Did you know that reducing international transaction costs to just 3% could generate an additional US$32 billion in remittances worldwide? When we move money from England to Jordan or any international destination, understanding the Key Factors That Influence International Transaction Costs is crucial, as transaction fees can significantly impact the final amount received.
International payments are indeed crucial for global commerce, facilitating cross-border trade and business expansion. However, these transactions typically cost businesses more due to currency conversion fees, wire transfer charges, and additional costs from intermediary banks. In fact, foreign transaction fees typically range from 1% to 3% of the transaction amount, which can substantially affect profitability for companies making frequent international transfers.
To put this in perspective, if you spend $5,000 abroad using a card with a 3% foreign transaction fee, you’ll pay an extra $150 when your bill arrives. Furthermore, research suggests that while cost reductions initially have a positive impact on remittance flows, this effect tends to diminish after one quarter. Accordingly, understanding the factors that influence these costs is essential for anyone regularly transferring funds internationally.
In this article, we’ll explore the key drivers behind international transaction costs, identify hidden fees you should watch for, examine how business type affects pricing, and share smart strategies to minimize expenses when moving money from England to Jordan or other international destinations.
Key Drivers of International Transaction Costs
The mechanics behind sending money internationally involve several complex factors that drive costs upward compared to domestic transfers. Let’s explore the primary elements that determine what you’ll pay to Move Money from England to Jordon or other international destinations.
Currency exchange rate volatility
Exchange rate fluctuations represent a significant cost factor in cross-border transactions. These variations are driven by multiple economic indicators including inflation rates, interest rates, and political stability. For businesses, currency volatility creates unpredictable expenses—when a company’s home currency falls, the cost of international operations rises. Interestingly, research shows exchange rate volatility affects nations differently, reducing trade balance in developed countries but actually improving it in developing nations.
Banking infrastructure and intermediaries
International payments typically pass through multiple financial institutions before reaching their destination. This correspondent banking network has seen a concerning decline across all regions, creating greater concentration and potentially contributing to higher costs. Consider this payment journey:
- Your bank in England initiates the transfer
- One or more correspondent banks process the payment
- The receiving bank in Jordan completes the transaction
Each intermediary adds fees, typically ranging from £11-£38 ($15-$50) per bank in the chain. Additionally, the recipient’s bank often charges its own fee (£2-£7) just to accept the payment.
Regulatory compliance in different countries
Cross-border payments face strict regulatory scrutiny across multiple jurisdictions. Each financial institution must perform its own compliance checks related to:
- Anti-money laundering (AML) procedures
- Know Your Customer (KYC) verification
- Sanctions screening
These sequential checks create significant duplication of efforts. Furthermore, regulatory frameworks differ between countries, requiring specialized knowledge to navigate properly. This complexity is especially evident when moving money between regions with different compliance standards, such as from England to Middle Eastern countries like Jordan.
Transaction size and frequency
The cost-efficiency of international transfers improves substantially with larger transaction volumes. Small transfers face disproportionately high fees—the global average cost of sending $200 stands at 6.5%, whereas exchange rate margins for large transfers can drop to around 0.5%. Similarly, frequent transfers incur recurring fees that can be minimized through strategic batching.
Hidden and Variable Fees to Watch Out For
Beyond the obvious transaction fees, international money transfers hide numerous charges that silently reduce the amount your recipient gets. Let’s uncover these costs that often go unnoticed when you move money from England to Jordan.
Foreign exchange markups
Banks typically don’t use the mid-market exchange rate you see on Google. Instead, they apply markups ranging from 2%-5% above the actual rate. This markup becomes the largest hidden cost in most transfers. For instance, if you’re sending £5,000 to Jordan, a 3% markup could cost you £150 without ever appearing as a “fee” on your statement. Even banks advertising “no fee international transfers” often embed these markups into their exchange rates. These institutions profit from the difference between the rate they access and what they offer you.
Dynamic currency conversion (DCC)
When traveling or shopping internationally, merchants might offer to convert charges to your home currency—a service called Dynamic Currency Conversion. Despite its convenience, DCC typically includes exchange rate markups of 3%-12%. For example, if you withdraw cash from an ATM in Jordan using your UK card, the machine might offer to show your withdrawal in pounds. Declining this offer and choosing the local currency (Jordanian Dinar) almost always saves you money. Visa requires merchants offering DCC to disclose the markup, though this information is often presented unclearly.
Cross-border card processing fees
Card networks impose these fees whenever transactions cross borders—even if you pay in your own currency. Mastercard typically charges 0.6%-1%, whereas Visa applies 1%-1.4% on cross-border transactions. Notably, PayPal adds approximately 1% international fee on top of its standard 2.9% transaction fee. These fees apply regardless of currency conversion.
Receiving bank charges
The final deduction occurs at the destination bank. Recipients typically pay $10-$25 just to receive incoming international transfers. These charges automatically reduce what your recipient receives without your knowledge. Consequently, if you’re sending money to a family member in Jordan, they might receive less than expected.
How Business Type and Location Affect Costs
Your business type and location dramatically shape the costs of moving money internationally. Understanding these variables helps optimize your cross-border payment strategy.
eCommerce vs service-based businesses
Cross-border shopping represents the fastest-growing segment of B2C e-commerce. This means your online business is already international, whether or not you planned to sell globally. E-commerce businesses typically experience higher transaction costs because they process numerous smaller payments, creating more frequent conversion fees. Moreover, e-commerce companies face greater exposure to card-not-present fraud when expanding globally. In contrast, service-based businesses often deal with fewer but larger transactions, potentially reducing overall fee percentages.
High-risk countries and sanctions
Transactions involving countries under economic sanctions face stricter scrutiny, longer processing times, and higher fees. Specifically, businesses must navigate complex compliance requirements that vary significantly between countries. Data privacy regulations like GDPR in the EU add another layer of complexity. Capital controls in certain nations also manage money flow across borders, further slowing transactions and increasing costs.
Example: Sending money from England to Jordan
When moving money from England to Jordan, using online providers rather than traditional banks can create substantial savings. Banks charge an average of 8.9% in total costs (including exchange rate markups)—this is 27.7 times more expensive than the cheapest online alternatives. For cash pickup in Jordan, Western Union offers the lowest cost at approximately 0.3%. Meanwhile, XE Money Transfer typically provides the best rates for bank account transfers, with transfers potentially completing in minutes.
Impact of local banking partnerships
Local banking partnerships significantly reduce transaction costs in emerging markets. Of course, domestic banks often struggle to independently develop sophisticated payment solutions needed for expanding trade corridors. The Middle East has emerged as a key player in international trade, with bilateral flows between the region and China potentially reaching $350-500 billion. The ideal solution combines local market knowledge with global technological capabilities—marrying a specialist non-compete global provider with a local bank’s understanding of domestic markets and clients.
Smart Strategies to Minimize Costs
Savvy businesses can drastically reduce their international payment expenses with a few strategic approaches. Unlike traditional banking methods, these strategies target the core drivers of excessive fees.
Use of multi-currency accounts
Multi-currency accounts allow you to hold, manage, and transact in multiple currencies from a single account. They eliminate unnecessary conversions by enabling you to receive payments in foreign currencies and wait for favorable exchange rates before converting. Essentially, you can hold balances in multiple currencies simultaneously, avoiding the 3-5% conversion markups banks typically charge.
Selecting no-foreign-transaction-fee cards
Many credit and debit cards offer the ability to spend internationally without the typical 1-5% foreign transaction fees. For instance, if you make purchases totaling $5,000 abroad using a standard card, you’d pay approximately $150 in foreign transaction fees. Hence, choosing cards specifically designed for international use can eliminate these charges entirely.
Batching payments to reduce frequency fees
Primarily, batching involves combining multiple smaller transactions into fewer, larger ones. Since most fees have a fixed component regardless of transaction size, this approach spreads costs across larger amounts. Following this strategy can cut wire fee costs by up to 80%.
Leveraging fintech platforms for automation
Modern fintech payment platforms typically offer exchange rates within 0.5-2% of mid-market rates, compared to traditional banks’ 3-5% markups. These specialized platforms generally provide more transparent pricing, real-time tracking, and faster settlement times.
Conclusion
Understanding the factors that influence international transaction costs remains essential for businesses operating across borders. Throughout this article, we’ve examined how exchange rate volatility, banking infrastructure, regulatory requirements, and transaction characteristics all play crucial roles in determining what you pay when sending money internationally.
Hidden fees certainly erode the value of international transfers. Foreign exchange markups, dynamic currency conversion traps, cross-border processing fees, and receiving bank charges all take their bite from your transfers. Businesses must therefore watch these costs closely, especially when moving money between countries like England and Jordan.
Your business type also affects your transaction expenses. E-commerce operations typically face higher relative costs due to numerous smaller payments, while service businesses benefit from larger, less frequent transfers. Additionally, transactions involving high-risk countries encounter greater scrutiny and expenses.
Smart businesses can slash these costs significantly. Multi-currency accounts eliminate unnecessary conversions. Cards without foreign transaction fees save thousands annually for frequent international spenders. Batching payments reduces frequency-based charges, while fintech platforms offer competitive rates with greater transparency.
The difference between optimized and unoptimized international payment strategies can mean thousands or even millions in savings depending on your transaction volume. Companies that implement these cost-reduction strategies gain a competitive edge in global markets, allowing them to offer better prices or improve profit margins.
Next time you prepare an international transfer, remember these factors and strategies. Though international transactions will always carry some costs, we can significantly reduce their impact by making informed choices about how, when, and through which channels we move our money across borders.