THE UNKNOWN PROBLEM SMES ARE FACING DUE TO HIDDEN INTERNATIONAL BANKING FEES
By Jack Maddock, Product Lead at Wise
Why Wise is bringing attention to international banking fees and the impact it has on international expansion for SMEs in the North of England and Scotland
The government is currently pushing for a Northern Powerhouse; however, the impact of hidden banking fees is one aspect hindering the initiative.
Recent research commissioned by Wise, of SME decision makers across the North of England and Scotland, outlined the reality of international payments when it came to business expansion and future success.
With over one quarter (27.5%) of SMEs in the North of England and Scotland stating exchange rate volatility was one of their biggest challenges and barriers to success over the last 12 months, it’s a time where more and more businesses are paying closer attention to their spending and banking.
Our research found that in the next 12 months, almost one third (30.2%) of SMEs in the North of England and Scotland say they plan to enter new markets, with 24.7% planning to expand overseas. This was mostly the case for North America, with over one third (35.1%) making plans to expand into that territory.
However, those surveyed also stated that due to the high cost of international banking services (30%), exchange rate volatility (25.2%), and the inconvenience of international banking services as barrier (24.5%), they’re put off operating internationally.
We found that SMEs in the North of England and Scotland spend on average £414,067 on international payment fees per year. Whilst the average annual overheads for these SMEs are £1,207,843.79, meaning it is estimated that over one third (34.3%) of annual overheads are on international payment fees. Those fees are ultimately coming out of the SMEs’ profit margins and could be funds that could otherwise be reinvested into the business for employees, or product or service development, for example.
SMEs have enough barriers to contend with, which is why here at Wise, we are calling on the Government to tighten existing regulations to make fees clearer and the market more competitive so that SMEs have the knowledge they need to make educated financial decisions to help better themselves.
Existing legislation, such as the Cross Border Payment Regulation 2 (CBPR2), states that banks should make fees clear when business customers trade in Euros, however this is often being ignored or circumvented by banks via fees hidden in marked up exchange rates.
The situation is even worse for businesses trading overseas outside of the EU. The Payments Services Regulation (PSRs) currently under review are clear in their aim to achieve greater transparency, but due to vague language and banks having the option of a ‘corporate opt out’ when dealing with business customers, SMBs are the ones to suffer.
We’re therefore asking the Financial Conduct Authority (FCA) to:
- Better enforce CBPR rules and provide additional guidance to banks so their intention to ban hidden fees rules is respected
- Ensure that, as part of it PSR review, all payments overseas are subject to transparency, with banks forced to make fees clear
- End the ‘corporate opt out’, which penalizes SMBs for no good reason
*Research conducted by Censuswide of 1,500 SMEs based in the North of England and Scotland