It is believed that 80% of South Carolina’s R4.6 trillion GDP has a foreign exchange component, that is, money flowing in and out of the country. For banks, this money is a treasure trove as it carries a large amount of fees every time it moves.
The five largest banks – FNB, Standard Bank, Absa, Nedbank and Investec – are believed to make a combined R15 billion a year in foreign exchange profits.
Smaller customers pay 2-3% in foreign exchange transaction costs, which explains why new entrants charge 1-1.5%, and sometimes even less, making this an attack. We see it as a worthy market.
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With the rand/dollar rate falling above 19.77 to 18.30 over the past few days, companies are scrambling to place import orders at these preferential rates, but are paying too little attention to the hidden costs of exchange rates. Few companies.
Expensive…and complicated
Remittances (remittances from abroad, usually family remittances) are a big part of the African economy, accounting for as much as 25% of GDP in countries like The Gambia.
Transaction costs can be horrendous, 12% in some cases, and 6.24% on average. world bank.
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Cryptocurrency and blockchain-based companies have begun to reduce the cost of these remittances, charging around 1% fees and transacting within hours instead of the 1, 2 or 3 days that money transfer companies typically offer. settle the
It’s not always easy to see what the actual cost is when it comes to interbank forex, but this appears to be intentional.
World Interbank Financial Telecommunications Association (Swift) fees are between R500 and R750 per transaction.
And the estimated exchange rate has hidden costs. Banks quote a mid-market rate, which is the midpoint between the buying and selling prices of a currency. This is also called a “spread”.
This “spread” (the difference between the bank’s buy and sell rates) is complicated by the fact that exchange rates are constantly fluctuating and large customers get preferential rates.
Therefore, you never really compare like-for-like, and banks usually offer interest rates that are favorable to them, leaving it up to the customer to negotiate a lower rate. They explain this quite a bit on their website.
If you don’t ask for it, you will have to pay extra. The problem is that you have to sneak through an automated phone operator to the dealing desk, and the rate you’ll be offered if you’re successful depends heavily on the dealer you got and the bank’s order book for the day.
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Future Forex CEO Harry Scherzer said the lack of transparency in foreign exchange prices makes it easier for banks to avoid high fees.
“Our proposition is to offer interest rates that are better than banks, in some cases as much as 50%, that our fees are transparent, and that once we agree on a price, we stick to it. For businesses and individuals who frequently trade forex, this represents significant savings over the course of a year.”
The opacity of foreign exchange costs works in favor of banks.
It’s not just rising transaction costs that eat into the pockets of customers, but the lack of unbiased advice can drive up costs over time, says BeztForex’s chief executive, which is slowly eating away at this huge market. CEO Herman Bezuidenhout said. It reduces bank fees and offers advice in areas such as hedging.
“Traditionally, banks have tiered pricing, products and service levels according to the customer’s position and size,” says Bezuidenhout.
“Smaller clients are often on the lower end of the scale of importance. We are unable to immediately assist customers who
Limitations
FiveWest CEO Omer Iqbal said banks will demand higher minimum transaction amounts for foreign exchange trading, apart from the hidden costs in the wide spreads offered by banks and the associated transaction fees. Forex trading is becoming more difficult for small traders to access. market.
This can limit opportunities for retail traders and increase costs for traders who cannot meet minimum requirements.
“Banks may not offer the same level of market access as specialist forex brokers,” says Iqbal. “They may have a narrower selection of currency pairs and limited access to certain forex markets, limiting trading opportunities and potentially increasing costs for clients.”
Managing foreign exchange exposure
Most importers and exporters do not actively manage their foreign exchange exposure, and a depreciation of the rand, as happened last month, is often devastating to importers.
Exporters who failed to hedge when the rand was weak are similarly guilty of negligence, Bezuidenhout said.
A case in point is the 7.5% rally in the rand against the US dollar over the past few weeks, a loss of income for exporters.
READ: Nigeria targets single exchange rate in shift after governor sacks
A good idea is to download a currency converter app that provides forex comparison between SA banks. Xe.com again Moneytransfer.online.
Banks are not in danger of losing this market anytime soon. Many businesses would rather use their bank for foreign exchange because of the convenience and ability to negotiate favorable rates. But it’s good to know that some hungry competitors are showing up. until you challenge them.
