Hidden costs in cross-border payments can quietly drain your money. If you're sending or receiving international payments, here's what you need to know to save time and money:
- Exchange Rate Markups: Banks and providers often add hidden margins of 1.5%–7.5% to currency conversions. For example, converting £1,000 could cost you £100 or more in hidden fees.
- Transaction Fees: Fixed fees range from £15–£50 per transfer, and percentage-based fees can take 0.5%–3% of the transaction amount.
- Intermediary Bank Fees: Payments routed through multiple banks may incur extra charges of £12–£40 per intermediary.
- Compliance and Administrative Costs: Extra charges for regulatory checks and paperwork are often undisclosed.
These hidden costs can erode profit margins, disrupt cash flow, and create long-term financial risks for businesses and individuals. However, you can reduce these expenses by using tools like forward contracts, multi-currency accounts, and blockchain-based platforms. Always compare providers for transparency and negotiate better rates.
Key takeaway: Cross-border payments cost over 6% on average. With the right strategies, you can significantly cut these hidden fees and take control of your finances.
Types of Hidden Costs in Cross-Border Payments
Cross-border payments often come with hidden costs that can quickly add up, turning what seems like a straightforward transaction into an unexpectedly expensive process. Let’s break down these cost categories to understand how they impact businesses and individuals.
Transaction Fees and Service Charges
The fees charged by banks and payment providers can vary greatly, often in ways that are hard to predict. Fixed fees for international transfers usually fall between £15 and £50 per transaction, regardless of the amount sent. For smaller transactions, these fees can be disproportionately high - a £25 fee on a £100 transfer, for example, amounts to a hefty 25% of the total.
Percentage-based fees operate differently, taking a cut of the total payment amount. These fees typically range from 0.5% to 3%, which can result in significant costs for larger transfers. For instance, a 2% fee on a £50,000 transaction would amount to £1,000 - a considerable expense that might not be immediately obvious when planning budgets.
To complicate matters, providers often combine these fees with other charges, obscuring the true cost. A transfer advertised as "low-cost" might still include processing fees, handling charges, and administrative costs that only become apparent after the transaction is completed. These fees form the baseline costs before additional hidden charges are factored in.
Exchange Rate Margins
One of the most overlooked costs in cross-border payments comes from exchange rate markups. Instead of offering the interbank exchange rate, financial institutions add their own margin to boost profits.
These hidden markups can range from 1.5% to 7.5%, with traditional banks often applying a margin of 2% to 5% or more. For example, if the interbank rate suggests £1 should exchange for €1.20, a provider might offer only €1.14, keeping the difference for themselves.
To put this into perspective, imagine converting £1,000 at an interbank rate of £1 = €0.90. You’d expect to receive €900. However, if the provider offers an exchange rate of £1 = €0.80, you’d only get €800, effectively losing £100. Add a 2% fee on top of that, and you’re down another €16, bringing the total hidden cost to approximately £116.
In 2023, hidden exchange rate markups accounted for 32% of the £14.3 billion paid by US consumers and small businesses in foreign exchange fees - around £4.6 billion.
Intermediary and Correspondent Bank Fees
When banks don’t have a direct relationship with the recipient’s bank, your payment often passes through intermediary institutions, each of which may charge a fee - often without prior notice.
Intermediary banks typically charge between £12 and £40 per transaction. For SWIFT transfers, payments may pass through one to three intermediaries, with total fees ranging from 1% to 4% of the transaction value. For example, if a £10,000 payment is routed through two intermediaries charging £30 each, £60 is deducted before any other fees are applied.
These fees are particularly problematic because they’re taken directly from the payment amount, meaning the recipient receives less than intended. This shortfall can cause confusion and may even necessitate additional transfers, further complicating financial planning.
Compliance and Administrative Fees
Regulations surrounding international transactions often lead to additional costs, which providers might bundle into their overall fees or charge separately without clear explanation. These compliance and administrative fees cover expenses related to anti-money laundering checks, documentation, reporting, and regulatory filings.
Certain transactions, such as larger payments or those sent to specific countries, may require enhanced due diligence, leading to extra fees. Documentation charges may also apply when additional paperwork is needed. The lack of transparency around these costs is a widespread issue - 92% of European banks fail to clearly disclose their currency conversion fees.
While individual compliance fees might seem small, they can add up quickly. For instance, a £10 fee for each international payment could total £1,200 annually for a business making 120 cross-border transactions. That’s money that could have been used to support growth or operational needs.
How Hidden Costs Affect Businesses and Individuals
Hidden costs in cross-border payments don't just deliver a financial blow upfront - they create a ripple effect that reshapes how businesses operate and how individuals manage their international finances. These costs can quietly erode profit margins, disrupt cash flow, and introduce long-term currency risks that are challenging to anticipate and manage.
Profit Margins and Cost Management Issues
For small and medium-sized enterprises (SMEs) that already operate on tight budgets, hidden fees can be a serious problem. These costs - often buried in exchange rate markups - directly eat into profits. Imagine a business handling £100,000 in cross-border payments each year. If exchange rate markups range from 2% to 5%, that business could lose between £2,000 and £5,000 annually.
The lack of transparency compounds the issue. A staggering 92% of European banks fail to clearly disclose their currency conversion fees. This leaves businesses struggling to make informed decisions about their payment strategies. Instead of focusing on growth, entrepreneurs end up wasting valuable time untangling unclear payment processes.
Cash Flow Disruptions
Hidden costs also wreak havoc on cash flow, creating unexpected shortfalls that can derail carefully planned budgets. Picture this: a company expects to receive £10,000 from an international client but ends up with just £9,400 after undisclosed fees are deducted. That £600 gap might seem small, but for many businesses, it could mean the difference between paying suppliers on time or falling behind on payroll.
When such shortfalls occur repeatedly across multiple transactions, the cumulative effect can force companies into a corner. They may need to turn to costly short-term loans just to bridge the gap, adding further strain. For individuals, the story is much the same. A reduction or delay in expected funds can lead to missed financial commitments or the need to borrow money, often at high interest rates.
Long-Term FX Risks
The hidden costs in cross-border payments also amplify foreign exchange (FX) risks over time. Regular international transactions expose businesses and individuals to ongoing currency fluctuations, but when fees and markups are concealed, it becomes nearly impossible to assess the full extent of this exposure.
Without a clear understanding of transaction costs, traditional hedging strategies fail. Businesses may either under-hedge, leaving themselves vulnerable to currency volatility, or over-hedge, unnecessarily tying up capital. Both scenarios can hurt long-term financial stability.
The scale of these hidden costs is staggering. In the UK alone, they drained £5.6 billion from consumers and businesses in 2022. For companies processing significant volumes of international payments, the impact is even more pronounced. For example, a business handling £500,000 annually could face hidden fees ranging from £7,500 to £37,500 due to exchange rate markups of 1.5% to 7.5%. Over time, these mounting expenses can force businesses to rethink expansion plans, limit supplier options, or pass costs onto customers - decisions that ultimately undermine growth and competitiveness.
Next, we’ll dive into practical ways to address and reduce these financial burdens.
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How to Reduce Hidden Costs
Managing hidden costs in cross-border payments can be a challenge, but with the right strategies and tools, businesses and individuals can significantly cut expenses and take back control of their international transactions. Here’s how you can address these financial pressures effectively.
Using Forward Contracts for Rate Stability
Forward contracts are a powerful way to protect yourself from unpredictable currency fluctuations. By locking in an exchange rate for a future transaction, they provide stability and help you plan ahead.
"Forward contracts hedge currency risk and secure predictable payments with flexible options such as window forwards or fixed-date forwards."
For instance, if you know you’ll need to make a €50,000 payment in six months, locking in today’s rate ensures you can budget with certainty, no matter how the market shifts.
Choosing Better Payment Routes
The route your money takes from sender to recipient can significantly influence transaction costs. Streamlined payment paths can reduce intermediary fees and processing times.
Take the example of Global People, an international employment solutions provider. In April 2025, they adopted an optimised payment system and saw impressive results: an 86% reduction in processing time (from 15 hours to just 2), a 40% drop in banking fees, and 95% of payments delivered the same day.
Here are some practical steps to optimise your payment routes:
- Negotiate with your bank: If you frequently make international transfers, ask your bank for volume discounts. Long-term banking relationships can lead to better rates and lower fees.
- Consolidate payments: Instead of making multiple small transfers, group them into fewer, larger transactions to save on per-transaction costs.
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Pay in the recipient’s local currency: This can minimise intermediary involvement and even lead to better terms from suppliers.
"Some suppliers will offer favourable pricing or terms if they don't have to receive U.S. dollars and convert those dollars into their local currency."
You might also consider opening local accounts in countries where you frequently transact. This eliminates the need for cross-border transfers and further reduces costs.
Using Multi-Currency Accounts
Multi-currency accounts simplify transactions for businesses dealing with multiple currencies. These accounts allow you to manage and transact in various currencies from a single platform, eliminating the need for separate accounts for each currency.
One major advantage is the reduction - or even elimination - of currency conversion fees. For example, if you receive euros, you can hold them in your account until you need to make a euro payment, avoiding unnecessary conversions.
Traditional banks often add exchange rate markups of 2% to 5% or more. For a business handling £200,000 annually across multiple currencies, this could mean saving between £2,000 and £5,000 each year by avoiding these markups.
Modern multi-currency accounts also come with fintech integrations, offering features like automated currency conversions, batch payments, and real-time visibility into your currency balances. To maximise savings, choose a provider with transparent pricing, interbank exchange rates, and access to local payment methods.
How Technology Reduces Hidden Costs
Technology is reshaping cross-border payments by bringing more transparency and efficiency to the process. With global payments projected to hit around £232 trillion by 2030, businesses that leverage these advancements can better manage international payment costs and gain a competitive edge.
Real-Time FX Tracking and Automated Systems
Real-time foreign exchange (FX) tracking has revolutionised how businesses handle currency exposure and uncover hidden costs. Instead of discovering unfavourable exchange rates after transactions, companies can now monitor market changes in real time and decide the best moments to act.
AI-powered systems take this a step further by continuously observing market trends, flagging unusual activity, and adjusting cash flow hedges to reduce currency volatility. These systems also automate the entire payment process, cutting down on manual errors that often lead to unexpected expenses.
"Automation gives your team the gift of time. And that time lets you focus on higher-level planning, vendor negotiations, and customer communication."
– Laura Baumann, vice president of product management at ECI
Predictive analytics add another layer of cost efficiency by helping businesses anticipate payment needs and identify the best times for transfers. This approach avoids peak rate periods and allows companies to benefit from favourable market conditions.
These technologies lay the groundwork for even more advanced solutions, such as blockchain-based platforms.
Blockchain-Based Payment Platforms
Blockchain technology is transforming cross-border payments by eliminating the need for multiple intermediaries. This decentralisation significantly reduces fees and speeds up transaction times.
The potential savings are impressive. Blockchain can lower remittance costs by up to 80%, and Juniper Research estimates it could save up to £8 billion in cross-border settlements by 2030. For example, Banco Santander's One Pay FX has reduced transfer times from days to mere seconds while also cutting fees. Similarly, a global shipping company partnered with Crestal to implement blockchain solutions, reducing transaction costs by 25% and cutting settlement times from three days to just a few hours.
Smart contracts, a key feature of blockchain, further enhance efficiency. These self-executing agreements handle compliance checks automatically, reducing operational risks and eliminating many of the administrative costs tied to traditional compliance processes.
"Blockchain and stablecoins are the biggest infrastructure upgrade to payments in decades."
– Chris Harmse, Co-Founder & Chief Business Officer, BVNK
The market for blockchain-based cross-border payments is expanding rapidly, growing at an annual rate of 48%, and is expected to reach approximately £4 trillion by 2025.
API integrations are another tool enhancing cost efficiency and streamlining operations.
API Integrations for Smooth Operations
Building on advances like real-time FX tracking and blockchain technology, API integrations provide seamless connectivity between various payment systems. By linking enterprise software, banks, and third-party services, APIs automate processes and reduce hidden costs. This integration minimises manual interventions, improving efficiency and directly benefiting the bottom line.
API automation also saves time. Research shows employees previously spent around 4 hours a week switching between apps. For businesses paying data analysts £25 per hour, this translates to annual savings of about £5,200 per analyst.
APIs can also automate tasks like invoice generation and payment processing within ERP systems, eliminating the need for manual data entry. By connecting with banking systems and FX services, APIs enable real-time currency conversion and compliance checks, cutting down on errors and speeding up transactions.
"Whereas before we had to generate reports and mail them out, there's a lot more we can be doing now to enable the business to self-serve in that respect."
– Brandon Nussey, CFO at Coveo
Single payment APIs simplify operations by providing a unified interface, reducing complexity and speeding up integration. While custom API development can cost between £40,000 and £120,000 annually, integrated platforms (iPaaS) offer a cost-effective alternative with pre-built connectors, automated workflows, and built-in security features.
Real-time processing capabilities enhance transparency by enabling seamless communication for both incoming and outgoing transactions. This reduces uncertainty and helps businesses avoid unexpected charges. For companies dealing with complex international operations, API-driven automation ensures predictable compliance costs by streamlining workflows, from document collection to regulatory filings.
Conclusion: How to Avoid Hidden Costs in Cross-Border Payments
Reducing hidden costs in cross-border payments is entirely achievable with a mix of smart planning and modern tools. These costs don’t have to eat into your profits or personal finances if you take the right steps.
Start with transparency. Use online calculators and research providers thoroughly to ensure you’re getting clear, upfront pricing.
Use the right tools for the job. Multi-currency accounts let you hold balances in different currencies, helping you avoid double conversion fees. Forward contracts can shield you from unpredictable exchange rate fluctuations. And if your business makes frequent international payments, consolidating them into fewer, larger transfers can lower your overall costs.
Don’t hesitate to negotiate. If you have an established relationship with your bank or payment provider, discuss your payment volumes. You may be able to secure better rates or discounts.
Embrace technology. Blockchain, automation, and API integrations can simplify payment processes and cut down on hidden fees. These advanced solutions can deliver savings without the need for an extensive overhaul of your systems.
Stay informed and compliant. Keep an eye on regulatory updates that could affect payment costs. Staying up to date not only helps you avoid penalties but also ensures your processes remain efficient. Regularly reviewing your payment performance can reveal inefficiencies and highlight areas for improvement.
For tailored solutions and expert advice, check out Oku Markets. They offer personalised currency management services to help individuals and businesses navigate the challenges of international payments with clarity and efficiency.
On average, sending money abroad costs over 6% of the transfer amount. However, by taking charge of hidden fees, you can significantly lower this expense. With 68% of consumers willing to switch providers due to exchange rate markups, it’s clear that prioritising transparency and efficiency isn’t just about saving money - it’s about taking control of your financial transactions and demanding the fairness you deserve.
FAQs
What are hidden costs in cross-border payments, and how can I avoid them?
Hidden costs in cross-border payments can sneak up on you, often coming in the form of transaction fees, currency conversion charges, and intermediary bank fees. These charges can pile up fast, cutting into the value of your transactions and affecting your profits.
To keep these costs under control, here are a few practical tips:
- Use local bank accounts: Processing payments in the recipient’s currency can help you dodge unnecessary conversion fees.
- Consider virtual IBANs: Virtual International Bank Account Numbers can minimise your dependence on intermediary banks, reducing extra charges.
- Check fee structures: Always review the payment provider’s fees before making transactions to ensure you know exactly what you’re paying for.
By applying these strategies, you can handle cross-border payment costs more effectively and protect your financial margins. If you’re looking for tailored advice on managing currency and international transactions, Oku Markets offers expert solutions to help you stay ahead.
What are the benefits of using blockchain technology for cross-border payments?
Blockchain technology offers notable advantages for cross-border payments, especially when it comes to speed, cost savings, and security. Traditional international transactions, which often take several days to complete, can now be processed in mere seconds. This not only improves cash flow but also minimises frustrating delays.
Another major benefit is the reduction in costs. By cutting out many of the intermediaries typically involved in conventional payment systems, blockchain significantly lowers transaction fees. For businesses that frequently deal with international payments, this translates to meaningful financial savings.
On top of that, the decentralised structure of blockchain boosts both security and transparency. Each transaction is fully traceable, which helps to reduce the risks of fraud and unauthorised access. These qualities make blockchain a dependable and efficient choice for handling cross-border payments.
What are forward contracts, and how do they help manage currency risks in cross-border payments?
Forward contracts are agreements that let businesses secure an exchange rate for a future date, providing a shield against currency fluctuations. By locking in a fixed rate, companies can better predict their costs, making budgeting and managing cash flow much more straightforward.
These contracts are especially handy for businesses involved in international trade or frequent cross-border payments, as they help mitigate the risks of unfavourable market shifts. Typically, forward contracts can extend up to 12 months or even longer, offering a practical tool for stable, long-term financial planning.
