Your bank loves you and it has a great reason for that. As a general rule of thumb, over 25% of banks’ profits are from Micro, Small & Medium Enterprises (MSME’s).
It almost does not matter in which country we live in and where our businesses are located, we find ourselves constantly blaming quite a few institutions for this situation. When looking at our government, it seems it favors the interests of large corporations rather of our own. Central banks are focused on stabilizing the commercial banks and not on stabilizing market conditions for the simple citizen or MSME. Various regulatory bodies and committees are put in place in order to protect the “little guy” but it feels that they are more concerned with protecting the banks and the status quo, namely, the current structure of the large enterprises in the economy. The bottom line is that you, the MSME or individual, are not quite a high priority and until you will become one, we will all keep subsidizing the banks.
Too few MSME’s and individuals are aware that there are very good alternatives to some of the banks services that the banking system has to offer. Here are three tips that should help you save money and finance the banks a bit less. Every journey starts with one single step and in this case towards having the “little guy” in the center of things.
Tip 1: Do not execute your international bank transfers through the bank
Many MSME’s have to pay their suppliers overseas for a variety of goods and services. They are often surprised by the fees they end up paying for their cross-border payments. For example, on a 1,000 Euro transfer from Germany to the UK, a MSME should expect to pay somewhere between 30-80 Euros, that translates to 3%-8%, which includes converting the money and sending it using SWIFT.
There is a much cheaper solution that can save you up to 80% of bank fees on each international bank transfer. Covercy, one of a few Fintech companies that aim to change this space, is a technological company that developed a unique financial platform that provides a secure and cheap alternative to the banks with regard to cross-border payments. As they have no need to have many branches and no need to use the SWIFT system, they can offer low and attractive fees.
Tip 2: When abroad – pay cash
Paying with a debit or a credit card in the country of my residence is simple and hassle free. I can easily track my payments and there is no need to deal with cash. However, when I get on a plane and go to a country that uses a different currency to my own, I hide my debit and credit cards deep in my pocket. Why you ask? Credit card providers learned very well from banks on how to charge you a large sum without you noticing much, better known as “hidden fees”. Paying with a credit card on a foreign currency transaction will cost you 2%-4% of the sum of money. The credit card provider simply charges you on an exchange rate that looks ‘normal’ but is in fact pretty much inflated. If that is the case, you must ask yourself then, where can I get cash in a good price? Hint, it is in the next tip.
Tip 3: Before flying – withdraw cash and exchange it at your local currency exchange office
The bank takes commissions on currency exchange, the withdrawal of foreign currency at the teller and the withdrawal of foreign currency at an ATM. When withdrawing small amounts, often you will find yourself paying more than 5%. The solution is to withdraw local currency from your bank account (in most cases this operation costs nothing or a few cents at most), go to the nearest currency exchange office (and by no way at the airport) and complete the exchange. In general, although you should be aware of the rates presented, going to the nearby currency exchange office should save you around 50% in comparison with the bank.