How Do Exchange Rates And Transfer Fees Impact Remittance Value?

Exchange rates and transfer fees directly impact how much money actually reaches the recipient in a cross-border transaction. Even small markups or hidden charges can add up.

Exchange rates, transfer fees charged by the sender and fees charged by the receiver are the three components of fees when sending money abroad. Nowadays, quite a few platforms offer zero fixed fees, so one doesn't lose money every time they send a transfer.

Also, fixed value transfers are available such that there is no deduction on the receiver end as well. It is worth picking platforms or banks that offer these zero fixed fees solutions; otherwise, you will pay INR1000 to 3000 in these fees. When it comes to exchange rates, there are also platforms that have a low markup of 1-1.5%, earlier this would be 3-4%. Over time, this markup will go lower as well.

In export transactions, hidden FX markups and additional charges can significantly impact your final earnings. Banks rarely convert at the mid-market rate. Instead, they apply their own card rates, often 1.5%-3% less favourable, along with multiple additional fees.

For instance, on an invoice of $10,000, if the interbank rate is Rs 86 per USD but your bank offers Rs 84.28 after a 2% markup, you receive Rs 8,42,800 instead of Rs 8,60,000a loss of Rs 17,200 before adding other charges. Mr. Sanjay Tripathy, CEO and Co-founder, BRISKPE says for businesses operating on thin margins, these hidden costs can eat into profits. When receiving export payments through traditional banks, the following costs typically apply:

• SWIFT Charges - For message transmission between banks.
• FX Charges - Hidden markups on currency conversion.
• Transaction Charges - For processing the payment.
• FIRA Charges - For issuing Foreign Inward Remittance Advice.
• Combined, traditional banks make your international transactions costlier than you expect.

As per Reeju Datta, Co-Founder, Cashfree Payments, with Cashfree's PA-CB Imports framework, Indian customers can pay using local methods like UPI. For example, a Rs 8,300 payment at a real-time rate of Rs 83 to a dollar would convert to $100. After a transparent 3% fee, the merchant receives around $97, with no FX markup. Viram Shah, Founder & CEO, Vested Finance says, in contrast, card payments may cost the customer Rs 8,600 or more due to extra charges, and the merchant might receive only $95 after deductions. By using real-time rates and low, upfront fees, this model ensures more of the original payment value is retained, making the process fairer and more efficient for both sides.

Don't Lose Money on Remittances: Check These Two Factors First

Two major variables are exchange rates and transfer fees that determine what the recipient finally receives when a transaction is conducted across borders. Although they seem like minor details, these two factors affect the overall worth of the money that is being remitted.

The exchange rate means the rate at which one currency converts into another. For example, an INR-USD exchange rate will determine the number of dollars your recipient gets if you send Indian Rupees (INR) to the US in USD. Nevertheless, banks and money transfer businesses frequently provide less advantageous exchange rates than the official market rate. Even if there is no fee indicated, they can still make a profit from this "spread" and lower the total amount collected, says CA Manish Mishra, Founder, GenZCFO.

In contrast, transfer fees are levied to complete the transaction. Depending on the amount, the country of destination, and the delivery speed, these costs may be fixed or percentage-based. While some firms may charge an upfront fee yet provide a competitive rate, others may offer "zero-fee" transfers but compensate with subpar exchange rates, CA Manish Mishra explained.

For instance, the recipient receives less money if you send Rs 50,000 using a service that offers Rs 82 per USD and charges Rs 500 as a transfer cost, than if you use another service that offers Rs 83 per USD with no fee. Flights are a bit pricier these days, and your ticket to Italy might set you back a minimum of $1,400. So if you were to pack a good deal of money and exchange, say, $1,000, without knowing the actual value in euros, it would be a crime.

A single rupee decrease in the exchange rate could spell a big loss of dollars. Always check the currency rate in combination with the charges applicable to your transfer so that your remittance fetches the maximum value. The service providing maximum value to the beneficiary should be sought after rather than just opting for the cheapest option! Use a comparison tool to compare services, ask your service provider to disclose all fees and any exchange rate offered, and keep a lookout for any hidden charges.

Banks vs Forex Services: Who Really Gives You More for Your Money Abroad?

Exchange rates and transfer fees play a crucial role in determining how much money actually reaches the recipient during an international transfer. Even a small fluctuation in the exchange rate can significantly alter the final amount received, especially for large transfers.

Mr. Pavan Kavad, Managing Director of Prithvi Exchange said, "For example, if you're transferring Rs 5,00,000 to pay for university fees abroad and the exchange rate offered by your bank is Rs 84/USD, the student would receive around $5,952. However, if a service provider offers a higher rate of Rs 85/USD, the same amount would fetch only $5,882, that's a shortfall of nearly $70, or roughly Rs 6,000 in value lost purely due to rate variance. In addition to this, transfer fees further reduce the amount received. Some banks charge Rs 2,000-Rs 4,000 per transfer, and may also include hidden fees in the form of marked-up exchange rates."

On the other hand, forex services provide real-time rates with minimal markup and charge a flat or nominal fee, which can greatly enhance the remittance value. Ultimately, to maximize the value of your international transfers, it is essential to consider both the exchange rate and all associated fees and to choose a provider that offers transparency and competitive pricing. Look for forex service providers that offer live exchange rates with zero markup, and always ask for a breakdown of charges before initiating the transfer.

Don't Let Hidden Charges Eat Into Your Remittance - Here's What to Watch

For Indian expats remitting money home, be it for education, family upkeep, or medical reasons, exchange rates and transfer charges play a pivotal role in calculating the money the beneficiary would actually end up receiving.

As per Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited, the majority of service providers add a margin to the exchange rate; thus, the rate quoted is generally not the same as the market rate. And a 1%-2% variance can result in a significant decrease in the transferred amount. On a Rs 1,00,000 transfer, for instance, 2% translates into a Rs 2,000 depreciation before factoring in other charges.

"Transfer fees (both flat and percentage-based) in addition to exchange rate margins further lessen the end result. There may also be charges levied by some intermediaries or receiving banks, resulting in the recipient receiving less than anticipated. These opaque fees can pile up, especially when transfers are frequent or involve big amounts," Siddharth Maurya further added.

To get better value, Indians sending money home should check real-time exchange rates, review the full fee structure, and be sure to choose a service that provides transparent pricing and adheres to regulations. In today's financial world, knowledge does matter - especially when it comes to how much money winds up reaching loved ones in low-income countries.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor GoodReturns. The author, nor the brokerage firm nor GoodReturns would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.