Wise is calling on the banking industry to be more transparent about additional fees for businesses when exchanging money internationally, revealing data which shows it's holding back Kiwi SMEs. Photo / 123RF
Wise is calling on the banking industry to be more transparent about additional fees for businesses when exchanging money internationally, revealing data which shows it's holding back Kiwi SMEs. Photo / 123RF
Nearly a third of Kiwi small-to-medium enterprises (SMEs) are operating overseas or have plans to do so, but global payments company Wise is calling for changes to transparency around foreign exchange fees.
A new survey by the company has revealed three key challenges blocking SMEs from expanding internationally.
Survey respondents,made up of 533 New Zealand business owners and key decision-makers with fewer than 100 employees, said the biggest barriers were compliance complexities (41% of respondents), the cost of international payments (42%), and geographical isolation (40%).
The cost of international payments is crucial for Wise, who is challenging the banking industry to be more honest about processing fees.
Currently, banks are not legally required to use the mid-market rate, or any specific rate, when exchanging or sending across different currencies. This means the fees businesses expect to pay may differ from the reality.
Tristan Dakin, country manager for New Zealand at Wise, says Kiwi SMEs need greater education on international exchange fees to ensure they aren't getting overcharged by banking industry giants.
Wise NZ country manager Tristan Dakin said Kiwi SMEs’ lack of understanding regarding the problem is a big concern, largely because they opt for the convenient option.
“Traditional banks are charging Kiwis a fee of anywhere from 3-5% of the total transaction amount when sending money overseas,” Dakin said.
“Those fees consist of a currency exchange transfer fee and an exchange rate mark-up, which isn’t made clear to the sender, and is reflected in this research.”
59% of NZ SMEs are currently using a traditional bank provider when it comes to their international payments – with over half (54%) citing they believe it’s the most convenient option, and just under half (49%) believing it’s the most trustworthy option.
Concerningly, despite the majority of SMEs still being reliant on traditional banks, 91% of respondents believed it should be illegal for banks to hide their exchange rate mark-ups.
Wise believes more can be done to educate business owners about alternative (and cheaper) options available to them.
One way this could be done is through data sharing to help decode fee structures for international payments, allowing SMEs to compare and contrast fees between the banks.
More than half of respondents considering expanding overseas said they would use independent or government support agencies for support and advice when deciding whether or not to expand overseas.
Jack Pinczewski, Asia-Pacific government relations lead for Wise, shared his frustration at the lack of acknowledgement of the costs of international payments during banking enquiries both here in NZ and Australia.
He argues the Government should require banks to show, in NZD terms to their customers, the cost of their FX margins as a means to improve competition.
Australian banks are currently facing similar enquiries, and when the National Australia Bank (NAB) was prompted on the issue, they shared a stark difference in fees.
“Average margins on international payments are informed by a number of factors, including the type of customer, payment volumes and frequency,” NAB said.
“Average margins range from 0.12% for large corporate customers to up to 2.5% for retail customers, but many customers received personalised pricing with a lower margin.”
That difference is something Pinczeswki believes should be shared up front with consumers without the need to seek guidance. While not necessarily utilising the same rates, the practice is also happening here.
Those mark-ups on exchange rates can be detrimental to business costs, with a majority of those surveyed either not fully understanding the fees, or unaware of them completely.
Concerningly, 17% of respondents said they use a traditional bank because they believe it’s the most cost-effective option.
Dakin said Kiwi SMEs aren’t shopping around for a better deal, ultimately hurting their bottom lines.
“Demystifying and helping SMEs to navigate the complexities of international expansion is crucial and, based on our research, a necessary first step to helping more Kiwi businesses expand beyond New Zealand’s shores,” Dakin said.
A third (33%) of SMEs already operating overseas estimate spending up to $5000 a year on international payment fees alone, with 39% spending above $5000.
Interestingly, 28% of businesses believe they don’t spend anything or don’t know what they pay on international payment fees.
Wise was founded in 2011 by Kristo Kaarmann and Taavet Hinrikus with the motto of “money without borders”.
The company has grown its presence in New Zealand, with 6% of the population active users of the personal platform.
Tom Raynel is a multimedia business journalist for the Herald, covering small business and retail.
