims a fee of the transferred amount for simply acting as link in the payment chain.
Customers are rarely made aware in advance as to how many correspondent banks are in the chain and what they will charge.
Landing fees : The beneficiary bank will charge a fee for receiving the funds from abroad. Again, these are rarely known in advance and can be substantial – there is no standardised fee. Customers are made aware of a “receiver fee” but not of its magnitude.
Cross border taxes : Transferring money from certain jurisdictions, such as the US and Australia, incurs a withholding tax of up to 30% if it is related to certain types of income.
Repair charges : Banks will charge a considerable fee to fix an issue relating to incorrect details, such as the BIC code, having been entered as part of beneficiary details. This can be overcome by way of pre-confirmation of payment details, but banks do not usually offer such a service to customers.
Returned funds fees : If a payment needs to be returned, whether instigated actively by you,e.g. a stop payment, or due to insufficient funds or incorrect payment details, the bank will charge a fee to process the return. This can be upwards of $30.
Cost of a trace : The cost of finding money that has gone missing in the payment chain.
How can I avoid all of the above and get the best possible foreign currency exchange rate?