The "hidden fees" in your Bank rates and how to calculate your actual fx cost

Srivatsan Sridhar10 August 2023

Our aim at Skydo is to make international payments seamless and transparent.  By providing conversion at live mid-market rates and a fixed fee, we wanted to challenge hidden charges prevalent in banks. These covert fees take the form of Swift and intermediary bank fees, fx markup, FIRA, and processing costs. The fx markup, often opaque, can be a hidden cost. Without knowing the benchmark or timing, customers can't determine their actual costs. In contrast, our approach ensures clear pricing, enabling exporters to precisely calculate their actual expenses. If you don't have the time to read the entire article, skip to the table in para 6. 

Why we started Skydo

Founded in March 2022 by Movin Jain and myself, Skydo emerged from Movin's experience in UPI payments with India's major UPI player. His dream is to make b2b payments as effortless as UPI transactions. As a long-time exporter, I aim to bring transparency to international payments - business owners should know how much they're paying without needing complicated spreadsheets to figure it out. We have received a fantastic response from customers for our product. This has humbled us both, and only strengthened our belief that we are solving a real problem.

Pricing transparency: what does it mean? 

The transparency in pricing that Skydo is bringing about is challenging the hidden margins that payment service providers have long enjoyed. So, naturally many of them are lowering their prices which is great for the customer. However, some of them are merely creating a perception of lower prices without actually lowering them. This post is my attempt to help customers understand the different cost elements involved in your fx conversion, so you can do two things: 1) evaluate if your payments service provider (bank or platform) is actually transparent with you, and 2) learn to calculate the real fx costs that your payment provider has charged. 

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How Skydo quotes its fees

When you receive a payment through Skydo, we convert your money at the mid-market rate. We don’t charge any fees at the sending side (international), receiving side (India) or for FIRA or transaction processing. This means, your invoice value is entirely converted at the live rate. We charge you a flat rate of $19 or $29 fee for our services. To prove that we have not marked up the fx, we also issue the date and time stamp of the fx conversion on the FIRA - with this information, you can verify through any reputed online fx platform that we have charged zero fx markup.

How Banks quote their fees

When you receive a payment through your bank, they do not take any responsibility for sending side charges that might be deducted from your invoice value. This might be zero or as high as $45 (Swift fee and intermediary bank fee) that gets deducted from the invoice value.

Your India bank, typically,  then charges you 3 types of fees:

  1. Fx markup: Often shrouded in opacity, without negotiation, your bank employs card rates for conversion; through negotiation with your manager or RM, this might reduce to 10 to 50 paise from bank rates (not mid-market rates). This is better explained in the next section
  2. FIRA fee: can range from INR 150 to as high as INR 500 per transaction
  3. Processing fees: can range from zero to as high as INR 800 per transaction

The final amount you receive in your bank is net off these charges and you will have to use a spreadsheet to calculate what the actual fx markup was.

The hidden cost in 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.

Often your RM often will provide you with a single fx rate like 10 paise or 20 paise. The difficulty lies in determining whether this rate comes from the mid-market or an internal bank rate. Different types of rates exist, such as inter-bank rate, cash rate, spot rate, tom rate (Tomorrow’s rate), and daily rate. These definitions are confusing, often deliberately so! Also note that the conversion timing is never disclosed. When the benchmark and timing are unclear, it becomes tough to ascertain the exact markup you've paid. So, is your bank really being transparent with you? I sincerely doubt it.

How can you calculate your actual fx cost

Below, I've included a spreadsheet to illustrate this. I've focused on the cheapest bank payments reported by customers for this exercise. I've left out instances from payment platforms with high 4% fees and unfavorable fx rates, as well as examples where bank rates are only INR 1-2 off from mid-market. This comparison involves a savvy customer who negotiated skillfully with their bank and avoided unnecessary charges. Despite such favorable conditions, Skydo emerges as the more cost-effective option due to our transparency.

Screenshot 2023-08-11 at 11.10.34 AM.pngFigure 1 | INR- Euro Conversion
Screenshot 2023-08-11 at 11.10.48 AM.pngFigure 2 | INR - USD Conversion

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.

Srivatsan Sridhar, Founder & CEO

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About the author
Srivatsan Sridhar
Co-Founder & CEO
“I enjoy building Skydo ground-up”Travel, Music & History