FXplained
Hidden FX fees on supplier payments
The biggest hidden FX fee on a supplier payment is usually the margin built into the exchange rate. On top of that, correspondent and receiving-bank charges, the wrong SWIFT charging option and an unlocked rate can all leave your supplier short or cost you more than you expected.
If you pay suppliers overseas, the fee you're quoted is rarely the fee you pay. Here's where the extra cost usually hides.
1. The rate margin itself
This is the biggest one, and the least visible. A provider quoting "no transfer fees" can still build in a 2–3% margin on the exchange rate – often more expensive than a broker charging a flat fee with a tighter rate.
Compare the quoted rate with the mid-market rate to see the size of the margin.
See published UK bank FX margins for the margins and conversion fees providers list on their own websites.
2. Correspondent bank charges
International payments – especially to certain regions or via SWIFT – often pass through intermediary banks, each of which can deduct a handling fee before the payment reaches your supplier. Your supplier receives less than you sent, and you may not find out until they query it.
3. Receiving fees
Some banks charge the recipient to receive an international payment. If you're covering costs on your supplier's behalf, this is easy to miss.
4. "OUR" vs "SHA" vs "BEN" charging options
These SWIFT payment codes determine who pays the intermediary fees – you, your supplier, or split between you. Getting this wrong means unexpected deductions, disputes, and awkward conversations with suppliers who've been paid short.
5. Poor timing on rate locks
If your provider doesn't let you lock a rate at the point of quoting, currency movement between quote and settlement can quietly cost – or occasionally save – you money. Either way, it's a variable you should know you're exposed to.
A worked example: the "no fee" quote
You need to pay a supplier €20,000. The mid-market rate is 1.1700.
- Quote A, "no transfer fee", rate 1.1400: the payment costs about £17,544.
- Quote B, £10 fee, rate 1.1620: the payment costs about £17,222 including the fee.
- At the mid-market rate (the benchmark – not a rate you can deal at): about £17,094.
The "free" quote is about £450 above the benchmark – roughly 2.6% – while the one with a fee is about £128 above it. The fee isn't where the cost sits. The rate is.
(Illustrative rates only. Use the calculator with your own quote.)
What to ask any provider before you pay a supplier
- What's your margin above the mid-market rate?
- Are there any correspondent or receiving bank fees?
- Who bears intermediary charges – us or the supplier?
- Can I lock today's rate, and for how long?
Frequently Asked Questions
Can a transfer with no transfer fee still have an FX cost?
Yes. A provider can include a margin in the exchange rate even when there is no separate transfer fee. Compare the quoted rate with a mid-market benchmark for the same currency pair, direction and time, and check for any other charges.
What are correspondent and receiving bank fees?
A correspondent bank may charge for handling a payment on its route to the recipient. The receiving bank may also charge to accept it. These charges can reduce the amount your supplier receives, so ask the provider which charges apply and who pays them.
What should I confirm before paying an overseas supplier?
Confirm the exchange rate, any separate charges, who bears intermediary fees, the expected settlement date and the amount your supplier should receive. Also check whether the quoted rate is guaranteed and how long it remains valid.
What do OUR, SHA and BEN mean?
They're SWIFT charging codes. OUR means you pay all the fees, SHA means you share them with the recipient, and BEN means the recipient pays them all.
Why did my supplier receive less than I sent?
Usually because an intermediary or receiving bank deducted a fee along the way, or because the SHA or BEN charging option was used. Ask your provider which charges applied.
Can I avoid correspondent bank fees altogether?
Not always, but paying via a local payment scheme where available, or choosing OUR, can stop your supplier being paid short.
Is a "no fee" transfer ever the cheapest option?
Sometimes – if its exchange rate is close to the mid-market rate. The only way to know is to compare the total amount paid and received, not the headline fee.
Do hidden fees apply to personal transfers too?
Yes. The same margin in the rate, and the same intermediary and receiving charges, can apply to personal payments – for example, buying property abroad or sending money to family.
How do I find out which intermediary fees will apply?
Ask your provider before you pay: which route the payment will take, whether intermediary banks may deduct fees, and which charging option (OUR, SHA or BEN) they'll use.