Foreign Exchange: Hidden Bank Costs Impacting UK Businesses

With the rise of advanced technology and remote working, 2020 saw many UK businesses expand on a global scale with many now hiring employees overseas as they enjoy increasing international demand.

Small to medium-sized enterprises (SME) across the UK are now conducting over GBP 700 billion worth of international business, with the Eurozone being the UK’s number one trading partner, followed by the United States. Germany remains the UK’s primary trading partner, accounting for over GBP 90.8 billion worth of business.

It’s expected that UK international trade will continue to expand over the coming years as research conducted by Oxford Economics, indicates that international revenue in the UK will see 66% growth within the next three years.

The surge in global economic expansion has naturally increased the need for UK businesses to make international payments. Many SMEs, however, are experiencing detrimental financial impacts as a result of sending currency transfers via traditional banks. Hidden costs and lack of payment options are just a variety of ways in which UK businesses are slowly feeling the strain from UK banks, highlighting the need for a new foreign exchange strategy.

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The cost of using UK banks for foreign exchange

UK businesses who rely on banks for their foreign exchange (FX) needs can face a number of setbacks, but extortionate costs remain the most prevalent. Payment consultancy firm Accourt conducted a study of the six most popular banks within the UK and found that SMEs are significantly underserved in the following areas when sending international payments:


Most banks will charge SMEs a fee between 3-6% for their international currency transfers, with it not always being clear how the costs will be calculated and banks often generating transfer costs via internal systems not visible to clients.


It can be challenging for UK businesses to compare currency transfer costs between banks as fees will often not be known until after the payment has been processed. Many banks within the UK are also unclear regarding settlements and delivery dates, preventing UK businesses from making informed decisions when it comes to finding the best foreign exchange solution.


There are minimal payment options when sending international payments via high street banks, resulting in the bank failing to meet the needs of specific businesses.

business profit

How are hidden bank costs impacting UK businesses?

It seems that many UK businesses are unaware of the magnitude of hidden bank charges and how they can impact profit margins. A survey conducted by Modulr, which observed ‘the price of payment inefficiencies’, discovered that UK SMEs are spending around GBP 1.5 million annually on money transfers, funds which many businesses cannot afford to lose in the age of COVID-19. Equally, the survey also found that 200 payment decision-makers within the UK believed that the hidden costs of sending international payments via banks could inflict significant financial damage on wider businesses if the issue were not addressed.

A separate survey on small businesses discovered that 80% of companies were unaware of the real cost of making international payments via a high street bank, whilst 43% of survey respondents stated that they would feel more confident if foreign exchange expenses were transparent and visible from the outset.

Samples of hidden UK bank costs when making bank transfers include:

  • Bank rate – the bank’s exchange rate
  • Mid-market rate – the midpoint between the buy and sell prices between two currencies
  • Fixed fees – often ranging between GBP 13 – GBP 25 across major UK banks
  • Currency spread costs – the difference between the mid-market rate and the bank’s rate.

These costs can differ between banks, all of which use an internal system not accessible by the customer, making it difficult to understand precisely how fees are determined. The currency spread is how banks make their profits, with clients unable to see the calculation breakdown.

Data from Accourt reveals that UK banks charge businesses an average of GBP 4 billion in hidden fees, which is around GBP 2 billion more than they would be charged by an independent foreign exchange specialist.

How to save money when sending international payments

With the substantial growth of international trade within the UK, the need to save money when making foreign exchange transfers has never been greater. According to Modulr’s survey, a business’ payments process now accounts for 12% of its operational costs.

As a result of the lack of cost transparency amongst UK banks, many businesses will find it more beneficial using the services of an independent foreign exchange specialist. FX specialists such as Halo Financial offer a variety of currency products not operated by banks which can help businesses ensure that they secure the best exchange rate possible, whilst offering simple, low-cost servicing fees.

For businesses to identify if their international payment process financially impacts them, firms must have clear metrics and visibility of their operational costs. Many financial services companies have stated that lack of visibility within operational costs remains a crucial challenge for many businesses, often due to lack of skills and resources.

Using automated processes for international currency payments could be a significant driving force for your company’s overall efficiency. Modulr’s survey revealed that 52% of large businesses found the number of hours staff spent on payment processing was a significant overhead to the company. Using a foreign exchange specialist with the ability to set up automated payments at an exchange rate to suit your business, can help firms save on processing time whilst being able to manage your budget effectively.

For SMEs still processing international transactions via high street banks, it could be time to review your payments strategy to help protect profits and gain access to a greater variety of payment options. As global economies continue to be impacted by COVID-19, ensuring that your international payments process is as cost-effective as possible remains as crucial as ever.

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