For exporters, managing foreign exchange earnings is crucial. Despite a significant increase in cross-border transactions, sending and receiving international remittances in India via traditional banking remains challenging and costly due to multiple fees and regulatory hurdles. However, thanks to innovations in fintech and traditional banking, cross-border transactions are increasingly becoming less complex . Now, exporters can use Exchange Earner’s Foreign Currency (EEFC) accounts or cross-border payment platforms like Stripe and PayPal to handle global payments more seamlessly, avoiding many of the usual hassles. But which option is best for you? Is there a more convenient and cost-effective way to manage your foreign exchange earnings? Let’s dive in and find out.

EEFC accounts are current accounts, offered by AD Category I Banks that allow you to retain income received from abroad in its original currency for up to 60 days. Being current accounts, EEFC accounts do not yield any interest. Each bank offering EEFC Accounts supports a specific number of currencies and you can also hold multiple currencies in a single account. The accounts were primarily created to help exporters manage their foreign exchange earnings, however, it is open to companies, individuals and joint account holders.

Currently, multiple<a href="https://rbidocs.rbi.org.in/rdocs/FEMAMASTER/PDFs/1061.PDF?no_follow=true"> AD Category I </a>banks in India offer EEFC accounts including DBS, ICICI, HDFC, Axis Bank and many more.

However, it's always a good idea to speak with the bank first to confirm their services.

Residents of India, whether individuals or companies earning foreign exchange, are eligible to open EEFC accounts. However, entities in <a href="https://nsez.gov.in/Resources/SEZ%20FAQs.pdf?no_follow=true">Special Economic Zones (SEZs)</a> cannot open EEFC accounts, though they can open a foreign currency account

Exchange Earner’s Foreign Currency (EEFC) Account Benefits

Let’s take a moment to understand the benefits of EEFC accounts.

1. Retention of foreign exchange earnings

Traditional bank accounts do not allow holding money in foreign currencies. When you receive funds in a standard bank account, it is mandatory to convert funds into INR irrespective of the current exchange rate.&nbsp;

However, an EEFC account allows you to receive and retain money in foreign currencies for up to 60 days. Account holders can make cross-border payments using the same foreign currency and only convert the balance.

The value of INR against foreign currencies fluctuates daily based on demand and supply factors. Individuals or companies that receive payments in foreign currencies can lose out on the money value if the exchange rate is unfavourable, and they compulsorily have to convert the foreign currency into INR.&nbsp;

With an EEFC account, account holders can analyse the currency market for over a month and convert the foreign currency only when the exchange rate is favourable.&nbsp;

Traditional bank accounts follow the double-conversion process where you have to convert the foreign currency you receive to INR and then again convert INR to the desired foreign currency to make international payments.&nbsp;

An EEFC account eliminates the double-conversion process and allows account holders to retain foreign currency and make direct payments using the available foreign currency funds.&nbsp;

The Reserve Bank of India regulates the cash flow between India and foreign countries. Accounts such as EEFCs are effective alternatives to the cumbersome conversion process of traditional bank accounts. However, with stringent regulations, EEFC accounts come with some disadvantages.

Although EEFC accounts allow you to retain <a href="https://www.skydo.com/blog/should-i-invoice-in-inr-or-foreign-currency?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">foreign currencies</a>, the duration is limited. You must convert the balance funds in the accounts compulsorily to INR on or before the last day of the next month. For example, if you receive foreign payments in your EEFC account, on 16th May, you need to convert it to INR by 30th June, after which it will be automatically converted.&nbsp;

Additionally, you can only retain the funds without conversion if they are for prior commitments or approved purposes.&nbsp;

EEFC accounts help exporters save on double currency conversion and transaction fees. However, banks still impose various ancillary charges that can quickly add up. For instance, transfers to your EEFC account are processed via SWIFT, which incurs a SWIFT fee. Additionally, banks often apply a foreign exchange markup or currency conversion fee when converting your foreign earnings to INR. Moreover, banks may charge for extra services like providing FIRA

Cross-border payment platforms are gateways or applications that allow individuals or companies to make or receive payments in various currencies. These payment platforms work as middlemen between the payer and the receiver through their transaction processing technology.&nbsp;

The transaction processing technology transfers the payer's payment information to the receiver's account. Account holders can convert their funds into different currencies for cross-border payments. However, payment platforms can choose to levy a markup on the current exchange rate.

Features and Benefits of Payment Platforms

Payment platforms like Stripe and PayPal are available in nearly all major countries, serving both residents and registered business entities. These platforms enable businesses to expand their customer base globally by accepting payments from customers worldwide.

Additionally, individuals and businesses can receive <a href="https://www.skydo.com/blog/real-time-tracking-of-international-payments?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">real-time payments</a> directly from any foreign entity with an account on the same platform

2. Multiple Currency Support and Conversion

For businesses operating internationally, payment platforms often support multiple currencies, allowing them to accept payments from customers worldwide.

For instance, PayPal operates in over 200 countries and supports 25 currencies. This means you can convert your held currency into any of the other 24 currencies, making cross-border payments hassle-free.

Payment platforms simplify transactions for businesses and customers by enabling electronic payments, eliminating the need for physical cash or checks. These transactions are executed in real-time and reflected immediately in the accounts.

Additionally, most payment platforms offer e-commerce features, allowing account holders to use their funds for international online purchases with ease.

While <a href="https://www.skydo.com/blog/navigating-payment-platform-headwinds-to-stormproof-your-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">payment platforms</a> offer numerous benefits, they also come with their fair share of challenges and considerations.&nbsp;

1. Transaction Fees and Exchange Rate Markups

Payment platforms charge fees for their services, including transaction fees and monthly subscription costs. Most payment platforms also charge an exchange rate markup fee that can significantly reduce the net returns when converted into local currency.&nbsp;

For example, PayPal charges an <a href="https://www.skydo.com/blog/top-paypal-india-alternatives-for-international-payment">exchange rate markup</a> of 4%, effectively reducing your received amount by 4% after conversion.&nbsp;

Payment platforms are attractive targets for cyberattacks. However, most platforms today are embracing stringent security measures to minimize the chances of cyberthreats.&nbsp;&nbsp;

3. Limited Control Over Funds During Disputes

nlike EEFC accounts, where account holders must handle regulatory compliance, payment platform aggregators take on this responsibility.

However, if there is any legal or regulatory non-compliance, customers might face limited control over their funds. Authorities could seize the funds or blacklist the platform, causing potential disruptions.

Comparing EEFC Accounts and Payment Platforms

For a better comparison, here is a comprehensive side-by-side table comparing EEFC accounts and payment platforms.

Manage your foreign exchange earnings better with Skydo

At Skydo, we recognize the challenges of traditional banking and the high fees often charged by various payment platforms. That’s why we offer businesses and freelancers a fast, secure, and less expensive way to receive international payments. With Skydo, you can set up an international bank account in less than 5 minutes. Your foreign clients can pay into this account, making it a local transfer and eliminating SWIFT charges.

Further, we convert your foreign earnings to INR at live forex rates, without any markup or currency conversion fees, ensuring you keep more of your earnings. All we charge is a flat transaction fee: USD 19 for remittances below USD 2000 and USD 29 for remittances over USD 2000. And yes, you also receive an instant FIRA for every transaction at no extra cost, helping you stay compliant. 

Switch to Skydo and simplify your international payments while maximizing your earnings.&nbsp;&nbsp;<a href="https://www.skydo.com/blog/how-skydo-increased-success-rate-on-international-payments?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_link">Click here</a> to learn more about how Skydo increased the success rate of international payments.

EEFC accounts are tailored for specific use cases related to foreign currency earnings, while payment platforms are more versatile tools for general financial transactions. The choice between the two depends on the user's specific needs and requirements, especially in managing foreign currency earnings and conducting cross-border payments.&nbsp;

Analyse your personal or business needs and determine which account option would mitigate unnecessary costs and compliance complexities.&nbsp;

Q1. What is the disadvantage of an EEFC account?

Ans: The disadvantage of an EEFC account is its limited retention duration, requiring conversion of funds into INR within a specified timeframe, usually on or before the last day of the next month or 60 days maximum.

Q2. What is the difference between EEFC and foreign currency account?

Ans: EEFC accounts are tailored for Indian residents to manage foreign currency earnings, while foreign currency accounts are more general and may not have the same regulatory restrictions.

Q3. Do banks pay interest on EEFC accounts?

Ans: Banks do not pay interest on EEFC accounts, as they are considered current accounts without interest benefits.

Q4. How much foreign exchange earnings can be credited into an EEFC account?

Ans: A substantial portion of one's foreign exchange earnings can be credited into an EEFC Account, allowing for a limited retention duration, typically up to 60 days, before conversion into INR, subject to regulatory restrictions.

Ans. Any resident of India can initiate an EEFC account, including individuals and entities like companies, who fall under the category of foreign exchange earners.

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Inner voice: The client's payment will finally arrive in the business account today! I earned this. The entire team earned this!

A message arrives–the amount you received is less than what you charged.

It feels like a loss because it is a loss. But how and why did it happen?

If you transact internationally, a reduced amount appearing in your bank account can be disheartening, stressful, and puzzling. This is particularly true with SWIFT payments sent to India, where unexpected deductions may occur in your SWIFT money without explanation.

SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a financial organisation enabling global transactions. It acts as a bridge between banks and other financial institutions worldwide to facilitate international payments.&nbsp;

This payment mode is vital for businesses and individuals who engage in global investments and trade. SWIFT payments come with the challenges of lengthy verification processes before funds are released.

Certain banks serve as intermediaries, transmitting funds from a sender to the recipient's bank account. Although their role is crucial to secure a safe and efficient transfer of funds, it can also lead to unexpected deductions in the final payment due to some factors.

SWIFT money transfer works in the following way.&nbsp;

This process makes SWIFT payments expensive. The costs associated with these transactions are typically distributed between the payer and the receiver or may be shared between them. This distribution is determined by the specific payment instruction selected.

Additional fees include intermediary bank fees, foreign exchange fees, SWIFT network fees, service fees, additional charges for specific services, and exchange rate margins. The cumulative impact of these fees and potential variations in exchange rates can result in higher costs compared to other payment methods.&nbsp;

The result is a reduced payment by the time it reaches its destination - the recipient's bank in India.

The implications of SWIFT payment deductions in India are real and can greatly impact businesses and individuals. Let's examine the causes behind these deductions, providing examples of how they have impacted the financial well-being of those affected.&nbsp;

Factors Influencing The SWIFT Payment and The SWIFT Money You Receive&nbsp;

The difference between expected and actual payment amounts can be significant due to <a href="https://www.skydo.com/blog/forex-and-its-impact?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">exchange rate fluctuations</a>. The changes in the value of currencies affect the currency conversion process that often occurs in international payments.&nbsp;

When a business in the United States sends a payment of $10,000 to a supplier in India, the initial exchange rate of 85 Indian Rupees (INR) per US Dollar (USD) will result in a payment of INR 850,000.&nbsp;

However, if the exchange rate changes to INR 84 per USD by the time it reaches India, then the final amount would be INR 840,000. This difference of INR 10,000 is lost due to currency fluctuations.

2. Role of Currency Conversion in SWIFT Money Transfer in India

Currency conversion is often required for SWIFT payments to send funds to the recipient's currency. Unfortunately, banks may charge a hidden fee known as a margin or spread to cover the cost of this exchange process. This factor reduces the amount you receive from the actual amount sent.

If your cousin in the United Kingdom wants to send you 1,000 British Pounds (GBP) in India, they can use a bank that offers an exchange rate of 90 INR per GBP for the conversion.&nbsp;

However, the interbank rate (the rate at which banks exchange currencies with each other) is INR 89 per GBP. This means that due to the margin held by the bank, 1 INR will be deducted from every pound sent, leading to a certain deduction.

Intermediary banks have a crucial role in the SWIFT payment system, as they act as the middleman between the sender's and recipient's banks. However, these services come with a cost.&nbsp;

The fees charged by intermediary banks can vary greatly depending on factors such as the number of correspondent banks involved, the complexity of the transaction, and the specific services provided.

For example, if an Australian business sends a payment of 2,000 AUD to a business in India. During its journey, the payment passes through 4 correspondent banks that each charge a fee of 20 AUD. This results in an overall deduction of 80 AUD from the original payment amount.

Regulatory and Compliance Factors of SWIFT Money Transfer

1. Anti-Money Laundering (AML) and Know Your Customer (KYC) Regulations

Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations are necessary for the global financial system. AML laws safeguard against illegal profits entering the legal financial system, while KYC policies necessitate that banks and other financial institutions authenticate their customers' identities.

To comply with <a href="https://www.skydo.com/blog/international-payment-terminologies-you-must-know-before-exporting-services-globally?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">international AML and KYC regulations</a>, banks and financial institutions must conduct due diligence on the parties involved in a transaction. This process involves verifying the source of funds, confirming the identities of the sender and recipient, as well as assessing the nature of the transaction to ensure that no money laundering or other illicit activities are taking place.

The discrepancies or issues discovered during the due diligence process can cause banks to temporarily freeze or delay the transfer until they are addressed, resulting in extra costs and delays.

When a business in the United States sends a payment to a new supplier in India, the recipient's bank may place the payment on hold due to discrepancies found in their KYC process.&nbsp;

The supplier may miss out on the best exchange rates or favourable market conditions at the time the payment was initially initiated. Since exchange rates fluctuate, and market conditions can change rapidly, any delay may result in the supplier receiving a lower amount than expected. It may also potentially strain financial planning and business operations.

The government imposes <a href="https://www.skydo.com/blog/decoding-withholding-tax-an-i-t-export-service-providers-toolkit-for-simplifying-international-payments?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">withholding tax</a> on certain types of income earned by non-residents. This tax is usually deducted directly from the payment source, such as the payer's bank via SWIFT payments.&nbsp;

This policy aims to ensure that taxes are collected on any income earned within a particular jurisdiction, no matter where the recipient may be located.

When making a SWIFT payment, consider withholding tax, as it can affect the total amount received by the recipient. The amount of tax withheld and the type of income subject to withholding varies by country. When applicable, the withholding amount will be deducted from the payment before sending it to its recipient.

For example, if an Indian company exports goods to Cambodia, the company may face a 14% withholding tax when receiving payments via SWIFT. This withholding tax is imposed by Cambodia on certain income earned by non-residents.&nbsp;

As a result, the Indian company will receive 14% less of the total payment, deducted directly due to the withholding tax, ensuring compliance with Cambodia's tax regulations.

Possible Reasons for Reduced SWIFT Payment: Summary

To summarise the factors mentioned above about reduced SWIFT payments, there could be various reasons why a certain amount was deducted from your SWIFT payments. Some possible reasons include the following.

To get a clear understanding of the deductions, it is advisable to check with your bank or the sending bank to inquire about the specific fees associated with your SWIFT payment. Additionally, reviewing the payment details and seeking clarification from the involved banks can help identify the exact reasons for the deductions.

Tips to Minimise Deductions for Your SWIFT Payments

When dealing with international payments via SWIFT in India, reducing SWIFT charges and ensuring the funds arrive at their destination safely is essential. Here are some useful strategies to help you accomplish this goal.

Consider your options carefully and decide which payment method is best for your transaction. Different approaches could include different numbers of intermediate banks, each of which might add charges and cause delays.

Look into alternative payment options that can offer reduced fees and quicker processing. Online payment platforms like <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo</a> can do all this and more for a very low fee.&nbsp;

When dealing with international transactions and currency conversion, securing a favourable exchange rate is crucial for minimising costs. Banks often offer exchange rates that may not be as competitive as what you could find in the open market. However, by negotiating with your bank, you can potentially secure a more advantageous rate.

4. Proper Documentation and Adherence to AML and KYC Regulations

Accurate and comprehensive documentation is necessary when dealing with international payments. Provide all the required information, such as identification, source of funds, and transaction details to meet Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations.&nbsp;

Delaying compliance with KYC and AML regulations can affect the conversion rate you receive considering its highly fluctuating nature. Maintain meticulous records and comply with AML/KYC rules to make payments smoother and reduce any unexpected delays.

5. Seek Expert Advice for Complex Transactions

When dealing with complex <a href="https://www.skydo.com/blog/cut-international-transaction-costs?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">international transactions</a> that involve significant sums of money, seek expert advice. Financial advisors, legal professionals, and those experienced in international finance provide crucial guidance.&nbsp;

This will help you navigate the complexities of SWIFT payments, comply with regulations, and identify strategies to minimise your SWIFT charges. Their insights can be invaluable in protecting your funds and optimising your transaction efficiency.

Minimising deductions from your SWIFT money in India is possible with careful planning and consideration of various factors, such as choosing the right payment route, selecting intermediary banks wisely, exploring alternative payment methods, optimising timing and currency conversion, and ensuring compliance.&nbsp;

To further improve international transactions' efficiency and financial control, consult an experienced payment solution provider such as Skydo. With <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo's</a> expertise and technology-driven approach to <a href="https://www.skydo.com/blog/future-of-cross-border-payments-2030-and-beyond?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">cross-border payments</a>, you can remain assured that your transactions are secure and cost-effective.

Ans: A SWIFT transfer, or SWIFT money transfer, is a method of sending money internationally between banks and financial institutions. It involves a network known as the Society for Worldwide Interbank Financial Telecommunication (SWIFT) that facilitates secure and standardised communication between banks to enable cross-border transactions.

Ans: The time it takes for a SWIFT transfer to be completed can vary depending on several factors, including the banks involved, the countries of origin and destination, and any intermediary banks in the transaction. Typically, it can take several business days for the funds to reach the recipient.

Ans: SWIFT transfer fees often come with various charges, including intermediary bank fees, foreign exchange fees, SWIFT network fees, service fees, and more. The specific charges can vary depending on the banks and the payment instructions chosen (BEN, SHA, OUR), leading to potential deductions from the original payment amount

Q4. What are the problems with SWIFT payments?

Ans: SWIFT payments can face issues such as unexpected deductions, delays due to regulatory compliance, exchange rate fluctuations, and withholding tax. These factors can result in the recipient receiving a reduced amount or experiencing delays in receiving funds.

Ans: To track a SWIFT transaction, you can typically contact your bank or the sending bank for updates. They can provide you with information about the transaction's status, including confirmation of its progress, any potential delays, and the estimated time of arrival for the funds.

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In a world where domestic payments are as easy as a tap or scan, our aim at <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo</a>&nbsp;was to make international payments equally seamless and transparent.&nbsp;Our journey began with a simple objective: To challenge the hidden fees that often plague traditional banking systems, be it Swift fees, intermediary bank charges, FX markups, FIRA fees, and processing costs. These covert fees can be hard to track and even harder to understand. The FX markup, in particular, is a sneaky one. Without knowing the benchmark or timing, how are you supposed to figure out your actual costs

This is where we wanted to make a difference. By providing currency conversion at live mid-market rates and a fixed fee, we aim to demystify the process and help you keep more of your hard-earned money. We've put together a detailed breakdown to show you exactly how much you can save. If you’re short on time, feel free to skip ahead to the table in paragraph 6. 

Movin Jain and I founded Skydo in March 2022. Movin, drawing from his experience with India’s major UPI player, dreamed of making B2B payments as effortless as UPI transactions. I, on the other hand, as a long-time exporter, wanted to bring transparency to international payments. Business owners should know exactly what they’re paying without needing complicated spreadsheets.

Since launching, we’ve received fantastic feedback from our customers. This response has humbled us and strengthened our belief that we’re solving a real problem.

Pricing transparency: what does it mean?&nbsp;

Skydo is disrupting the industry by bringing transparency to pricing, challenging the hidden margins long enjoyed by payment service providers. As a result, many providers are lowering their prices, which is great for customers. However, some are only creating the illusion of lower prices without actually reducing them. This post aims to help customers understand the different cost elements involved in FX conversion. You’ll learn to: 1) evaluate if your payment service provider (bank or platform) is truly transparent, and 2) calculate the real FX costs your provider has charged.

When you receive a payment through Skydo, we convert your money at the live Forex rate. We don’t charge any additional fees to either the sender or the receiver nor do we levy extra fees for FIRA or transaction processing. This means your entire invoice value is converted at the live rate. We only charge a flat fee of $19 or $29 for our services. To ensure absolute transparency, we also include the date and time stamp of the FX conversion on the FIRA. With this information, you can verify through any reputable online FX platform that we have charged zero FX markup

When you receive an international payment through your bank, there's a good chance that all the applicable fees may be deducted from your invoice value. This might be zero or as high as $45 (Swift fee and intermediary bank fee), which you may end up losing.&nbsp;

In India, banks typically charge you 3 types of fees:

The final amount you receive in your bank is after these charges are deducted, leaving you with the fun task of using a spreadsheet to figure out the actual FX markup

You're surely familiar with how currencies, like traded commodities, undergo continuous fluctuations relative to each other throughout the trading day (usually 9 am to 3:30 pm). The mid-market rate represents the average between the buying and selling rates of currencies, such as INR to USD, fluctuating by up to 20-25 paise within a single trading day.

Your bank will give you a forex rate, but the tricky part is figuring out if it’s the mid-market rate or an internal bank rate. There are various rates like the inter-bank rate, cash rate, spot rate, tom rate (Tomorrow’s rate), and daily rate. These terms can be confusing—often deliberately so! Plus, banks usually don’t disclose the timing of the conversion. Without knowing the benchmark and timing, it’s hard to know the exact markup you’ve paid. So, is your bank really being transparent? I doubt it

How can you calculate your actual fx cost

I’ve included a spreadsheet below to illustrate this point. It focuses on the cheapest bank payments reported by customers. I’ve excluded payment platforms with high 4% fees and unfavorable forex rates, as well as bank rates that are only INR 1-2 off from mid-market. This comparison is based on a savvy customer who skillfully negotiated with their bank to avoid unnecessary charges. Even under these favorable conditions, Skydo proves to be more cost-effective due to our transparency.

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The figures are sourced from our customers' payments received through their banks. Using the payment date and the agreed fx markup, we computed their expected, actual, and Skydo-estimated amounts. If you need clarifications or assistance, don't hesitate to email me. We also have a record of daily fx rates since our inception - happy to share that to help you calculate how much you paid in fx for a particular transaction.

My objective in writing this blog is to dispel myths around the “10 paise” rates that banks supposedly offer, and to help exporters calculate their real costs. For, transparency is never partial - it is either full or absent.

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