Wise billboard displaying the loss SMBs faced due to FX fees Wise

The effects of Covid and an increase in the cost of living has made it increasingly difficult for SMBs to stay afloat. And new research shows that the banks who often declare their love for SMBs have contributed to their downfall through hidden and high FX fees.

FX fees occur when businesses trade overseas. It's a surcharge fee that will appear on your credit card statement when operating through foreign banks.

This usually ranges from a 1-3% fee. However a new report by Wise (a global technology company, building the best way to move money around the world) shows that big banks rarely disclose FX fees to SME's when they are operating outside of the UK.

This has resulted in SMBs facing a total loss of £3.6 billion in FX fees in the last year alone, and all business in the UK facing a loss of £4.2 billion.

But how are the banks getting away with this?

Surely there are laws and legislations in place that demand banks disclose FX fees? Well there are. One of them being the Cross Border Payment regulation 2 (CBR2), stating that banks should make fees clear when business customers trade in Euros.

However, banks will often avoid this legislation by hiding FX fees in marked up exchange rates. Which has become easier to, due to the Pound decreasing in value in comparison to the Euro.

Furthermore, when trading outside the EU, the problem with banks charging additional FX fees is even worse. The Payment Service Regulations (PSRs) are aiming to create "greater transparency" in foreign trading. But due to the broadness of this statement, as of yet they have not been able to crack down on banks imposing additional FX fees.

What does this mean for SMBs?

Due to the huge loss SMBs could face if they chose to trade outside of the UK, a lot of up and coming SMBs have been forced to remain domestic businesses. The goal of every business is expansion, and to be locked in the UK severely limits the potential expansion SMBs could have had.

In fact, it has even been reported that almost a quarter (24%) of SMBs were put off from expanding their business abroad. Making FX fees a deterrent even more severe than inflation, regulation, energy costs and supply chain disruption.

What is being done?

In defence of SMBs being charged unnecessary additional fees, Wise are officially asking the Financial Conduct Authority (FCA) to; better enforce CBPR rules, ensure that PSR makes all payments overseas subject to transparency and to stop PSR from allowing corporate opt outs in relation to transparency.

Ideally Wise wants banks to reduce FX fees, or at the very least disclose the exact amount of FX fees SMBs will be charged. Harsh Sinha, Chief Technology of Officer admits that, "Expecting banks to change might be a romantic idea, but tighter regulation should not be."

Sinha goes on to address the government, saying, "The Government - at no cost to the taxpayer - could improve and enforce existing regulation to give SMBs the power to know how much they're being charged, and where they can get a better deal"

This transparency is important. Additional FX fees doesn't necessarily mean that it's impossible for SMBs to develop internationally. But if they aren't aware of what this could cost them, this could harm their business model.

SMBs with the budget to expand abroad despite FX fees, can continue to do so. But at the very least they all deserve transparency, to know exactly what they are being charged.