We live in an increasingly globalised world. For example, pretty much all of us have either friends or relatives living in other countries and thanks to Facebook and Zoom, we can still stay in touch. Commercially speaking, these days even the most humble of small businesses will eventually find themselves transacting globally whether it’s buying goods or selling services abroad. Then, the rise of the digital nomad and the international freelancer means that professionals today are servicing clients all over the world!
All of this means that money is moving across the globe more than ever before. Because of all this borderless business, international payments and currency exchanges are now a seriously big deal as more and more of us regularly receive money from abroad. But, if you have ever sent money to family overseas, or perhaps invoiced a client abroad, then you will probably know that sending or receiving international payments to or from a UK bank account is not exactly straightforward.
Banks and International Payments – Why So Expensive?
If you ever send or receive money from abroad using your bank account, then you probably know that it can prove to be rather costly. Indeed, it is all too common for the recipients of international payments to receive a lot less money than they were expecting (and less money than the seller actually sent…) but it is not always clear exactly why this has happened. The banks don’t always explain it very well (if at all) leaving a lot of customers confused and disappointed.
So, let’s take a moment right now to look closely at how international bank payments work.
Firstly, whenever a bank handles an international payment, they levy a transaction fee. This fee can be a percentage of the payment or it can be a flat fee. In the UK, these fees range from £1.75 to £20 depending on who you bank with. But, do bear in mind that not only will the sender’s bank charge a fee, but the recipient’s bank will too. And it gets worse. If a 3rd party intermediary bank is needed, then they will also charge a fee!
And that’s not quite the end of it. Whenever you execute a bank transfer from overseas, then currency exchange rates also come into play, and because you are relying on the banks, they get to choose what exchange rate to use. In practice this means that the banks will apply a rate which favours them at your expense and they will seek to make a few pence profit on every pound they change for you.
The upshot of this is that between fees and exchange rates, customers could quite conceivably be charged up to £100 just to send a few thousand quid overseas.
*A note on fees. Please note that in all cases, it is the sender who specifies who pays the fees. They can choose to pay them all themselves, they can elect to split them (meaning they pay their own bank fee, and so does the recipient) or they can even throw them all at the recipient. If you are receiving money from somebody, it is very important that you clarify up front who is responsible for paying what fees. If you are invoicing, then you may wish to add your own bank fee as an additional sur-charge.
Getting The Best Exchange Rates
As we discussed, when you rely on your bank to receive payment from abroad, they can use whatever exchange rate they like. You cannot negotiate and you cannot shop around for a better deal and the banks take full advantage of this. However, out in the wider financial marketplace, there are actually quite a few ways in which you can get better deals on exchange rates.
There are Currency Brokers and Forex Traders who buy and sell currencies professionally. In particular, currency brokers work with customers to help them get the best possible deal on exchange rates. They do this by transacting at a large scale and by using their extensive global networks to get the best rates on any given currency. However currency brokers can only really help those who are sending money – therefore, if you are receiving money, then you may also need to work with the sender in order to get the best rate and ask them to use a broker of your choosing. This largely depends on how much goodwill there is between you and the sender, and it also depends on whether your preferred broker is operating in the sender’s country.
Aside from that, the other step you can take is to request that the sender sends the money to an account in your name that offers good exchange rates – this means opening an account away from the high street banks. We will look at a few good options in the next section.
Best Ways To Receive Money From Abroad
As we have already established, receiving large sums into a UK bank account can prove very costly. If you are expecting to receive a large payment soon, or are regularly receiving smaller payments, then you need to stop using your bank right now. Thankfully, there are now quite a few other companies out there who can handle international payments fast, and cheaply.
Doing exactly what it says on the label, Moneycorp definitely takes the prize for the most audaciously named financial services institution in the world. Moneycorp draws upon more than 35 years of experience in Foreign Exchange during which time they have helped millions of customers move billions of dollars all over the world.
After opening a Moneycorp account, customers are able to send and receive money internationally for less. This is because Moneycorp is a currency and international payment specialist and customers can take advantage of their market leading exchange rates and low to zero fees. Once the money arrives in your Moneycorp account, you simply domestically transfer to your UK bank account.
Moneycorp now offers a prepaid bank card which offers good rates and fees on overseas transactions making it a good bet for regular travellers. However they have not yet branched out into ‘current account territory’ in the way that our next contenders have.
Wise is quite possibly the cheapest and fastest way of receiving money from abroad that we have come across. Initially founded in 2009 as Transferwise, the fin-tech challenger uses its pioneering interface and international network to move money instantly (in most cases) with most transactions costing just a few pence. Wise initially proved very popular with international freelancers who used it to invoice clients and get paid from all over the world. But since then, it has grown to become a full blown rival to the established banks.
A Wise account can be opened very quickly by downloading their easy to use app. They now issue bank debit cards and you can request one to be posted out to you meaning that you can effectively use the account as you would any other bank account.
Best of all, Wise also offers multi currency accounts so if you or your business regularly transact in a particular currency, you can hold a balance in that currency. Multi currency accounts are a great way to guard against fluctuations in the global currency exchange rates and can also be useful for regular travellers.
Finally, if you ever have a query, you can drop them a message in the app and wait for them to respond – it beats waiting on hold to a bank call centre anyday.
Revolut initially rose to prominence as a prepaid travel card. Powered by a fast, secure and effective iOS/Andriod app, users simply transfer money from their main bank to the revolut ‘pot’ and then use the Revolut card to pay for things abroad or use foreign ATM’s with zero to low transaction fees. When Revolut launched, users were able to withdraw £500 per month from foreign ATM’s without incurring any fees (except possibly for the local banks fee) but they have since scaled this back to £300.
Revolut is still popular as a travel card but like Wise, they too have grown from their initial niche and are now offering current accounts and even credit. Some corporate employers are now even able to pay staff salary into Revolut accounts.
Another use of Revolut is that (like Wise) they also enable fast and low cost international payments and money transfers. Best of all, as Revolut has an IBAN code, senders or recipients don’t even need to have the app themselves.
Revolut also offers multi-currency accounts in a wide range of currencies which is great for expats and international business people.
However, the downside is that some users commented that Revoluts customer service department is a bit lacklustre whenever anything goes a bit awry.
Wise vs UK Banks
In order to demonstrate the difference between the high street banks and the money transfer specialists, let’s do a quick comparison.
- First Direct
For this example, let’s say that I am about to receive $500 from an acquaintance in the US. They send $500 from their US account to my First Direct UK bank account. For the sake of this example, the sender has specified that the transaction costs are to be shared which means, they pay the sender’s fee (they pay this on top of the $500 that they are sending to me) leaving me to absorb the recipient fee.
First Direct then receives $500 and immediately changes it into GBP. The market rate for changing USD into GBP is $1 = £0.74 which means I should receive £369.13. However, First Direct uses a slightly different exchange rate and so I only receive £365.59. They then deduct their £5 handling fee from this. So, whilst I was expecting to receive £369.13, I only actually received £360.59 meaning the transaction has cost me £8.54
Now, let’s see how that transaction would go using Wise. As we suggested earlier, Wise is perhaps the best way to receive money from abroad to UK that we have come across.
This time, the sender is still sending $500 from the US, and has still stipulated that the fees will be shared. However, this time they are sending the money to a Wise account. Once again, Wise receives the money and changes it from USD to GBP. Like First Direct, Wise also do not use the market rate but they use a rate which means I receive £366.89. Unlike First Direct, they do not then charge a transaction fee meaning that I actually receive £366.89; therefore this time the transaction has only cost me £2.24.
One day, it will hopefully cost nothing at all to receive international payment. But, for now, whilst receiving money from overseas can be very costly, it doesn’t always have to be. Whether you are dealing in dollars, dinar or dong, you can always save some serious pounds by doing some research and shopping around.