How to Reduce International Payment Costs for Your Business

International payments often involve more than simply sending money from one country to another. In many cases, multiple layers of fees are applied along the way, which can increase the total cost for businesses.

These costs typically include transfer fees from providers, currency conversion margins and charges from intermediary banks that help process cross-border payments. Each of these elements can vary depending on the provider and destination country.

This guide explains practical ways businesses can manage and potentially reduce international payment costs. We’ll also cover hidden fees to watch out for and how to better understand the true cost of each payment.

Why Are International Payments Expensive?

International payments involve several cost components that can add up quickly.

The sending bank usually charges a transfer fee, while the receiving bank may apply its own processing fee. In many cases, intermediary or correspondent banks are involved to route the payment between institutions and each of them can deduct additional charges along the way.

Foreign exchange margins are another key cost, as providers often add a markup to the exchange rate. There are also costs associated with payment networks such as SWIFT, which facilitate secure cross-border transfers between banks.

SEPA, supported by the European Central Bank, standardises euro payments across Europe and helps reduce costs and processing complexity. Even so, fees can still vary depending on the banks and payment methods used. For transactions outside SEPA, SWIFT is commonly used to connect banks and may add additional intermediary costs.

SEPA vs SWIFT – Understanding the Cost Difference

SEPA (Single Euro Payments Area) is an EU payment integration initiative that enables euro-denominated transfers between participating countries under a standardised framework. It treats cross-border euro payments like domestic transactions, which generally helps reduce costs and simplifies processing.

SWIFT is a global financial messaging network used by banks to exchange payment instructions securely. It supports multiple currencies and connects financial institutions worldwide, often involving correspondent banks that can add additional fees and processing steps.

Let’s compare SEPA vs SWIFT payments and some of their features:

Managing international business payments?

Finom provides business accounts with transparent pricing and tools designed to support companies operating across borders. With SEPA transfers and multi-currency capabilities, businesses can manage international transactions within one digital platform.

Finom also centralises payment management and provides clearer oversight of cross-border transactions.

7 Practical Ways to Reduce International Payment Costs

Let’s go through several ways to reduce international payment costs:

Use SEPA Transfers When Possible

For euro payments within SEPA countries, using SEPA transfers can help reduce cost and simplify processing compared to international SWIFT payments.

Compare FX Margins, Not Just Transfer Fees

Exchange rate margins can sometimes have a greater impact on total cost than fixed transfer fees, so it’s important to evaluate the full FX rate applied.

Consolidate Payments

Combining smaller payments into fewer, larger transfers can reduce repeated fixed fees, where this is operationally practical.

Use Multi-Currency Accounts

Holding foreign currencies can reduce the need for frequent conversions and help manage exchange rate exposure.

Negotiate Fees with Your Bank

Businesses with higher transaction volumes may be able to discuss fee structures or pricing terms with their banking providers.

Review Correspondent Banking Chains

Understanding how payments route through intermediary banks can help identify where additional charges may be applied.

Evaluate Digital Business Banking Providers

Some digital providers offer more transparent pricing structures and integrated FX services, which can make cost components easier to track and compare.

Hidden International Payment Costs to Watch For

International payments often include costs that aren’t always visible upfront, especially in exchange rates. FX margins can increase the total cost compared to the mid-market rate.

SWIFT payments also use standard fee instructions that determine how costs are shared between parties. These are defined in SWIFT message conventions: OUR means the sender pays all fees, SHA means costs are shared and BEN means the recipient covers the fees.

Receiving banks may charge inbound transfer fees before crediting funds, which reduces the final credited amount. Exchange rates can also vary depending on timing and market conditions, affecting the total conversion outcome.

How to Calculate the True Cost of an International Payment

The true cost of an international payment includes more than just the upfront transfer fee. It’s the combined effect of all charges applied throughout the payment process:

Total cost = Transfer fee + FX margin + intermediary fees

To understand the real cost, businesses often compare the advertised exchange rate with the mid-market rate, which shows the actual market value of a currency. The difference reflects the FX margin applied by the provider.

It’s also important to check all fees in the payment process and focus on the final amount received after deductions.

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Conclusion

International payments involve multiple fee layers, including transfer fees, intermediary charges and currency conversion costs. FX margins often represent the largest hidden cost and can have a significant impact on the final amount received.

Within Europe, SEPA can help reduce costs for euro-denominated transfers through standardised processing. Overall, businesses benefit from regularly reviewing pricing structures to better understand and manage total transaction costs.

This article is for informational purposes only and should not be construed as financial or investment advice.