When a client abroad pays you, the fees you can see are only half the story. The other half is the exchange rate. Many providers convert your money at a rate a few percent worse than the real one and keep the difference, without listing it as a fee.
Start from the mid-market rate
The mid-market rate is the real exchange rate, halfway between what banks buy and sell a currency for. It is the rate you see on search engines and currency sites. Any rate below it, in your direction, contains a markup.
To measure the markup: 1 − the provider's rate ÷ the mid-market rate. If the mid-market rate is 0.9200 and a provider gives you 0.8970, the markup is 2.5%.
Comparing two routes
Route A charges 3% and converts at a 2.5% markup. Route B charges 0.6% plus a fixed 1 and converts at the mid-market rate. On a payment of 1,000:
Route A
(1,000 × (1 − 3%) − 0) × 0.92 × (1 − 2.5%)equals870.09
Route B
(1,000 × (1 − 0.6%) − 1) × 0.92 × (1 − 0%)equals913.56
Difference
|870.09 − 913.56|equals43.47
Route A's total cost is 5.43% and Route B's is 0.70%. On a year of client payments, that gap is often worth more than a week of work.
Where the fees hide
- Receiving fees, charged when a payment arrives in your account.
- Conversion markup, built into the rate rather than listed as a fee.
- Withdrawal fees, charged to move money to your local bank.
- Fixed fees, which weigh heavily on small payments.
Add all of them for each route before comparing. A provider that is cheapest at 5,000 can be the most expensive at 100.
Tip: Where you can, invoice in your client's currency and convert with the provider that has the lowest markup, rather than letting the platform convert automatically.