Study: Hong Kong Businesses lost an estimated HK$ 1.18 Billion in 2021 to hidden exchange rate markups when sending money abroad

• Cross-border business activities remained robust amidst the pandemic — volume outflow by Hong Kong businesses estimated to be HK$ 99 billion in 2021

• Top markets that Hong Kong companies do business with include China, the U.S., Singapore, Japan, United Kingdom, and Australia 

• Expensive cross-border transaction charges and a lack of transparency in fee structures are top challenges for businesses, putting SMEs at a more disadvantaged position when expanding overseas

Hong Kong, 5 May 2022 — Hong Kong businesses lost an average of HK$ 1.18 billion in 2021 from hidden exchange rate markups when making international money transfers, according to an independent study: “The Economic Impact of ‘Hidden Fees’ in the Cross-border Payments Industry and the Way Forward”. 

The study, conducted by Coleman Parkes for Wise (LON:WISE),  examined the behaviour and frustrations companies have around international money transfers, uncovering the inefficiencies and a lack of transparency around the traditional banking system used to move money globally. 

The estimated findings show that Hong Kong businesses paid HK$1.82 billion in fees on cross-border money transfers in 2021. Of this, roughly HK$ 638 million were spent on transaction fees, but 65% — about HK$1.18 billion — were hidden as exchange rate markups on currency conversions when sending money internationally.

Shockingly, small and mid-size enterprises (SMEs), the backbone of Hong Kong’s economy, are the hardest hit by the non-transparent currency exchange practice, accounting for 99% of the amount lost to exchange rate markups.

Businesses at risk of hidden fees: Understanding the cost of international payments is no easy feat 

73% of all businesses surveyed say that understanding the cost of sending money abroad is easy, yet only 18% correctly identified the true cost involved — which is both the upfront transaction fee and the markup in the exchange rate. About 1 in 4 (28%) businesses even said it was free.  

This highlights a lack of transparency in cross-border payments, where many are unaware that providers tend to add an undisclosed markup to the exchange rate, leading to customers paying more than they should.

Fee structures can also vary from provider to provider, which further compounds the confusion. Indeed — 64% of all businesses are not fully aware of the differences in fee structures across various money transfer providers. The knowledge gap is particularly pertinent among SMEs, with over 7 in 10 (71%) small businesses struggling to understand fully.

Traditional banks still dominating; SMEs getting the short end of the stick

55% of businesses are still reliant on old-school methods like bank transfers to make cross-border payments, citing familiarity and trust in their traditional bank as key factors behind their choice. In particular, more SMEs (63%) are sticking with traditional banks compared to barely half of MNCs (47%). This may not come as a surprise — after all, resource-lean small businesses who hardly have time or manpower to thoroughly compare providers would often default to using the same traditional provider for both domestic and international needs. 

Customer loyalty is waning: rising expectations for ‘digital-first’ money transfer services in 2022 and beyond 

It’s clear that businesses are frustrated with the state of international payments today, and won’t hesitate to explore alternatives — high transaction fees (52%) emerged as a key challenge, followed by hidden costs (43%), slow payments (40%), and unfavourable currency conversion rates (38%). Among businesses that have never used digital alternatives, 59% of them say they would consider switching if it’s faster, cheaper and more convenient than their traditional provider. 

With 98% of businesses expecting increased cross-border payment activity in the next 12 months, there’s a large potential for tech and digital options to support these businesses.  

Interestingly, one bad experience can drive businesses away as 8 in 10 companies (80%) say they will avoid using a provider for any other service if they don’t practice fee transparency. Expectations for financial providers are also higher than ever: 86% expect more digital services, 84% say traditional banks need to step up their game to meet changing needs and 59% believe traditional banks could be replaced by digital alternatives in the future. 

Derick Li, APAC Expansion Lead at Wise, said: “The study highlights the complexity and opacity in the cross-border payments industry. Slow speeds, high costs and the age-old practice of hiding fees in the exchange rate, hinders businesses’ growth, and this is particularly concerning for resource-lean SMEs who are already struggling to stay afloat amidst the pandemic.”

“At Wise Business, we are committed to support businesses by providing them with faster, cheaper, more transparent and convenient international payment services so that their hard-earned dollars can be invested wisely in areas that help them flourish.” 

Wise Business, the company’s B2B offering, provides an alternative to traditional providers. Businesses can send money abroad for a small, up-front fee at the real exchange rate as seen on Reuters – and 45% of all payments arrive instantly. Business-friendly features include the ability to schedule mass payouts, enable multi-user access, and integrate accounting software for auto-reconciliation. 

Wise also built Wise Platform which enables banks and enterprises like Aspire, Shinhan Bank, Up and Xero to tap into the Wise infrastructure to offer their customers a cheaper, faster way to move and manage money. Wise Platform is live with more than 20 banks, 11 enterprises, and 12 distribution partners.