Key Takeaways
- Corporate FX costs can be a large expense, but you have more control over them than you may realize.
- Higher transaction volumes create greater opportunities for savings, and knowledge of your expenses is key to building your business’s FX cost management strategy.
- Payset offers transparent and tiered FX rates well below the typical bank spread of 2-3% that could have an immense impact on your bottom line.
If you lead a finance team, you’ve probably taken steps to streamline payments and other activities to save money. But foreign exchange (FX) costs may still present a challenge.
Overpaying on FX is more common than many finance teams realize.
Not only is it difficult to see exactly how much you’re paying for FX, but these costs often have an increasingly large impact as your transaction volume grows. For businesses that handle more than €300,000 in cross-currency transactions per quarter, the margin and costs built into your FX rate may be one of your business’s largest unseen line items.
That’s why it’s so important to understand how you may be overlooking FX costs in your cost review — and to know how to take advantage of missed savings opportunities.
Three Reasons FX Rarely Appears on the CFO’s Cost Review Radar
FX Costs May Be Hidden
Your business pays FX costs in almost every cross-currency transfer, regardless of whether the exchange occurs at your request or automatically during the transaction.
This means that conversion costs can be hidden inside the cost of outgoing and incoming payments. Sometimes, your finance team’s records might show only final payment amounts or just partially describe the fees or conversion rates that are really costing you money.
Your Business FX Cost Management Strategy Is Lacking
To the extent that your role as CFO focuses on corporate FX costs, it’s often about managing rate fluctuations, possibly with less attention toward execution costs and FX pricing.
Plus, finance teams may prioritise other areas like liquidity, cash flow, and financial risk, sometimes lacking a full cost management strategy built around foreign exchange fees. Monitoring those expenses in a thorough way is key to reducing costs.
Existing Bank Relationships Are Hard to Leave Behind
Your team or company may have an established relationship with a specific bank or FX platform, making that provider your go-to service for foreign exchange.
Meanwhile, your bank is likely marking up 1.5-4% on every conversion, often as a hidden spread marked “no fees,” which means a lot of money walking quietly out the door.
It may seem daunting to move away from that relationship, even if doing so would reduce costs in the long run. However, it’s possible for your finance team to integrate new and cost-effective FX services like Payset without abandoning your existing banking relationships.
The Hidden Line Item: What FX Actually Costs You
So, how much does exchange really cost? There’s no single FX line item that covers everything. The true cost (what 0% commission providers don’t tell you) spans several expenses and depends on your scale of activity.
If you move €300,000 in FX volumes per quarter, even small costs can add up to thousands of dollars. Aside from visible FX costs, you’ll need to send more than expected when you’re spending funds, or receive less than expected when you’re being paid.
Costs of exchanging currencies include:
- Exchange rates: The exchange rate between any two currencies is always in flux and determines how much value you get on each trade.
- Currency spreads: The difference between your bank’s bid-ask prices means you usually won’t get the mid-market rates listed on Google and financial websites.
- Margins: Banks and FX providers may widen spreads by adding their own markup.
- Intermediary banking fees: Your bank may rely on and pay fees to other banks to facilitate your FX trade or transaction. Though these fees are between institutions rather than customers, banks may pass their costs onto customers indirectly.
- The cost of repeated trading: If your business exchanges a currency pair back and forth, you may pay costs on both trades and can lose value on each exchange.
- Other banking fees: Your bank may charge additional fees not directly related to FX.
Individually, these costs may seem small, amounting to just a fraction of a percent or a few dollars. But over time, they can add up to significant, overlooked expenses.
How Much Can You Save on FX at €300K per Quarter?
Corporate FX costs should be a concern no matter how much you trade, but we see €300,000 per quarter in cross-currency transactions as the point when costs start to add up.
That’s approximately when your FX costs (and potential savings) amount to thousands of dollars. Saving just 0.5% on €300,000 allows you to retain €1,500 in funds each quarter. Those quarterly savings, if sustained, would add up to €60,000 over a decade.
Closing larger cost gaps can lead to even bigger savings. Cutting a 1-2% cost gap on €300,000 per quarter saves €3,000-€6,000 per quarter, or €120k-€240k over a decade.
The bottom line:
Your costs increase as your trading volumes grow, but this can also lead to greater savings. Not only does more trading allow for more cost-cutting, but companies like Payset offer tiered pricing aimed at reducing rates for higher-volume FX customers.
What Optimised FX Looks Like In Practice
Optimising your FX trading is about managing what you can accomplish with your finance team. It’s not about timing markets or managing exchange rates outside of your control.
That means streamlining your trading activities, cutting costs where you can see them, and finding providers with rates and pricing structures that work for you. Understanding provider margins, fees, and execution costs can be helpful even if there’s not full transparency.
That’s why, as a CFO, you should include regular reviews of quarterly FX expenses in your routine, just like any other cost-saving measures.
Start With a Basic Five-Minute Audit
Deciding where to start looking for FX costs is easy. A five-minute review of trading habits can help you build your business’s foreign exchange savings strategy.
1. Find Out How Much You’re Trading
The first step is to find out how much money you move per month or quarter through FX trading and cross-border payments. Handling €300,000 quarterly is enough to make a significant difference, though you can still save on FX costs even if you’re transacting less.
2. Determine The Rate You’re Paying
Look at the FX rate stated by your bank, either on specific transactions or in general. If the stated rate is less favourable than the mid-market rate, there may be room for improvement.
3. Check If You’re Paying Other Fees
Your history of transactions can give you an idea of other fees that you pay. How much money actually ended up in the destination account? Sometimes, costs are stated as line items, but embedded costs are harder to see. If you’re paying more than your bank’s stated fees and FX rates suggest, you may be paying hidden costs.
4. Think About Your Trading Habits
Every unnecessary FX trade can create friction and rising costs. This comes from per-transaction fees, repeatedly trading a currency pair back and forth, or frequently converting currencies you expect you’ll need in the future. Trading only when it’s most necessary is key.
5. Look for Alternative Options
Choosing an alternative service can improve your FX rates. Sometimes, it’s just a matter of finding more affordable rates, but arranging your trading volumes to qualify for offers like Payset’s tiered FX pricing can help you get more than the baseline rate provides.
How Payset Can Help
At Payset, we offer multi-currency IBAN accounts and low-fee FX, allowing you to send, receive, and exchange up to 38 currencies in 180+ countries at rates your bank can’t touch.
We realise financial departments are often bound to existing banking relationships. Though we provide a full-featured payment suite, we’re also a great complementary option. You can use Payset alongside your existing bank setup to optimise multicurrency transactions and FX, and easily move money to your bank account in your home currency.
Sign-up is free, and monthly fees are currently being waived (see our pricing page for details).
FAQ
Is FX really a controllable cost, or just a market rate you can’t change?
FX costs are partially under your control. You don’t have any control over market rates, but you can choose FX services with cost-effective rates and pricing structures. The markup and the spread, as well as a payment tier that matches your FX volume, are all under your control.
How much can a $300,000 per quarter business save on FX?
A company handling €300,000 per quarter in foreign transactions might expect to save thousands of dollars on FX by closing cost gaps. For example, closing a 1% cost gap means saving €3,000 per quarter, though this is only one possible estimate.
See how much you could spend (and save) with our FX rate calculator.
Does my bank automatically give me the best FX rate?
No. Banks and other traditional financial institutions can have high markups far from the mid-market rate, cutting into the value you get on every trade. Payset and other alternatives often aim to offer rate structures that are more advantageous to customers. At Payset, that is particularly true at higher exchange volumes.
