When businesses engage in B2B cross-border payments, particularly in a vast market like India, the process can seem straightforward. However, beneath the surface lie various hidden costs that can inflate the overall transaction price. These fees, if not properly accounted for, can significantly erode the profits of companies transacting internationally. Let’s explore these hidden costs and how businesses can mitigate them.

Why Do Hidden Costs Matter in Cross-Border Payments?

For businesses involved in cross-border B2B payments, especially in India, understanding the full scope of fees and surcharges is essential to maintaining cost efficiency. Often, these fees go unnoticed until companies find their balance sheets impacted by higher-than-expected payment costs. Knowing where these fees come from can help businesses reduce unnecessary expenses and optimise their payment strategies.

Types of Fees in Cross-Border Payments

1. Currency Conversion Fees

Currency conversion is one of the most obvious, yet often underestimated costs. When businesses in India receive payments from clients or partners abroad, the funds need to be converted from the sender's currency into INR (Indian Rupees). Payment processors or banks typically charge a currency conversion fee for this service, which can range from 1% to 4% of the transaction amount.

Many providers also add a markup on the exchange rate, which is not transparent. This hidden fee is built into the conversion and can make the transaction more expensive than it initially seems.

2. Transaction Fees

Transaction fees are the most obvious costs. These are imposed by banks or payment service providers (PSPs) for processing international transactions. The charges can vary depending on the country, the currency, and the financial institution handling the transaction. Indian businesses looking for efficient B2B cross-border payment options should carefully compare the transaction fees of various service providers.

3. Intermediary Bank Fees

Cross-border payments often pass through one or more intermediary banks before reaching the recipient. Each of these banks can charge a processing fee for facilitating the transfer. These fees, known as correspondent banking charges, are deducted from the payment, meaning the final amount received may be lower than expected.

4. Regulatory Surcharges

In certain countries, including India, regulatory bodies may impose surcharges on international payments. These could be taxes or compliance-related fees meant to cover the cost of monitoring international financial transactions for money laundering or other illegal activities.

How It Affects Indian Businesses:

Indian companies may find that funds sent from abroad pass through multiple institutions, each taking a small portion, resulting in a noticeable reduction in the received amount. Businesses should be aware of this and choose payment networks that minimise intermediaries.

The Indian Context:

India's strict foreign exchange laws, particularly under the Foreign Exchange Management Act (FEMA), require businesses to adhere to specific regulations when sending or receiving international payments. Non-compliance can lead to penalties or additional surcharges.

How to Reduce Hidden Costs in Cross-Border Payments

1. Choose Transparent Payment Providers

Many payment providers offer lower fees but include hidden markups. To avoid this, businesses should look for transparent B2B cross-border payment solutions that provide a breakdown of all fees, including exchange rate markups and processing fees. Infinity, in India specialise in low-cost, transparent international payment processing.

2. Leverage Local Payment Networks

In some cases, using local payment networks or services tailored for B2B cross-border transactions in India can reduce reliance on international banks and their associated fees. Partnering with payment providers that have relationships with banks in both countries can help avoid multiple intermediary charges.

3. Plan for Currency Volatility

Since currency fluctuations can significantly affect conversion fees, businesses should stay informed about currency trends. Hedging against currency volatility by locking in rates or planning payments strategically can help reduce currency-related costs.

Conclusion

For businesses in India engaged in B2B cross-border payments, hidden fees such as currency conversion charges, intermediary bank fees, and regulatory surcharges can add up quickly. To ensure cost efficiency, it’s crucial to choose transparent payment providers, minimise intermediaries, and plan for currency volatility. Understanding the full picture of these costs can save your business time, money, and frustration in the long run.

Infinity specialises in B2B cross-border payments can offer tailored solutions to minimise fees, enhance transparency, and provide more favourable currency conversion rates. Infinity provide services that offer transparency and competitive rates without hidden surcharges. By doing so, you can ensure smoother, more profitable international transactions.