South African businesses are paying far more than they should be for foreign exchange (forex) transactions and many of them don’t even know it. That’s according to the results of a new survey from South African fintech disruptor Future Forex.
The survey, which was completed by over 250 companies across a broad number of industries including Finance, Retail and Media to name a few, was commissioned in order to get a snapshot of some of the frustrations, challenges, and opportunities SMEs and other businesses face when it comes to forex transactions.
A lack of forex knowledge and transparency in fee structures
Among the survey’s key findings, more than 75% of participants didn’t know how they were being charged per transaction by their bank or forex provider.
Another key finding is that 34% of respondents don’t know what the exchange rate margin is. Also referred to as the spread, the exchange rate margin is the difference between the rate at which a forex service provider buys a currency and the rate at which it sells it. The spread can be expressed as a percentage relative to the exchange rate, which fluctuates over time because of its responsiveness to market sentiment.
According to Future Forex CEO Harry Scherzer, it isn’t too surprising that so many respondents don’t know about exchange rate margins. But, he adds, not knowing about it can be costly.
“The fact that more than a third of respondents don’t know about exchange rate margins aligns with our own experiences with new customers,” he says. “But that lack of knowledge may mean they’re paying far more on transactions than they should be. Thanks to a lack of transparency in applying exchange rate margins, some forex service providers charge inconsistent and occasionally exorbitant margins. In fact, many may be being charged more than they believe they are.”
As a result, he adds, a business that makes multiple R1 million-plus transactions a year could end up losing out on hundreds of thousands of rands annually on spread fees alone. Banks, the Future Forex CEO adds, are particularly guilty of this inconsistency and lack of transparency.
With most survey respondents including exporters conducting forex transactions, it’s clear that there is a significant amount of potential lost income for exporters and additional costs for importers.
Demand for innovative providers who put client needs first
A large portion of participants were not happy with their existing provider. Among the major causes of dissatisfaction are price, transparency and usability.
Unsurprisingly, the majority of respondents would be willing to switch to another provider, especially if it has a better offering. This shows that there is demand in the market for alternative forex providers, particularly those that can provide better pricing, transparency, and usability than banks and other traditional forex players.
“The findings of the Future Forex Survey show how much room for improvement there really is in the South African forex space,” says Scherzer. “But they also validate our decision to position Future Forex as a provider that is laser-focused on using automation, technology, and exceptional support to build a service that gives South African businesses the best possible forex rates while also operating transparently and in a way that makes it as easy as possible for people to move money internationally.”