Millions of SMEs in Brexit trade limbo

Small businesses are relying on international income, but uncertainty around Brexit is leaving them in a trade limbo.

Millions of Britain’s SMEs trading internationally are in a trade limbo about what Brexit will mean – putting valuable overseas income at risk – according to data from TransferWise.

As Britain awaits the triggering of Article 50, SMEs admit Brexit will change their trading habits, but they’re not sure how. Half (47 per cent) of SMEs who export say they expect to see changes to their international business post Brexit, and 53 per cent of importers say the same.

More than a quarter (28 per cent) of SMEs receive more than £100,000 a year in international payments. The average turnover for a British SME is £327,000, so for millions international trade could equate to a third of their annual income.

The government can help these businesses in trade limbo

More than 3.2 million (59 per cent) British SMEs send or receive foreign currency payments as part of regular business activities. Banks typically charge an upfront fee as well as hiding an extra charge within their exchange rate for international transactions.

Businesses are left confused about the overall cost of foreign transactions – in fact 78 per cent of people who regularly transfer money abroad can’t work out the cost of a typical bank foreign currency payment.

TransferWise revealed in September 2016 that Britain’s SMEs had lost £4.1 billion in hidden foreign currency charges the previous year.

The Second Payment Services Directive (PSD2) mandates transparency in these transactions and states that the customer must know the real costs and charges of transferring money abroad.

With the PSD2 draft regulations recently released for consultation, the time is now to ensure that banks are held account to the directive, and UK SMEs have a greater visibility of the costs of trading internationally.

Brexit has caused uncertainty

Taavet Hinrikus, CEO, TransferWise says ‘UK SMEs have embraced the international marketplace, and many are raking in a significant portion of their income from overseas custom. The uncertainty about what Brexit means for imports and exports could be hugely damaging for these companies, and its time the government took action to help.

‘Back in 2015 the government pledged to bring transparency to the foreign currency industry. PSD2 was the perfect opportunity for the government to do something for small businesses, given the directive states that people should know ‘the real costs and charges’ of transferring money abroad.

‘And yet the UK Government has chosen to leave this out of the draft regulations – bowing to pressure from the banks and effectively putting two fingers up at UK businesses.’

Hinrikus says, ‘There is time to change the final regulations, but the government must act now. It won’t alleviate Brexit uncertainty, but it will mean a fairer deal for all those British businesses who trade internationally.’

Roger Fenton, CEO and founder, Travelopo has lost millions of pounds in hidden foreign currency fees.

Travelopo is a holiday rentals company, with offices in Bristol, UK and Pollensa, Mallorca. Founded in 2011, Travelopo is an online travel agent offering over 100,000 professionally maintained holiday properties around the world. It has customers in the UK, Europe and the rest of the world.

Roger says, ‘We make international payments to pay suppliers, villa owners and our partners. When we first started out, we used Barclays to make these payments but we had problems on every level. It was inconvenient, slow and costly.

‘Traditional banks just aren’t geared up to make international payments – some services have only recently moved online. We used Barclays to transfer millions, and probably lost hundreds of thousands in hidden bank fees over the years.’