Can you benchmark FX rates for cross-border B2B payments?

I’ve always found that the one area where banks gouge the consumer and small businesses is with foreign exchange rates. FX is one of those opaque transactions where it’s “this is the rate we offer, take it or leave it” for most of us. And if you compare the rates the banks provide from what you Google, you know you are proverbially hosed.

Banks have been fined over the years for excessively gouging. The European Central Bank found in a research paper that rates for small corporate customers can be 25 times higher than for bigger and/or more sophisticated customers.

Google “forex scandal” to see how banks colluded for over a decade to manipulate exchange rates. In a trillion-dollar daily market, small basis points add up to millions in excess fees.

More and more, companies of all sizes are finding it necessary to send money globally — to buy products, pay contractors, pay landlords or other reasons and are finding more options to do so than through traditional banks or currency brokers.

Going through traditional bankers and determining your foreign exchange fees can be an opaque exercise. Bankers talk about mid-market rates as if this is some exact science. A mid-market rate is the midpoint between the buy and sell prices of two currencies and is collected frequently, say every minute.

Banks and brokers then will apply a “spread” to the mid-market rate, which is effectively their profit margin that is the quoted rate received. Even going to Bloomberg to check FX rates provides only indicative rates. Bloomberg notes, “Currency rates are representative of the Bloomberg Generic Composite rate (BGN), a representation based on indicative rates only contributed by market participants. The data is NOT based on any actual market trades.”

Which cross-border fintech provides the best FX rates?

So when asked who provides the best FX rates out of all the fintech players, the answer is who knows. Fintechs will typically get their wholesale rate depending on the provider of that currency. This rate is most likely received from an API feed, and the rate shown the customer includes the markup. Since the fintech is a large customer of the bank that is providing the currency rate, they probably have good rates to start with, similar to the reseller market for telecom services.

Few banks offer any FX calculator service to help you determine if you send $1,000 in one currency what will be received in another. Doing FX calculator-by-calculator research is time-consuming and may only be a snapshot of the indicative markups you will receive for a currency trade. Below is a snapshot of four providers, three fintechs and one bank. The trade in question is sending Cdn $1,000 and receiving the equivalent in U.S. dollars based on the FX rate offered. I looked at Kantox, Transferwise, OANDA and Royal Bank of Canada, with the bank costing over $15 more.

The trades came out as follows:

Provider Cdn USD Surplus over Bank
Kantox  $  1,000  $ 747.22  $ 15.58
OANDA  $  1,000  $ 748.92  $ 17.28
Transferwise  $  1,000  $ 738.62  $  6.98
Royal Bank of Canada  $  1,000  $ 731.64 0

Source: Company websites, taken on March 3, 2020

So for every Cdn $1,000, every fintech offers at least $7 more in USD. Multiply that by 10 or 20 and it starts to add up. Of course, for larger transfers, banks may cut their spreads, but so too may the fintechs. Again, it’s just so hard to say.

So finding the best exchange rate may be an exercise in futility. It is complicated at best and can involve a lot of research. And sometimes relationships do matter, and we understand making money off FX is something banks do.

Of course, there are other factors as well in doing cross-border transfers that include security, speed, hidden costs that only crop up when transfers are made, etc. Today, more than ever, companies have many choices besides their banker to send money across borders. Many of these service providers also provide things like locked FX rates, digital wallets, no fee cross-border payments, local currency invoicing, etc. So, it’s not always just about the cheapest FX rate.

Still, it’s nice to know that you have sources now to keep your current service provider a bit more honest, and if you are unhappy, you have options to switch providers.

David Gustin runs Global Business Intelligence, a research and advisory practice focused on the intersection of payments, trade finance, trade credit and working capital. He can be reached at dgustin (at)

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  1. Jason Busch:

    David, I thought you were a keener, kissing up to RBC, lest the mounties find you in the hills of Vancouver and have their way with you, eh? But then you get everyone in an FX kerfuffle here.

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