When transferring money internationally, whether for business or personal reasons, it's crucial to be aware of the potential pitfalls that can lead to costly delays, excessive fees and ultimately, lost money. These issues can arise from common misconceptions about the process, hidden charges, and industry myths.
These traps waste valuable time and money. For instance, people often think their bank always offers the cheapest option, but this (more often than not) isn’t the case. Hidden fees and poor exchange rates often associated with these transactions can leave you paying more than you should.
The importance of comparing different international money transfer providers cannot be overstated. A common trap we see people falling into is assuming that all providers offer similar rates, fees, and services. When you don’t shop around, you can miss opportunities to save both time and money.
Being aware of these mistakes and researching options can help avoid unnecessary expenses.
1. Buying that your bank is the best option
It’s easy to assume that your bank is the safest and most cost-effective way to transfer money internationally. However, banks often lack transparency in their exchange rate margins and charge exorbitant fees, which many customers don’t realise. They also tend to offer poor customer service, making the process more complex than it needs to be. Instead, choosing a specialist provider that prioritises customer experience and transparency can enhance your experience entirely.
2. Ignoring exchange rate fluctuations
Exchange rates change in real-time and even small fluctuations can impact the amount you receive, especially on large transactions. Yet many individuals and businesses mistakenly believe that daily fluctuations are insignificant. That said, a reliable foreign exchange provider should offer complimentary tools like forward exchange cover (FEC), which can help lock in favourable rates and add predictability to currency exchanges.
A FEC is a financial agreement that helps businesses and individuals manage the uncertainty of fluctuating exchange rates. In essence, the company or person making an international payment enters into a contract with the payment provider to exchange a specified amount of one currency for another at a specified exchange rate on a future date. This is especially helpful for businesses that import goods and want to keep their costs stable in Rand terms or take advantage of a good exchange rate before paying their supplier.
3. Overlooking the fees
Hidden fees can significantly impact the total cost of your international money transfer. For instance, let’s say you’re sending R1 million to the US and the spot rate to the US dollar is R18 to $1. The bank may charge R18.36 to $1, meaning you’re paying a ‘spread fee’ of R0.36c for every dollar purchased. While this may sound insignificant, this equates to 2% of the transaction value (an extra R20 000) and that’s before factoring in SWIFT charges of R500 to R1000, and potential ‘commissions’ and ‘communication fees’ that some banks may add on top of this.
These costs can quickly add up, reducing the recipient's overall receipt. To avoid this setback, seek out a provider who emphasises transparent pricing while offering a cost-effective fee structure that eliminates hidden charges. Doing your research in this market is the best way to ensure you get the best possible deal.
4. Using slow or inefficient transfer methods
Outdated banking methods can cause frustrating delays, with transactions sometimes taking days to clear - even after you’ve already had to navigate a tedious admin process. Not only can this lead to missed payment deadlines, but it can also result in increased costs due to exchange rate fluctuations, and even strained relationships with suppliers or clients.
When choosing a foreign exchange provider, go with one that leverages technology to ensure your transactions are fully automated and processed as swiftly as possible. This ensures your money arrives quickly and you get the best exchange rate. The right international money transfer provider should also assist you with any compliance requirements at no extra cost, so any additional paperwork is taken off your hands.
The bottom line
The myths and misconceptions surrounding international money transfers can result in wasted time, higher costs, and unnecessary stress. By working with a trusted provider who leverages innovative tools, those sending money abroad can have full peace of mind that they’re getting the most out of their currency conversion.
Fintechs are an effective way to access benefits like seamless transactions, competitive exchange rates, and a personalised service designed to make foreign currency transfers simple and cost-effective.
* Scherzer is the CEO of Future Forex.
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