With Donald Trump’s election and, more recently, strong employment numbers coming out of the US, many South Africans will have been keeping a nervous eye on the Rand’s performance against major currencies. That nervousness isn’t unfounded either. The gains the local currency enjoyed against the dollar through the second half of 2024 have been wiped out (before the US election, the rand was at just over R17 to the dollar; at the time of writing it’s at just under R19).
While that’s good news for local exporters and service-based companies with international clients, it’s a major concern for import-based businesses and ordinary South Africans who, amidst the Rand’s unpredictability, are looking to protect their wealth and invest money offshore. Already disadvantaged by the rand’s slide in the years leading up to the 2024 elections, its resurgence last year would have given the latter group of South Africans hope.
While there’s nothing any single company or individual can do to impact the value of the rand, they can take steps to mitigate the impact of a weakened rand on their international money transfers. According to Harry Scherzer, CEO of international money transfer fintech Future Forex, an important part of that is understanding the fees currency exchange providers typically charge, particularly ones they’re less than transparent about.
“Most people and businesses making international money transfers are aware of things like SWIFT or processing fees,” he says. “That’s because those fees are laid out upfront and can therefore be planned for.”
“What traditional international money transfer providers are less transparent about is the cost of the ‘ spread’,” Scherzer adds. “Simply put, the spread is the difference between the mid-market exchange rate and the rate offered by the provider. All international money transfer providers use this mechanism, but many traditional banks overcharge on this fee without explaining it to their customers or including it in their currency exchange quotes.”
According to the Future Forex CEO, banks are especially guilty of this lack of transparency.
“Unfortunately, because people trust banks with most of their other financial transactions, they typically think they’re also the best place to go for international money transfers,” he says. “But a lack of transparency isn’t the only reason a bank probably isn’t your best bet for international money transfers. Their weaknesses around things like automation and customer service around international money transfers can also result in customers spending more time and money than they have to.”
“Having to resubmit documents, navigate compliance, or figure out the correct Balance of Payment (BoP) code to submit (out of hundreds), can mean missing out on a window when the exchange rate is good,” Scherzer adds. “And spending hours on the phone with a bank’s customer service team doesn’t just waste time. It also means that people within a business are distracted from what should be their primary purpose: fostering and growing that business.”
Knowing all of the above, what should people and businesses look for in an international money transfer provider? According to Scherzer, it starts with finding one that prioritises transparency and customer service.
“Choosing a provider that’s completely transparent when it comes to fees means that you won’t be faced with unexpected fees that can significantly increase the total cost of your transfer,” he says. “But it also allows you to make more informed decisions that ultimately benefit your business.”
When it comes to customer service, Scherzer highlights the importance of comprehensive support that goes beyond just friendly interactions, ensuring customers receive truly effective and personalised solutions.
“What you want is a provider with a customer service team that holds deep industry expertise and who can help you with even the most complex problems,” he says. “Having this expertise on hand saves you time and money, bringing additional benefits to your business.”
According to Scherzer, a good international money transfer provider can save you money in other ways too. One such way is through Forward Exchange Cover (FEC), a financial tool used to manage the risk of fluctuations in exchange rates.
“FEC works through the company making an international payment entering into a contract with the payment provider to exchange a specified amount of one currency for another at a specified exchange rate on a future date,” he says. That means the company knows exactly how much it’ll pay for that transaction, providing much-needed certainty, regardless of exchange rate fluctuations.”
“In a world filled with increasing geopolitical uncertainty, exchange rate fluctuations are likely only going to become more erratic,” Scherzer concludes. “Individuals and businesses have no control over that. It’s critical, therefore, that they control what they can and save where they can. Choosing an international money transfer provider that has their best interests at heart can go a long way to helping them achieve both.
