How to reduce costs on international payments

The SWIFT network, which stands for Society for Worldwide Interbank Financial Telecommunication, is the most widely used system for international payments. The broad adoption of SWIFT has led many businesses and independent professionals in India to believe that it is the only way to send and receive international payments.

While businesses often lament issues like delays in receiving funds and lack of visibility, an issue that is often overlooked is the fee that can impact the bottom line.

In this blog post, we’ll dive deeper into SWIFT, how it works for Indian businesses and explore strategies to reduce costs on international business payments.

The SWIFT network is a global messaging system used by banks and financial institutions to securely transmit information and instructions via a standardized system of codes. When a business sends or receives money internationally, the transaction is usually routed through the SWIFT network. It is important to note that SWIFT itself does not hold or transfer funds; it simply transmits payment orders between banks.

SWIFT fees can vary based on several factors, including the banks involved, the currency being transferred, and the countries between whom the transaction occurs. For businesses, these fees typically fall into three main categories:

• Transfer fees: This fee is charged by the sending bank for processing the transaction. It covers the costs of using the SWIFT network and the administrative work involved. For businesses, these fees typically range from $25 to $100 per transaction, depending on the bank and transaction amount.

• Intermediary bank fees: In many cases, international payments pass through one or more intermediary (or correspondent) banks before reaching the final destination. Each of these banks may charge a fee for their part in processing the transaction. For businesses, these fees can add up significantly, ranging from $15 to $50 per intermediary bank.

• Receiving bank fees: The receiving bank may also charge a fee for processing the incoming payment. This fee is typically deducted from the amount received by the recipient and can range from $10 to $30, depending on the bank’s policy.

Different charges applicable on SWIFT fees

When making a SWIFT transfer for business purposes, one may encounter terms like OUR, SHA, and BEN. These terms determine how the SWIFT fees are allocated:

• OUR: The sender pays all the fees, including those of the intermediary and receiving banks–ensuring the full amount of the transfer is received by the beneficiary. The fee usually depends on the number of intermediary banks involved. Using this option might result in a total fee of $60 to $150 for the sender. OUR helps in maintaining relationships and avoiding any future disputes–which is often crucial in business transactions.

• SHA: It simply means–shared. Here, the remitter pays the transfer fees of the sending bank, while the recipient pays the fees of the intermediary and receiving banks. This is a common arrangement in business-to-business (B2B) transactions, where both parties share the cost. With this option, the remitter typically pays $25 to $100 upfront, while the recipient incurs additional fees.

• BEN: The beneficiary bears all the fees, including those of the sending bank. The transfer amount is reduced by the total fees before it reaches the beneficiary.

Several factors can influence the total SWIFT fees:

• Currency exchange rates: For businesses based in India, international transactions will most likely involve currency conversion. The exchange rate applied by the banks can significantly affect the overall cost. Although the bank charges are independent of the SWIFT fees, for a business, using SWIFT means having lesser control over managing the overall costs. Some banks may offer less favorable rates, effectively increasing the cost of the transaction. Banks often provide favorable rates for large-value transactions in excess of $100,000. However, for Indian businesses, including independent professionals, the exchange rate could eventually add up to 2% in cost over and above the SWIFT fees.

• Number of intermediary banks: The more intermediary banks involved in the transaction, the higher the total fees. These fees may depend on the sender’s location and their bank. Each bank involved may charge its own fee, which is usually between $15 and $50. These additional fees can eventually hurt the bottom line in a significant way. In most cases, businesses may have little control over this aspect of the charge.

Minimizing SWIFT fees can have a significant impact on a business’s operational costs. Here are some strategies to consider:

• Negotiate with the bank: Businesses that frequently receive international payments, can consider negotiating with their bank for a lower fee. Banks may offer reduced fees for high-volume customers or based on the businesses’ overall banking relationship.

• Consolidate payments: Instead of collecting multiple smaller payments, consider consolidating them into fewer, larger transactions. Since some banks charge a flat fee per transaction, this can reduce the overall cost.

• Use SWIFT alternatives: Unfortunately it is hard for SMBs to negotiate with large banks to lower their currency conversion and transaction processing fees. Coupled with the delayed payments and opacity issues of SWIFT, many businesses in India are turning to faster and affordable SWIFT alternatives like Xflow, Payoneer, Wise and PayPal.

Xflow offers multiple fee plans depending on your invoice sizes. For invoices typically under $3,500, the Starter Plan charges a flat $12 fee for invoices up to $2,000, and 0.6% for anything above that. For invoices between $2,000 and $10,000, the Growth Plan charges a flat $20 fee for invoices up to $5,000, and 0.4% for anything above that. For invoices exceeding $10,000, they offer custom pricing under their Scale Plan.

So how does this magic work?

Make international transaction local and eliminate SWIFT fees

• Xflow provides businesses with unique US$ Virtual Bank Account Numbers (VBAN), which acts like a collections account in the US.

• Businesses in India using Xflow can simply share the VBAN details with their customers, who could be located anywhere in the world.

• Xflow supports payments via local methods. For instance, if the sender or the customer is based in the US, they can send the money using local payment methods like Fedwire or ACH instead of SWIFT–which are cheaper or practically free for most businesses in the US. Fedwire also settles funds in about an hour, so businesses will see US$s in their VBAN immediately, which is a significant improvement over SWIFT experience.

Note: At present, Xflow supports local payment methods only for transfers from the US. Customers outside the US may use SWIFT to make the payment, but the experience of collecting funds with Xflow will still be faster and more affordable than receiving SWIFT directly into your India bank account.

Pro-tip: Don’t lose money in opaque currency conversion

For any transaction above $5,000, the currency conversion fee is likely to be the single most important fee. Businesses may need to maximize the INR you get for every $. This is where Xflow offers Indian businesses the edge. Instead of the receiving bank, the US$s are converted into INR by Xflow's partner bank at an inter-bank or mid-market rate with a competitive markup. What does it mean? Once the amount is credited to the Xflow receiving account, businesses can easily withdraw from the INR account without paying any exorbitant FX or currency conversion fees that the banks often charge in the case of SWIFT transfers. 

Note: Inter-bank or the mid-market rate - This is the exchange rate that banks will use to trade currencies amongst themselves, and is not something that is offered to bank’s customers.

Unlike domestic payments, receiving international payments is expensive. Therefore, businesses should carefully consider the costs involved and explore all options to reduce their costs. 

Platforms like Xflow offer a more affordable and faster alternative to receiving funds in India. They offer the added the advantage of next-business-day settlement, no transaction limits, the ability to lock the FX rate at the time of withdrawal, and more.

We’ve also prepared a free checklist that wll help you assess your decision. Click here to learn more.