Five Tips to Save on FX and transaction fees

The Global Foreign Exchange Market

Let's talk about the global foreign exchange market. Back in 2021, it was worth $725.4 billion, but by 2031, it’s expected to nearly double, hitting around $1.51 trillion. That’s a huge leap, thanks to a annual growth rate of 7.62%. It really shows just how big and important FX transactions are around the world.

Understanding Southeast Asia’s FX Landscape:

Southeast Asia is becoming a major player in global financial transactions, with a substantial volume of cross-border transfers happening in the region. 

In 2023, the top outbound transfer markets in Asia reveal that:

• India and Indonesia are at the forefront of cross-border trade and investment.
• The Philippines and Vietnam are picking up speed, which might be shifting some influence toward Southeast Asia.

These trends come from Aspire's data, covering over a million transactions from January 2022 to December 2023. India led with 24,044 transactions, followed by the USA, Indonesia, and the UK. Other notable players include the Philippines, China, Malaysia, Hong Kong SAR, Sri Lanka, and Vietnam, all making their mark in the global FX market.

So, Why Should You Look to Save on FX?

Saving on FX fees can make a big difference for your business.

Here’s why it’s worth paying attention to:

• High FX Exposure: Every time you handle a foreign currency transaction or convert money, you’re hit with fees. If you’re doing this often, those fees can really add up. By cutting down on these costs, you can lower your overall expenses and boost your profits.
• Steady Cash Flow: Lower FX costs make your cash flow more predictable. This means you’ll have a clearer picture of your finances, which helps with better planning and resource management. If your business is expanding internationally, you’ll be dealing with more currency risk, and managing this effectively is key to maintaining financial stability.
• Stay Competitive: By keeping your FX costs in check, you can offer better pricing to your customers. This can give you an edge over your competitors and attract more business.
• FX Fluctuations: FX rates can change constantly due to economic factors. This volatility can affect your costs and revenues, especially if you invoice in one currency but make payments in another. For example, sudden exchange rate shifts can impact your financials if you invoice in SGD but pay in USD.
• Streamline Finances: Reducing FX costs can simplify your financial operations. This means less hassle and more time to focus on growing your business.

Why Traditional Banking Might Not Be Enough

Many businesses use their banks for foreign exchange (FX) transactions, thinking it’s the easiest option. But there are some problems with this:

• Hidden Costs: Banks often have extra fees that aren’t easy to spot, like charges for converting currencies or processing payments.
• Fees for Each Transaction: Every FX transaction can come with its own fees, which can quickly add up.
• Lack of Transparency: Banks might not always be upfront about all the costs, making it hard to know what you’re really paying for.

In short, sticking with traditional banking for FX transactions might end up being more expensive than you expect.

Additionally, FX transaction costs are just one piece of the puzzle. There are several other fees you might encounter in your business transactions.

Let’s break down the different types of fees you might have to pay.

Types of FX and Business Transaction Fees

1. FX-Related Fees

These fees are associated specifically with handling foreign currencies and international transactions:

FX Transaction Fee: This fee comes into play when you buy something or make a payment in a foreign currency. 

For example, let's say your business in Singapore is purchasing office supplies from a supplier in the United States. If your credit card charges a 3% FX transaction fee on the 1,000 USD purchase, you'd be charged an additional 30 USD (3% of 1,000 USD). Converted back to SGD, this would be around 40.50 SGD, making your total cost 1,417.50 SGD.

FX Conversion Fee: This is a charge you pay when you exchange one currency for another. 

For example, the total cost is 1,000 USD. To pay this amount, you need to convert SGD to USD. If your bank charges a 2% FX conversion fee, and the current exchange rate is 1.35 SGD to 1 USD, you would first convert 1,350 SGD to 1,000 USD. The bank would then add a 2% fee on top of this, costing you an additional 27 SGD (2% of 1,350 SGD). So, you would pay 1,377 SGD in total.

SWIFT Fee: This fee is incurred when you process international wire transfers through the SWIFT network. 

For example, if you’re transferring 20,000 USD to your US-based supplier, your bank might charge a 30 USD SWIFT fee for processing the transfer.

Currency Hedging Fee: It is a charge you pay to protect your business from unexpected changes in currency exchange rates. 

For example, suppose your Singapore business needs to pay a European supplier EUR 10,000 in three months. You are worried the euro might get stronger, making the payment more expensive in Singapore dollars. To avoid this, you lock in the current exchange rate through a hedge. If your bank charges a 1% Currency Hedging Fee, you’ll pay that fee based on the amount you're locking in. This fee gives you peace of mind, knowing your payment amount won’t change due to exchange rate fluctuations.

2. General Transaction Fees

Transaction fees generally apply to your debit, credit, or other payment card transactions and are charged by your bank or payment provider for processing these transactions. These could apply to both domestic and international money transfers:

Interchange Fee: They are charged by the card-issuing bank when processing credit or debit card transactions. 

For instance, if you invoice a customer 500 SGD and they pay with a credit card, the issuing bank might charge a 1.5% interchange fee, totaling 7.50 SGD.

Payment Gateway Fee: These are applied by online payment processors for handling payments. 

For example, if you receive 1,000 SGD from a customer through an online payment gateway, and the fee is 2.5%, you would pay 25 SGD for processing the payment.

Issuing Bank Charge: It is the fee from your bank for using a company credit card, especially for international transactions. 

For example, if you charge 1,000 USD on your credit card, the issuing bank might apply a 1.5% fee, totaling $15.

Terminal Fees: Charged by companies providing point-of-sale systems for processing payments.

Other Fees: Additional fees may include account maintenance, overdraft, statement, and termination fees.

So, how do you make sure these fees don't take a big bite out of your revenue? Let's find out. 

5 Ways to Save On FX Costs

As a business owner, keeping an eye on your foreign exchange (FX) costs and risks is key to staying profitable and running smooth operations. Here are some important choices you might want to consider:

Pay in Local Currency:

Whenever you can, try to pay your suppliers in their local currency. This way, you can skip the currency conversion step and avoid extra fees. Plus, paying in their currency often lets you negotiate better deals and keep your costs steady.

Use a Multi-Currency Account:

Think about opening a multi-currency account. It lets you handle transactions in different currencies without constantly converting money. This can cut down your conversion costs and make your financial management a lot simpler.

Pick a Card with No FX Fees or Low Conversion Fees:

Choose a corporate card that doesn’t hit you with foreign transaction fees or has low conversion fees. This can save you a lot on international purchases and transactions. Look for cards that are made for businesses like yours that deal with international payments often.

Set Up Forward Contracts:

Forward contracts let you lock in exchange rates for future transactions, which protects you from sudden changes in currency values. Some payment providers, like Aspire, offer these contracts to help you manage FX exposure and secure better rates ahead of time.

Keep an Eye on Exchange Rates:

Stay on top of exchange rates and market trends. By watching the rates regularly, you can decide the best times to convert currencies or make payments, helping you save money when the rates are in your favour.

By making these smart decisions, you can keep your FX costs in check and reduce risks, helping your business stay financially strong.

With that in mind, let's explore and compare some of the top corporate card options available in Singapore.

Comparison of Popular Corporate Cards in Singapore

Why Choose the Aspire Corporate Card for Your Business

The Aspire Corporate Card is a great choice for handling international payments, especially if you’re dealing with foreign currencies often. Here’s why:

Multi-Currency Capability: The Aspire Corporate Card lets you make transactions in multiple currencies like USD, SGD, EUR, GBP, and IDR, so it’s perfect for businesses that operate globally. You can manage payments across different countries without needing a separate card for each one.

Global Reach: With Aspire, you can easily send and receive payments in over 30 currencies across 130+ countries, giving your business the global reach it needs.

Cost-Effective: Aspire offers foreign exchange rates that are up to three times cheaper than traditional banks, helping you save money on international transactions.

No Foreign Transaction Fees: Unlike many other cards, the Aspire Corporate Card doesn’t charge foreign transaction fees. Instead, it has a low foreign exchange markup of up to 1.5%, which can significantly cut down your costs on international payments.

Unlimited Virtual Cards: You can issue unlimited virtual cards instantly, which is great for managing expenses across teams or departments. Use them for one-time purchases or recurring payments, making it easier to control spending and enhance security.

Real-Time Expense Management: Aspire's real-time expense management allows you to monitor spending and manage budgets more effectively. This helps you stay on top of your international transactions and gives you better control over your finances.

Custom Spending Limits: Set custom spending limits for different cards or users, giving you control over how funds are spent. This feature is especially useful for businesses with multiple employees or departments managing various expenses.

Integration with Accounting Software: Aspire integrates smoothly with your accounting software, making expense reporting and reconciliation a breeze. This saves you time and reduces the hassle of managing your finances.

Earn Cashback: Save even more with 1% cashback on your digital marketing spends, software-as-a-service (SaaS) expenses and e-commerce & business logistics. It’s an easy way to get more value out of your business tools and services.

No deposit or minimum balance required. Open your free business account today and have it ready in 1 business day!