This guide is provided by Alt21 Limited, trading as Alt21, an FCA authorised payments and FX provider. All examples provided are illustrative only and not a current or guaranteed rate. Please read the full disclaimer at the bottom of the page.
When your business makes an international payment, the fee displayed on the transaction screen rarely tells you the whole story.
You might see a £10 transfer fee. You might see no transfer fee at all. But neither necessarily tells your finance team how much converting and sending that currency actually costs the business.
That’s because an FX charge can be made up of several components. Some are shown separately. Others are incorporated into the exchange rate you receive. Depending on how the payment is routed, additional banking charges may also apply.
Across regular supplier payments, international payroll or other recurring currency transactions, even relatively small differences can add up over the course of a year.
Understanding your FX business charges starts with knowing where to look.
Quick summary
An FX charge isn’t necessarily one standalone fee. The total cost of an international currency transaction can include:
- A margin or markup incorporated into the exchange rate
- A separate transfer or service fee
- Correspondent or intermediary bank charges
- Other product-specific costs where different FX products are used
A provider advertising “zero transfer fees” may still apply a margin to the exchange rate.
That’s why comparing the exchange rate you receive with an appropriate market reference rate can give you a clearer view of what you’re paying than looking at the transaction fee alone.
FX fees explained
FX business fees, or FX charges, are catch-all terms for the costs associated with exchanging currencies and making international payments.
A key cost to understand is the margin built into the exchange rate. Every currency pair has a mid-market rate:
The midpoint between the market’s buy and sell prices. It’s commonly used as a reference rate, but it isn’t usually the rate available to businesses making an FX transaction.
Instead, your provider will quote you a customer rate, which may include its margin. The difference between that rate and the mid-market rate can therefore help you understand part of what you’re paying to exchange currency.
Because this cost is incorporated into the exchange rate rather than shown as a separate fee, a provider can advertise “zero fee” transfers while still charging for the currency conversion through its rate.
Some providers also charge an explicit transfer or service fee. So, to understand the full FX charge, look beyond the fee shown on the transaction and consider the exchange rate and any additional charges together.
Types of FX fees
The exact FX charges you pay will depend on your provider, currencies and payment route, but they typically fall into a few categories.
Exchange rate margin or markup
As we’ve covered, a provider may apply a margin or markup to the exchange rate offered to your business. Because it’s incorporated into the rate rather than charged separately, it can be less obvious than a transaction fee.
The size of that margin can vary depending on factors such as the provider, currency pair and transaction value. Comparing the rate you’re offered with the mid-market rate at the same point in time can help you understand the difference.
Transfer or service fees
Some providers charge an explicit fee for making an international payment, either alongside an exchange rate margin or as part of their wider pricing structure.
These fees are usually easier to identify because they’re shown separately, but they shouldn’t be considered in isolation. A low or zero transfer fee doesn’t necessarily mean a lower overall FX charge.
Correspondent and intermediary bank fees
Some FX international payments pass through one or more correspondent or intermediary banks before reaching the recipient.
Depending on the payment route and charging arrangement, these banks may deduct handling fees along the way. This can mean the recipient receives less than the amount originally sent.
These charges may be more relevant for payments outside payment networks such as SEPA, where different routing arrangements can apply.
How FX fees and costs impact your business
A small difference in an exchange rate might not look significant on a single payment. But when your business regularly exchanges large amounts of currency, those costs can add up.
Looking at FX charges across your total transaction volume can therefore give you a clearer picture of what you’re paying over a month, quarter or year.
Here’s a worked example:
All figures are illustrative and don’t represent current market rates or pricing.
Imagine a UK manufacturer needs to pay a Swiss supplier CHF 200,000 each month.
If the mid-market GBP/CHF rate is 1.1250, CHF 200,000 would be worth approximately £177,778 at that reference rate.
Now imagine the provider offers the business a rate of 1.11375, reflecting a 1% difference from the mid-market rate.
At that rate, the business would need approximately £179,574 to buy CHF 200,000: around £1,796 more than the equivalent amount at the mid-market rate.
Across 12 identical monthly payments, that difference would total more than £21,000.
The business wouldn’t ordinarily be able to transact at the mid-market rate, so this isn’t a measure of money it could necessarily have saved. Instead, it illustrates why understanding the difference between the market reference rate and the rate you’re offered can help you see the cost of FX more clearly.
Transparent FX pricing isn’t just about the lowest rate
It’s easy to assume that reviewing FX charges is simply about finding the lowest possible exchange rate margin.
But price is only part of the picture.
For a finance team, transparency means being able to understand how a transaction has been priced before you commit to it. That includes seeing the exchange rate you’re receiving, any margin applied by the provider and any additional transaction fees.
It also makes pricing easier to review over time. If the way your provider charges changes from one transaction to another without being clearly disclosed, it becomes much harder to understand your true FX costs or forecast them accurately.
Transparent pricing doesn’t necessarily mean the lowest price available. It means having enough information to understand what you’re paying, assess the overall service and make an informed decision about whether it works for your business.
You might be interested in our guide to FX collateral currency.
See the full picture before you make a payment
With Alt21 International Payments, you can see the exchange rate, margin and transaction cost before you commit – giving you visibility over the largest components of your FX cost from the start.
Questions to ask about FX fees
If you can’t easily work out what you’re paying for FX, asking your provider a few straightforward questions can help:
- What margin or markup has been applied to this exchange rate?
- What does that margin cost the business in pounds and pence?
- Are there any separate transfer or service fees?
- Could any intermediary charges apply to the payment?
- Does the pricing change depending on the currency, transaction size or service used?
Putting the margin into monetary terms can be particularly useful. A percentage or exchange rate difference can look small on screen, but translating it into pounds and pence makes it much easier to understand the impact on an individual payment and across your annual FX volume.
The aim isn’t to find a provider that charges nothing. It’s to understand how the provider is paid and what your business receives in return.
How to manage FX charges
Understanding your FX costs is largely about having the right information available when you make a payment. Here are four things to consider:
Compare the rate, not just the fee
Look at the exchange rate you’re offered alongside the mid-market rate for the same currency pair at the same point in time. This can help you understand the margin incorporated into the rate, alongside any separate fees.
Ask for clear pricing information
Ideally, you should be able to see the exchange rate, provider margin and any transaction fees before confirming a payment. Where possible, understanding what that margin represents in pounds and pence can make the cost easier to compare, record and explain internally.
Consider the total cost of the payment
A low or zero transfer fee doesn’t necessarily mean a lower overall FX charge. Consider the exchange rate, explicit fees and any other applicable charges together.
Review FX costs across your annual volume
Small differences can become more significant across recurring supplier payments, payroll or other international transactions. Looking at FX charges across a quarter or year can give you a clearer picture of what your business is paying overall.
Know what you’re paying before you press send
International payments shouldn’t leave your finance team guessing about the exchange rate or margin. Alt21 gives you upfront pricing information, with the tools to hold, exchange and move money across currencies in one platform.
(Applicants must pass Alt21’s onboarding process and accept our terms and conditions before becoming a client.)
FAQs
What is an FX charge?
An FX charge is the cost associated with exchanging currency and, where relevant, making an international payment.
It can include a margin incorporated into the exchange rate, separate transfer or service fees and, depending on the payment route, intermediary bank charges.
What are FX business fees?
FX business fees are the costs a company pays when exchanging currencies or making payments internationally.
The term may refer to explicit fees, such as transaction charges, as well as costs incorporated into the exchange rate.
Why can a “zero fee” FX transaction still have a cost?
A provider can offer zero transfer fees while applying a margin to the exchange rate.
That means no separate transaction fee is charged, but there can still be a difference between the market reference rate and the rate available to the customer.
Looking at both the rate and the explicit fees gives you a clearer picture of the overall cost.
What is the mid-market exchange rate?
The mid-market rate sits between the market’s quoted buying and selling prices for a currency pair.
It’s commonly used as a reference point when assessing an FX rate, although businesses don’t generally transact at the exact mid-market rate.
What are correspondent bank fees?
Some international payments pass through intermediary or correspondent banks before reaching the recipient.
Depending on the payment route and charging arrangement, those institutions may deduct processing fees.
How can I check what my business is paying for FX?
Start by comparing the exchange rate you’re offered with an appropriate market reference rate at the same time.
Then consider any separate payment fees and intermediary charges.
For regular international payments, reviewing those costs across your annual FX volume can provide a clearer picture than looking at individual transactions alone.
Are forward points an FX charge?
Not in the same way as a provider’s margin or transaction fee.
Forward points form part of the calculation of a forward exchange rate and are primarily influenced by the interest rate differential between the two currencies and the period of the contract.
A provider’s own pricing may then also be reflected in the rate offered.
ALT21 Limited is authorised and regulated by the Financial Conduct Authority (FRN: 783837) and is a company registered in England and Wales (number 10723112). The registered address is 45 Eagle Street, London WC1R 4FS, United Kingdom. This article has been produced by ALT21 Limited for information purposes only. It does not constitute financial advice or an offer to sell or the solicitation of an offer to buy any products referenced. Hedging products are not suitable for every business. Before entering into any FX product, you should consider whether it is appropriate for your needs and circumstances. ALT21 Limited assumes no liability for errors, inaccuracies or omissions. Eligibility criteria and terms and conditions apply to all products and services offered by ALT21 Limited. Not all applications will be accepted.
