Unveiling Hidden Costs: The Importance of Understanding Receiving Rates in Cross-Border Payments
Cross-border payments involve two key rates: sending and receiving. While sending rates are well-known, receiving rates often go unnoticed. These rates, also known as automatic currency conversion, are the costs incurred by the recipient's US bank when converting the sender's currency into the recipient's currency. Understanding these rates is crucial for businesses, particularly in countries like the US where most trade is in dollars.
Receiving rates are typically less understood than sending rates, yet they can significantly impact the total cost of a cross-border payment. These rates are usually derived from programmatic advertising platforms and their associated reporting systems, which track metrics like cost per impression, cost per click, and return on investment. Third-party tools such as Nielsen's Digital Ad Ratings can provide deduplicated viewership metrics to enhance these rates.
In a cross-border payment from the US to the UK, for instance, the recipient's US bank may charge for currency conversion. This receiving rate can sometimes be more expensive than the sending rate, depending on the specific corridor. Knowing the cheaper option for a particular corridor can inform a bank's or payment company's product strategy, presenting a significant opportunity for the banking sector to provide alternatives to comparably expensive receiving rates.
Receiving rates, though less discussed, play a crucial role in cross-border payments. By understanding and comparing these rates, businesses and financial institutions can make informed decisions, potentially reducing costs and improving their product strategies.
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