Bank exchange rate markup: How much are you really paying?

You're sending $10,000 to a supplier overseas. Your bank quotes you an exchange rate, you approve the transfer, and the money arrives. Simple, right? But here's what you might not realize: that seemingly straightforward exchange rate could be costing you hundreds or even thousands of dollars in hidden markups.

According to recent research, 44% of businesses are frustrated by poor exchange rates when making international payments ¹. The challenge isn't just finding better rates – it's understanding what you're actually paying in the first place. Exchange rate markups remain one of the most opaque costs in international business, yet they significantly impact your bottom line.

Understanding the mid-market rate

Before you can identify hidden markups, you need to understand the baseline: the mid-market rate. This is the real exchange rate you see on financial news sites – the midpoint between what buyers are willing to pay and sellers are willing to accept for a currency at any given moment.

The reference rates are based on the regular daily concentration procedure between central banks within and outside the European System of Central Banks, which normally takes place at 2:10 p.m. ECB time ². These rates represent the true market value of currencies without any markup.

For example, as of August 1, 2025, the exchange rate for US dollar stood at 1.1404, while the Japanese yen was at 171.61 ². These mid-market rates serve as your benchmark for calculating how much extra you're paying through markups.

How banks add their markup

Banks and traditional financial institutions don't typically offer you the mid-market rate. Instead, they add a markup – essentially a hidden fee built into the exchange rate itself. This markup can range significantly depending on the institution and currency pair.

Research shows that conversion fees can range from 0.35% to 2% depending on the currency pair for some providers ³. However, traditional banks often charge much more, especially for less common currency pairs or smaller transaction amounts.

The markup works like this: if the mid-market rate for USD to EUR is 0.85, your bank might offer you 0.82. That 3-cent difference per euro might seem small, but on a $100,000 transaction, you're paying an extra $3,500 in hidden fees.

Calculating your true costs

To understand what you're really paying, you need a systematic approach to comparing rates and calculating markups. Here's a step-by-step methodology:

Step 1: Find the current mid-market rate

Check the mid-market rate at the time of your transaction using reliable sources like central bank websites or financial data providers. Remember that rates fluctuate throughout the day.

Step 2: Compare with your quoted rate

Take the rate your bank or provider is offering and compare it to the mid-market rate. The difference is your markup.

Step 3: Calculate the percentage markup

Use this formula: ((Bank Rate - Mid-Market Rate) / Mid-Market Rate) × 100 = Markup Percentage

Step 4: Convert to actual cost

Multiply your transaction amount by the markup percentage to see the real dollar cost of the markup.

The compound effect of regular transfers

For businesses making regular international payments, these markups compound quickly. Research indicates that 46% of diaspora consumers across Europe consider sending money home as a regular and essential financial activity, comparable to paying rent or utilities ¹. The same principle applies to businesses with recurring international obligations.

Consider a company sending $50,000 monthly to international suppliers. With a 2% markup, that's $1,000 per transaction, or $12,000 annually in hidden fees. Over five years, that's $60,000 – enough to hire an additional employee or invest in significant business improvements.

Global cross-border bank credit expanded by $1.5 trillion in the first quarter of 2025 alone ⁴. With this massive volume of international transactions, even small percentage markups translate to billions in additional costs for businesses worldwide.

Comparing rates across providers

Not all providers charge the same markups. The digital payment market was valued at $10.18 trillion in 2024 and is forecasted to reach $32.07 trillion by 2033 ⁵. This growth has brought increased competition and transparency to the market.

Modern financial platforms are disrupting traditional pricing models. For instance, some providers implement a foreign exchange markup of just 0.3-0.6% above the interbank rate ³. Compare this to traditional banks, where markups can exceed 4% for certain currency pairs.

When comparing providers, look beyond the advertised rate. Some institutions offer seemingly competitive rates but add additional fees that increase your total cost. Others might offer transparent pricing with no hidden markups.

Hidden costs beyond the exchange rate

Exchange rate markups are just one part of the equation. International transfers often involve multiple hidden costs that compound your expenses:

Intermediary bank fees

When your payment travels through the SWIFT network, intermediary banks may deduct fees from your transfer amount. These fees are often unpredictable and can range from $15 to $50 per bank.

Receiving fees

The recipient's bank may charge fees for receiving international wires, further reducing the amount that reaches your supplier or partner.

Currency conversion timing

Some banks hold your funds for days before converting them, potentially exposing you to unfavorable rate movements. Research shows that 65% of respondents rank speed as their top priority when choosing a payment method ¹.

Real-world impact on different business types

E-commerce businesses

With 70% of e-commerce transactions processed by digital wallets in Asia-Pacific in 2023 ⁶, online retailers face constant currency conversion needs. A 2% markup on all international sales can significantly erode profit margins, especially in competitive markets.

Manufacturing and supply chain

Manufacturers sourcing materials globally face regular large-value transfers. The top 3 merchant acquirers processed 62% of the total volume but only worked with 22% of the merchants ⁶, highlighting the concentration of payment processing and potential for better rates through specialized providers.

Service businesses

Companies with international contractors or remote teams make frequent smaller payments. While individual transaction markups might seem minor, they accumulate rapidly with volume.

Technology's role in rate transparency

The payment gateway market is predicted to generate revenues of $276.20 billion in 2030, representing a compound annual growth rate of 11% from 2023-2030 ⁶. This growth is driving innovation in rate transparency.

Open banking technology can surface clear, real-time data on fees, exchange rates, and transaction status, reducing hidden costs and boosting consumer confidence ¹. These advances allow businesses to:

• Compare rates across multiple providers instantly

• Track historical rate trends

• Automate transfers when rates are favorable

• Receive alerts for rate movements

Strategies for minimizing markup costs

Batch your transfers

Instead of making multiple small transfers, consolidate payments when possible. Larger transactions often qualify for better rates and lower percentage markups.

Time your transfers strategically

Exchange rates fluctuate throughout the day. The reference rates from central banks are typically set at 2:10 p.m. ECB time ². Understanding these patterns can help you time transfers for better rates.

Use multi-currency accounts

Holding balances in multiple currencies can help you avoid repeated conversions and associated markups. This is particularly valuable for businesses with predictable international payment patterns.

Negotiate with providers

Larger businesses can often negotiate better rates. The largest 10 merchant acquirers processed $9.5 trillion in card payments in the US in 2023 ⁶, demonstrating the volume-based pricing power in financial services.

The transparency advantage

Transparency in exchange rates isn't just about cost savings – it's about predictability and trust. Research reveals that 35% of businesses are frustrated by high or hidden fees in international payments ¹.

Airwallex addresses this challenge by offering market-leading FX rates on every transaction, big or small, with zero hidden fees ⁷. This transparency extends across operations in 150+ countries and regions, dealing with 60+ currencies ⁸.

By using Airwallex's local network, businesses eliminate traditional transaction fees and ensure funds are delivered faster and in full ⁹. This approach has helped companies like McLaren Racing modernize their cross-border payments ¹⁰.

Regulatory changes and market evolution

The financial services landscape is evolving rapidly. Government initiatives and financial institutions are aggressively encouraging the adoption of digital payments through programs that promote financial inclusion ⁵.

The Fedwire Funds Service migrated to ISO 20022 in March 2025 ¹¹, standardizing payment messaging and potentially improving transparency. These regulatory and technological shifts are gradually forcing traditional providers to become more transparent about their pricing.

Making informed decisions

Understanding bank exchange rate markups empowers you to make better financial decisions. Here's your action plan:

1. Calculate your current costs: Review your last three months of international transfers and calculate the total markup costs using the methodology outlined above.

2. Compare alternatives: Research modern payment platforms that offer transparent, mid-market rates. Remember that providers implementing just 0.3-0.6% markup can save you thousands annually ³.

3. Consider total costs: Look beyond exchange rates to include all fees and timing considerations.

4. Test with small amounts: Before committing to a new provider, test their service with smaller transfers to verify their claims.

5. Monitor regularly: Exchange rate markups can change. Regular monitoring ensures you're always getting competitive rates.

The bottom line on exchange rate markups

Exchange rate markups represent a significant hidden cost for businesses engaged in international commerce. With global payments revenues forecast to reach $3.2 trillion by 2027 ⁶, the stakes for finding transparent, fair pricing have never been higher.

The good news is that increased competition and technological innovation are driving transparency. Modern platforms like Airwallex offer businesses an alternative to traditional banking markups, providing market-leading FX rates with zero hidden fees ¹². Companies like RYSE have already transformed their complex cross-border finances into streamlined, cost-saving operations using these solutions ¹³.

By understanding how exchange rate markups work, calculating your true costs, and exploring transparent alternatives, you can potentially save thousands of dollars annually. In today's competitive global marketplace, those savings can make the difference between thriving and merely surviving.

The era of accepting opaque exchange rates as a cost of doing business internationally is ending. Armed with knowledge and the right tools, you can ensure that when you send $10,000 to that overseas supplier, they receive as close to $10,000 as possible – not $9,500 after hidden markups eat into your transfer. The choice, and the savings, are yours.

FAQ

What is a bank exchange rate markup and how does it work?

A bank exchange rate markup is the difference between the real mid-market exchange rate and the rate your bank offers you. Banks typically add a margin of 2-4% on top of the mid-market rate, which means you receive less foreign currency than you should. This markup is often hidden within the quoted exchange rate, making it difficult for businesses to identify the true cost of their international transfers.

How much can hidden exchange rate markups cost my business annually?

Hidden exchange rate markups can cost businesses thousands of dollars annually, depending on transaction volume. For example, on a $10,000 transfer with a 3% markup, you could pay an extra $300 in hidden fees. Research shows that 44% of businesses are frustrated by poor exchange rates, indicating this is a widespread issue affecting company profitability across international transactions.

How can I calculate the true cost of my bank's exchange rate markup?

To calculate your bank's markup, compare their quoted rate to the mid-market rate available on financial websites like XE.com or Google. Subtract the mid-market rate from your bank's rate, then divide by the mid-market rate and multiply by 100 to get the percentage markup. For example, if the mid-market rate is 1.30 and your bank quotes 1.26, the markup is approximately 3.08%.

What are wire transfers and how do their fees compare to exchange rate markups?

Wire transfers are electronic money transfers between banks that typically involve both upfront fees and exchange rate markups. While wire transfer fees are transparent and usually range from $15-50 per transaction, the hidden exchange rate markup often costs much more. Understanding how wire transfers work helps businesses identify all associated costs and compare them against alternative payment methods that may offer better rates.

Are there transparent alternatives to traditional banks for international payments?

Yes, several fintech companies offer more transparent international payment solutions with lower markups. Platforms like Airwallex and Wise provide real-time foreign exchange rates for major currency pairs and support over 50 currencies. These alternatives often charge lower, more transparent fees compared to traditional banks, helping businesses save significantly on cross-border transactions and international payments.

How do cross-border fees impact small and medium enterprises differently?

Cross-border fees disproportionately impact SMEs because they typically have lower transaction volumes and less negotiating power with banks. Unlike large corporations that can negotiate better rates, SMEs often pay standard retail markups that can significantly affect their profit margins. Modern financial solutions are specifically designed to support SME growth by offering scalable, transparent pricing that doesn't penalize smaller transaction volumes.

Citations

1. https://www.thunes.com/news/top-growth-drivers-in-consumer-cross-border-payments/

2. https://www.bancaditalia.it/compiti/operazioni-cambi/cambio/cambi_rif_20250801

3. https://www.trykeep.com/newsroom/airwallex-vs-transferwise

4. https://www.bis.org/statistics/rppb2507.htm

5. https://www.globenewswire.com/news-release/2025/05/28/3089198/0/en/Digital-Payment-Industry-Report-2025-Market-to-Hit-32-07-Trillion-by-2033-Government-Initiatives-Propel-Global-Shift-to-Cashless-Transactions.html

6. https://www.merchantsavvy.co.uk/digital-payment-market/

7. https://www.airwallex.com/ca/business-account/transfers/send-money-to-bolivia

8. https://www.airwallex.com/ca/business-account/transfers/send-money-to-malawi

9. https://www.airwallex.com/ca/business-account/transfers/send-money-to-bangladesh

10. https://www.airwallex.com/ca/blog/wire-transfers-what-is-it-how-they-work

11. https://www.form3.tech/news/payment-insights/key-us-payment-trends-in-2025-and-beyond-that-banks-need-to-be-aware-of

12. https://www.airwallex.com/ca/business-account/transfers/send-money-to-uk

13. https://www.airwallex.com/ca/business-account/transfers/send-money-to-australia