Have you ever thought you’d landed a great deal, only to find that the shine of that deal quickly disappeared under the weight of hidden charges? It might have been for your cellphone subscription, hotel stay, airline tickets – or even your cross-border payout fees. Whatever it was for, you’re not alone.
Whether in personal or business settings, we often make purchase decisions based on the price that’s been revealed to us upfront. When we later discover that we’ve been charged with hidden or surprise fees, it feels like we’ve been lured into making a misinformed decision.
With cross-border payouts, both senders and recipients are often at the mercy of excessive and hidden costs, including high transfer fees, hidden correspondent banking fees, volatile foreign exchange rates, or hidden markups. A lot goes on behind the scenes during the transfer of funds, which means it’s not always easy to determine costs upfront. Let’s take a look at some of the reasons why knowing the real cost of cross-border payouts can often be a challenge.
Behind the Scenes: How Costs Become Confusing
Several Payout Intermediaries
Hidden costs tend to be a problem when you choose a payout specialist that works with a number of intermediaries. For example, if you choose to send payouts with bank wires, this is what the complex payout journey from sender to recipient looks like:
As you can see, sending money with bank wires tends to be more costly, simply because of the number of intermediaries involved. Each correspondent bank that acts as a link between you and your recipients charges their separate interbank fee, thereby adding to the total cost of your payouts. At times, you may not even know in advance how many correspondent banks are involved and how much each will charge. This may leave you and your recipients surprised with having to pay fees that are much higher than what you had anticipated.
Indirect Payout Methods
Hidden costs are not just a problem if you choose to send money with bank wires. Working with payout specialists who send payouts indirectly also puts your business at risk for hidden (and higher) costs. These indirect methods include sending payouts via:
Just like bank wires where your payouts move through a number of intermediaries, these indirect payout methods often mean added costs for both you and your recipients. When you send payouts to eWallets, your recipients typically pay account maintenance, withdrawal and other fees in order to access these funds or transfer them to their local bank account. When you send payouts through payout specialists who simply outsource payouts through another payout specialist or through various intermediaries, you run the risk of getting less transparent pricing.
Because these types of payout specialists often don’t have direct relationships with their Payout Network, they usually can’t help you determine all costs for every layer that gets added to their indirect payout process. If they do reveal the costs, pricing will likely be higher because they may include their own hidden markups for acting as middlemen in the process.
Frequent Currency Fluctuation
Cross-border payouts often involve more than one currency. For instance, you may send payouts in United States dollars (USD) and your recipients get them in Indian rupees (INR). You or your recipients will likely pay currency conversion or foreign exchange (FX) fees as part of the payout process.
Many factors can cause exchange rates to fluctuate, including political and economic events, and even the weather. This volatility may make it a challenge to compute exact costs upfront and sometimes affect the clarity of your cash flow. In addition, every payout specialist will likely charge their own FX fees depending on the margins they need to make. Some payout specialists may give you more competitive exchange rates, especially if they buy currency in volume and have strong relationships with their currency brokers.
Different Pricing Structures
Pricing structure also tends to vary across payout specialists, so it’s important to iron out any potential confusion early in the process. Some payout specialists calculate fees based on payout countries, while others price based on the average transaction value or currencies used. Many payout specialists also charge monthly operational fees to set up and maintain an account. Transfer fees may also vary by payout method. At times, some payout specialists even list several pages of fees, making it hard for their customers to understand what they're actually paying for.
Transparent Pricing for Payout Senders
So how do you avoid these hidden fees?
The simple answer is to choose a payout specialist that can simplify pricing and confidently tell you your costs upfront. Payout specialists who have direct relationships with their Payout Network can often provide this type of transparency and help you reduce uncertainties with fees.
You can minimize unexpected costs by being thorough in your assessment of your payout specialist and asking them some key questions on pricing. Here are some typical fees you may incur for sending payouts, including tips on how to discuss these with your cross-border payout specialist:
Sometimes called the Sending Fee, this is the basic fee incurred for initiating a payout, or moving funds from your account to your recipient's bank account or virtual wallet. Your payout specialist may charge a flat fee, a percentage of the transaction amount, or a combination of both.
Currency Conversion Fee
Also called Foreign Exchange (FX) Fee, this is what you incur for converting funds from one currency to another. For instance, if you fund your payouts in U.S. dollars (USD) and your recipients get them in Indian rupees (INR), your payout specialist may charge an FX fee by putting a spread or markup on the exchange rate between those currencies.
Correspondent Banking Fee
Also known as Interbank Fees, these are charged by any bank involved in the process of delivering your payouts. If there is more than one correspondent bank, all may charge a fee. This is an example of an intermediary fee because these banks act as links or intermediaries between you and your recipients.
Setup, Operational, Inactivity or Cancellation Fees
Some payout specialists also charge for other types of fees – like setup or onboarding fees, operational fees, inactivity fees, or cancellation fees.
These are fees you may incur for any errors in your transactions, such as when there is insufficient credit on your account, or the recipient details are incorrect.
Transparent Pricing for Payout Recipients
If you hate the thought of hidden fees, you can bet your payout recipients do too.
Again, it helps to be upfront about what those fees are, so that your recipients understand any deductions in their payouts and can determine whether or not those charges are fair.
To help you out, here are some important things to note about the typical fees on the receiving end of cross-border payouts:
Payout recipients typically pay a withdrawal fee when they need to take funds from their virtual account and have them available as cash or delivered to their local bank account.
They may also incur separate withdrawal fees from your business, if you choose to pass along transfer fees and currency conversion fees for requesting to take funds out of your platform.
Banks or financial institutions may also charge payout recipients with landing fees when the payouts “land” or get accepted into the recipient’s bank account.
Account Maintenance and Inactivity Fees
Your recipients typically incur these fees to keep their virtual accounts or eWallets active.
What You See is What You Get
Despite all these potential fees, knowing the real cost of cross-border payouts doesn’t have to be a huge headache.
By choosing a payout specialist with direct relationships with their Payout Network and can send funds directly to your recipient’s local bank account, you’ll avoid dealing with many intermediaries who place additional hidden charges for you and your recipients.
This also delivers more transparency and makes it easier to determine the real cost of your cross-border payouts. That way, you can rest assured that you will get what you are promised and leave no room for surprise fees as you expand your business globally.
Local Bank Transfers to Over 95% of Bank Accounts Worldwide
Transpay is a global payments service that provides businesses of all sizes with a scalable, secure, and fully compliant cross-border mass payout solution, making it easy to send funds directly to the local bank accounts of vendors, business partners, freelancers or others, reaching over 95% of bank accounts worldwide.