Foreign Transaction Fee: What is it? How does it work? How can you reduce it?

How to reduce foreign transaction fees with amnis
  • Money transfer
  • International payments

Foreign transactions fees put an unnecessary burden on consumers and businesses alike. Luckily, there are multiple options available that can help you significantly reduce your conversion and transaction fee. The following article explains everything you need to know about foreign transaction fees and what you can do to reduce them.

What are foreign transaction fees?

No matter whether you use your credit cards abroad or you pay your suppliers in a different currency, foreign transaction fees occur every time you change one currency into another. Common situations where they appear are:

  • Cash withdrawals from foreign ATMs
  • Online card payments in currencies other than your banking currency
  • Credit card payments while abroad
  • International money transfers

Every time you do one of these, you are usually confronted with two fees: a foreign transaction fee as well as a conversion fee. When using a credit card, the foreign transaction fee is charged by your credit card issuer. It usually ranges up to 3% of the total purchase and may include other fees, depending on your payment option. Next to the transaction fee, you also get charged with a conversion fee (also called FX margin), which is imposed by credit card payment processors and can range up to 1% of your total purchase.

Businesses usually transfer money internationally through a SWIFT bank transfer, which is notorious for its high conversion fees, especially when you do not have a foreign currency account, and foreign transaction fee (you can expect 3-5% per transaction in total). Local payment transactions, on the other hand, were previously not available for foreign companies. However, local schemes such as SEPA or ACH have become increasingly popular now, as local payment providers have opened up access to an international audience, which significantly reduces the foreign transaction fee.

How do banks conduct foreign transactions?

Currencies are closed-loop systems, which means that your money usually has to travel through multiple institutions before it reaches its destination. Your money can only travel if the banks involved have direct relationships with each other. This is where SWIFT comes into play.

The global payment and settlement system determines the route your money has to travel until it reaches its destination. If there is no direct relationship between sending and receiving bank, your money travels through intermediary banks, which hold Nostro/Vostro accounts of one another. In total, up to 5 SWIFT member banks can be involved before your money reaches its destination. The more banks are involved, the higher your foreign transaction fee.

Therefore, it is apparent that access to domestic payment schemes would be much more cost-efficient. Local payment providers offer opportunities to enter different banking systems, for instance through setting up European IBAN accounts to access SEPA or US bank account numbers to access ACH. This significantly reduces your foreign transaction fee compared to SWIFT.

How high are foreign transaction fees with traditional banks? (Status: Dec 5th, 2022)

When conducting foreign transactions through banks and SWIFT, the conversion and foreign transaction fee are most expensive. The foreign transaction fee is even higher when multiple banks are involved in the process.

  • HSBC: If you send €1,000 from Germany to the US, you pay a foreign transaction fee of €10 at an exchange rate of $1.02216, while the current mid-market rate lies at $1.056501 per Euro. As a result, the recipient only receives $1,011.94.
  • Deutsche Bank: If you send the same amount via Deutsche Bank, you pay a foreign transaction fee of more than €30, while the conversion rate lies at $1.0514 per Euro. As a result, the recipient receives $1,019.00 USD.

These examples make clear: SWIFT transactions are intransparent, as the FX margin and foreign currency exchange rate strongly differs per institution.

How digital platforms reduce your foreign transaction fee

With much more options at a cheaper foreign transaction fee, digital platforms offer an innovative way to enhance your traditional bank account. Access to local or P2P transfers cuts out intermediary banks, which significantly reduces the complexity of the process and hence the foreign transaction fee.

Further, most banks don’t allow you to hold multiple currencies with your traditional bank account. Instead, you need to open a separate foreign currency account for each and every currency, which increases your paperwork as well as your fees.

Digital platforms, on the other hand, enable you to open multi-currency accounts with local account numbers. As a result, you can significantly reduce transaction and conversion fees, leading to much more favourable rates.

Reduce your FX transaction fee with amnis

amnis offers you multiple options to do international money transfers, which significantly reduces your foreign transaction fee.

The service provides you with EUR- and GBP-IBANs as well as USD account numbers, which give you access to the local SEPA respectively UK Faster Payments and ACH schemes. While SEPA transfers are usually free of charge, an ACH transaction can range between $0 and $10 with traditional providers. On top of that, you will save up to 1% on conversion fees.

With amnis, you can access:

  • P2P payments: Transfer your money to your PEERs instantly, no conversion or transaction fee.
  • SWIFT payments: amnis offers a multi-currency IBAN to pay and receive money in 20+ currencies via SWIFT. With just one account number, you can send major currencies to 200+ countries and receive money from over 180 countries, which cuts out unfavourable fees and simplifies account management.
  • Local transactions: amnis allows you to set up local accounts in Euro and US-Dollars, so that you can access local payment schemes such as SEPA or ACH and reduce your and your business partner’s transaction fee compared to SWIFT.

amnis offers scalable plans and pricing options. The Starter package is completely free of charge and offers 3 free international payments and 30 free domestic payments per month in multiple currencies.

Start your free trial with amnis

Are you looking for ways to reduce your conversion and foreign transaction fee? Open a free amnis demo account in less than 30 seconds to collect 20+ currencies and profit from local transactions and free and instant PEER payments – no deposit required:

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Sabrina Maly
As a marketing manager at amnis I provide SMEs with fx market, international business and news updates on our blog & FAQ page.
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