Are hidden charges hurting your business? Unlock transparent pricing with Xflow

The lack of transparency in cross-border payments has long been an issue, with hidden fees, unclear exchange rates, and opaque processing paths. For businesses dealing with foreign clients, these hidden charges can snowball over time, leading to frustration and eventually eating into profit margins.

This silent killer is buried in the fine print, in the form of currency conversion charges. These tend to be disguised as a markup on the exchange rate, typically amounting to 1-5% of the total transaction value.

For businesses dealing in frequent or high-value transactions, these costs can pile up, forcing companies to pass on these additional charges to customers.

So how can businesses optimize for conversion costs, and provide the best value to customers? Read on to find out!

If the exchange rate offered by the bank includes a hidden markup, is there such a thing as the real exchange rate? Well, yes, sort of.

In the global foreign exchange market, bankers are willing to pay a certain price for a particular currency (the bid price) and are willing to sell it at a certain price (the ask price).

The mid-point of both these rates is called the mid-market rate. It represents the true, unaltered value of a currency, determined by real-time supply and demand in the forex market. This is the currency's actual value, free from hidden fees, profit margins, or adjustments.

But banks never pass on this rate to customers.

Instead, payment providers apply a markup in the form of a percentage adjustment that makes the offered exchange rate less favourable for the customer. Yes, businesses can identify unnecessary markups or hidden fees by comparing this offered exchange rate to the mid-market rate. However, unless the customer is very well informed and goes to the trouble of actually making this comparison, they will never know that they are getting charged a hidden markup (till they actually receive the money).

The markup can range anywhere from 1-5%, depending on the currency pair, transaction volume, and the company’s relationship with the bank.

Let’s understand how this works with an example: 

Scenario 1 — Regular Wire Transfer

Imagine your US-based client/business partner approaches a bank. Let’s say they want to send USD 1000 to India. The bank offers them an exchange rate of 1 USD = 83.4085 INR.

This means you will receive INR 83,408.5. 

However, it turns out the mid-market rate at the time of the transaction is 1 USD= 85.1108 INR.

If your client had got the mid-market rate, you would have received INR 85,110.8

The difference between these two amounts is what you’re paying the bank in hidden charges. In this example, that works out to be INR 1702.3, or 2% of the real value of the amount.

On another day, for another transaction, it could be 1.5%, or even 4%.

The uncertainty is part of the deal.

Hidden charges are impossible to plan for. For starters, the lack of transparency creates several challenges:

• When it's impossible to tell how much money will be lost to markups, financial planning becomes difficult. Companies aim for precise financial forecasting, often transferring the exact amount they need to meet operating expenses. In such cases, even a 2% unplanned charge could lead to critical issues—like an unpaid vendor or a delayed project.

• Over time, being repeatedly blindsided by costs they didn’t account for leads to an erosion of trust between businesses and their banking partners. 

Further down the line, the high costs of currency conversion can have serious financial repercussions:

• Erosion of profit margins: With foreign exchange transactions taking place every day, hidden fees add up, quietly eating into profit margins.

• Pricing problems: Businesses can end up passing on these charges to customers, which might push them to seek out competitors who offer better prices.

• Cash flow issues: For businesses that are facing liquidity challenges, the accumulation of these hidden charges can compound their woes.

• Missed growth opportunities: If every transaction comes with a markup, over a year, businesses can accumulate thousands of dollars in hidden fees—money that could have been reinvested in growth.

Thankfully, there is a way to transfer money with zero hidden charges, and Xflow offers exactly that!

Xflow offers foreign currency transactions at a 0% FX markup. This is exactly what it sounds like—Xflow doesn’t charge a percentage-based markup fee based on the exchange rate. Xflow keeps things honest, charging only the mid-market rate, with a fixed, transparent, flat fee that businesses pay up front.

Let’s unpack this with another example:

 Scenario 2 — The Xflow solution

Imagine your US-based client/business partner approaches Xflow. Again, they want to send USD 1000 to India.

Xflow says, “Look, we’re honest. Here’s the mid-market rate.” 

1 USD =  85.1108 INR

Your client pays this fee up front.

Not only is this less than what would be shaved off in markups in the first scenario, it’s also 100% transparent, with zero uncertainty, thanks to the fixed nature of the fee.

This means businesses can plan their finances in advance, taking into account the mid-market rate and the small percentage-based fee. They can be assured that they will get exactly the amount they forecasted in their financial planning, potentially saving them thousands in hidden fees, and allowing them to grow their business without uncertainty and provide the best value to their customers.

-Neeraj Krishnamoorthy, Director and Cofounder, Teach Edison

When it comes to international payments, the advantage of using Xflow doesn’t stop with 0% FX markup fees. Customers get a totally seamless payments experience, letting them focus on actually growing the business while Xflow makes the payment hassles disappear. Here’s how:

• Xflow helps with local payment methods: For USD to INR receivables, Xflow offers methods like Fedwire and ACH, which means businesses can take advantage of the lower processing fees compared to traditional wire transfers. Wondering how? Both ACH and Fedwire involve fewer intermediary banks compared to other international transfer methods, which helps reduce additional fees charged by these intermediaries. When fewer parties are involved, the overall cost of the transfer is lower. This also ensures more predictable and transparent pricing structures. Further, both ACH and Fedwire systems are highly efficient and automated, minimizing the need for manual intervention. This efficiency translates to lower administrative costs, which can be passed on to the customer.

• Xflow moves the money fast – really fast! Unlike regular wire transfers, which take 2-4 days to complete, Xflow ensures that the money will reach customers within 1 business day once the transaction is initiated.

• Xflow will take care of the paperwork too. Xflow’s end-to-end solution includes a one-click FREE eFIRA for every withdrawal within 24 hours on the letterhead of an ‘AD-1’ bank – taking away the need for additional follow-up and simplifying the entire fund transfer process.

So if you’re ready to eliminate hidden costs and optimize your finances like never before, check our solutions for small & medium businesses here. You can also request a demo for the Xflow receiving account here.

More articles:

1. Best ways to pay remote workers in India
2. Simplifying international payments for Indian businesses
3. Strategies to avoid transfer pricing challenges in international payments