What actually happens to your money between your client and your bank

Your client sends €5,000. Your account shows something less. The provider said the fee was €4. Both of those are true, and the gap between them is where most of the cost of moving money across a border lives.

This is the vocabulary post for getting paid across borders. For the wider picture, start with Where you live, where your company is, where your money sits.

The central point: the advertised fee is not the cost. The difference between the exchange rate you were given and the reference rate is where most of the money goes. EU law treats that difference as a charge: for cross-border payments a provider must express total currency conversion charges as a percentage mark-up over the latest available euro reference rates issued by the ECB, and disclose it before you initiate the payment.¹ It is still not a line item on the receipt. It is a price, built into the number.

The journey of one payment

A cross-border payment does not travel as one intact object from your client’s bank to yours. It moves through a sequence of steps, and several of them can reduce the amount that arrives.

The client initiates the payment from their own bank or payment provider, in their own currency, with a charge instruction that allocates who pays which bank’s fees.² If the route is a traditional wire, the payment can pass through one or more correspondent banks — banks that hold accounts with other banks and relay the payment on their behalf. Each intermediary can deduct a charge from the amount in transit — as one bank puts it, “each bank in the payment chain reduces the payment by its own fees”.² A series of correspondent banking relationships can be involved in a single payment, which increases the processing time as well as the cost.³ At some point the currency is converted, at a rate chosen by whichever institution performs the conversion — not necessarily the reference rate, but the rate that institution offers.⁴ The funds then settle on a value date — in payment-services law, the reference date used to calculate interest on funds debited from or credited to an account, which need not be the date the money appears in it.⁵⁶ Finally, the receiving bank may take an inbound fee, and may convert again if the incoming currency does not match the account currency.²

The same route, as a list of places cost can be taken. Not every step charges on every payment — the point is that several of them can, and only some are disclosed to the recipient.

The point is not that every step costs money in every payment. It is that there are several places along this path where cost can be taken, and only some of them are disclosed to the recipient. A pricing page may show the sending provider’s fee, but it may not determine every intermediary or receiving-bank deduction. What must be given in advance is an estimate: for a cross-border credit transfer the provider has to state the estimated charges for currency conversion, and the estimated amount that will reach the payee, before the payment is initiated.¹

The mid-market rate and the spread

The reference point for any comparison is the mid-market rate — the midpoint between the buy and sell prices on the interbank market, the rate you will see quoted on a search engine or a currency website. The ECB publishes its reference rates for information purposes only, and explicitly discourages using them for transactions — the rate a customer actually receives in a transaction is not necessarily the reference rate.⁴

The spread is the difference between the mid-market rate and the rate you were actually given. Expressed as a percentage of the amount, it can be far larger than the stated fee — which is why the EU requires it to be quoted as a percentage mark-up over the ECB reference rate rather than buried in the number.¹

A worked example, all numbers illustrative:

The spread costs €75; the stated fee costs €4. The total is €79, and only €4 of it appears as a charge. The €75 is not a fee. It is a price, embedded in the rate.

It is invisible by design, because it is not a charge — it is a price. It never appears as a line item. A provider can advertise “0% commission” and be entirely accurate: the commission is zero, the spread is not. The mark-up over the reference rate is the figure the rules make providers put a number on.¹

The rate, the mark-up over the reference rate, and any separately stated fee are three different numbers, and the rules treat them that way.¹ The mark-up may exceed the stated fee, so both have to be compared before either means anything.

That is what the FX Reality Check tool exists to make visible: it computes the spread against the reference rate, so the difference stops being invisible.

SWIFT versus local rails

The two main routes differ in mechanism, not just in price.

The traditional route runs on SWIFT, the messaging network banks use to send payment instructions to each other — the money itself moves across the correspondent accounts those messages instruct.⁷ A SWIFT payment passes through one or more correspondent banks, each of which may deduct a charge and add time ⁸. The charge instruction on the payment determines who pays those charges — the OUR / BEN / SHA charge codes:

The instruction allocates categories of charges; it does not by itself determine every downstream charge on the route. Which options a bank offers is also constrained: one bank does not allow OUR where the recipient’s bank is in the European Economic Area, or where the payment is in US dollars.²

The newer providers use local rails: they hold balances in both countries and pay out through a domestic payment system rather than sending the same unit of money end-to-end through a chain of correspondent banks.⁹ A provider can choose the network by destination and currency ⁸. The funding leg, the conversion and the payout leg are handled separately; the payout side runs on a domestic system.⁹

No provider is recommended. This is mechanics only.

Who bears the FX risk

The commercial point: who bears the exchange-rate risk — the FX risk — is a contract question, not a banking one.

The currency an invoice is denominated in helps determine which party is exposed to exchange-rate movement between the invoice date and the payment date.¹⁰ If you invoice in your client’s currency and the rate moves in that window, the amount you receive in your own currency is lower. If you invoice in your own currency, the buyer normally faces the corresponding conversion exposure, which can affect the commercial terms of the agreement.¹⁰

The rate changes. The ECB publishes its euro reference rates on working days ⁴, and they are not the same from one day to the next. A 30-day payment term is a window in which the rate can move.

This allocation is set by the contract, not by the bank. The invoice currency can be stated on the invoice, and the parties can take the exposure into account when negotiating the price, the payment timing, or an exchange-rate mechanism.¹⁰¹¹

The Multi-Currency Invoice Generator can state the currency on the invoice.

What to look at instead of the fee

The question to ask of any payment is not “what is the fee?” but “what was actually received, and at what rate?”

The method is straightforward. Find the reference rate at the moment of conversion. Compute what you actually received in your own currency. Compare it to what the reference rate would have given. The difference, plus any separately stated fee, is the real cost.

The practical record is: the sending amount and currency, the reference rate and its timestamp, the provider’s customer rate, any separately disclosed fees, any third-party deductions, and the final credited amount. Most of that a provider serving the EU must give you in advance anyway — the mark-up over the ECB rate, the estimated charges, and the estimated amount reaching the payee.¹ The reference rate’s timestamp is the part you have to record yourself, and the recipient amount is the practical checksum.

A checklist for a pricing page. For a cross-border payment inside the EU, a provider must tell you in advance the total currency conversion charge as a percentage mark-up over the ECB reference rate, the estimated charges for the conversion, the estimated amount that will reach the payee, and the amount that will leave your account — clearly, neutrally and comprehensibly.¹ If a pricing page does not let you find those, that is the gap. Three further questions the rules do not settle, and that a pricing page can still be read against: which reference rate is used and from which source; at what timestamp; and whether the rate you are shown is the customer rate or a reference rate.

The FX Reality Check tool does this arithmetic.

What this makes visible

The fee on the pricing page is one number. The spread is another, and in the worked example it is the larger one. Now that both are visible, the method in this post — reference rate, customer rate, recipient amount — turns an opaque charge into an arithmetic question.

The next post puts a date and a number on it: the €1,000 test, where the same €1,000 instruction is quoted through four providers in two corridors on a single morning and compared against the ECB reference rate.

This is not advice. It is mechanics, with sources.