You’re buying foreign currency. You just didn’t know it.
Your bank makes money every time you pay a foreign supplier. Not in fees — in the exchange rate itself. It’s legal, it’s standard practice, and most construction businesses have no idea it’s happening.
When you pay a supplier in another country or currency, let’s say a Canadian Timber Merchant, it feels like a straightforward transaction. You see and agree to pay in Canadian Dollars, and if you’re unlucky, find out how many US Dollars you spent several days later.
What happened?
So, here’s what actually happened. Before any money left your account, your bank saw the amount you are paying and converted it, exchanging (or selling you) those Canadian Dollars so the bill could be paid. And just like any business selling you something, they charged more than it cost them. Some of that margin, the difference between the amount they paid themselves, their cost of business and what they charged you, is their profit. But it doesn’t show up as a fee. They build it into the exchange rate itself. Just like your timber merchant builds their profit into their prices.
How much are we talking?
Now let’s add some perspective. You paid US $38k for timber that cost $50k in Canadian Dollars. Your bank may take between $450 and $600 of that $38k. It won’t appear as a line item. You’ll just see: money sent, amount received. The gap in between belongs to the bank.
Is this even legal?
This is how foreign currency and international payments work. Every time you pay, or get paid, in a different currency you’re not just buying timber, steel, or equipment. You are also buying the cash needed to make the payment in that currency, Euros, Canadian Dollars, Mexican Pesos. It doesn’t matter which currency you’re buying with your US Dollars, whoever sells you that currency takes a cut.
Aren’t I already paying fees?
Your bank may also charge separate fees, for example wire fees that are usually $25–$45 or transaction fees which further penalize you for trading internationally. These are usually separate line items and obvious, but the margin is the part that scales with your transaction size and stays hidden.
What are the alternatives?
Most construction businesses accept whatever rate their bank offers because they don’t know there’s an alternative. There is. Specialist FX providers can typically offer better rates because they are closer to the market and have better tools. They also want your repeat business, rather than providing an expensive add-on as part of your checking account. It’s always worth remembering that, when your business’s international payments get large, you are leaving profit on the table, and it’s ending up on theirs.