How do money transfer providers in Europe make money on the exchange rate as well as the fee?

They can earn money in two separate ways:

1. A visible transfer fee — for example, a fixed €5 charge or a percentage of the amount sent.
2. An exchange-rate margin — they offer you a rate slightly worse than a reference rate, such as the mid-market rate, and retain the difference.

Example: Suppose €1,000 would convert to $1,100 at a reference rate. A provider quotes $1.089 per euro, so the recipient gets $1,089. That $11 difference is the exchange-rate margin. If the provider also charges a €5 fee, the customer effectively pays both costs.

That margin isn’t automatically pure profit: the provider may also have costs for obtaining currency, managing exchange-rate movements, and handling the transfer. But it is a way to earn revenue in addition to the stated fee. The UK’s FCA has warned that presenting a transfer as “zero fee” can be misleading if the provider makes money through an exchange-rate markup. (fca.org.uk)

To compare providers, look at how much the recipient actually gets, not just the advertised fee. In some EU currency-conversion situations, providers must show the conversion charge as a percentage markup over the ECB reference rate; the exact disclosure rules depend on the type of transaction. (eur-lex.europa.eu)

Money transfer providers in Europe usually earn from two sources: a markup on the exchange rate and a separate transfer fee. Some use only one, and many use both.

1. The exchange-rate markup (often the bigger earner)
The provider quotes a rate worse than the mid-market rate, the reference rate you see on Google or XE. When a money transfer provider gives you an exchange rate, they add a markup, a small percentage difference from the mid-market rate. This is how they make profit on the transaction. The provider keeps the gap between that reference rate and the rate it gives you. This margin typically ranges from 0.3% to 5% depending on the provider.

A worked example: a provider's GBP to EUR reference rate is 1.1800 and the bank offers 1.1505. The difference is 0.0295 euros per pound. Dividing that difference by 1.1800 gives an approximate markup of 2.5%. On £20,000, that is roughly €590 before any fixed fee. The margin is hidden in the quoted rate, so the customer may not see it as a charge. This markup is rarely disclosed clearly.

For Europe specifically, one comparison site reports observed fixed fees of €0 to €100 and observed FX markups of 0.67% to 3.04%. Treat these as indicative, since the sources are comparison sites that have their own commercial interests.

2. Explicit transfer fees
These are charged on top of the rate. Flat fees are fixed charges applied to each transaction, no matter the amount being sent. Others are percentage-based fees, which rise with the size of your transfer. Some providers mix both models.

3. Third-party deductions
Intermediary and receiving banks can also take cuts, though these go to other institutions rather than the provider. Intermediary banks may deduct fees in transit (SWIFT transfers), and the recipient's bank may charge for incoming international transfers.

Why "zero fee" doesn't mean free
A provider that advertises no transfer fee still has to make money somewhere. Providers claiming to offer zero fees and the mid-market rate with no markup have to generate revenue somewhere. In practice, a zero-fee service usually recovers its revenue through a wider rate margin. Wise is the notable exception in its positioning: it charges only a transparent percentage-based fee with no exchange rate markup. Its own comparison shows a different picture for the same transfer, so check it against the other figures here.

How to compare providers
Look at the total cost, not the headline fee. Comparing the total cost, rate plus fee, matters more than the rate on its own. The simplest check is to compare the rate offered with the mid-market rate at the same moment, then add any fee shown.

Money transfer providers typically generate revenue through two primary mechanisms: upfront transaction fees and exchange rate markups. Many providers use a combination of both, while others may market themselves as "fee-free" by relying more heavily on the exchange rate markup.

1. Upfront Transaction Fees

This is the most transparent part of the cost. It is a charge you pay to the provider for the service of moving your money.

• Structure: Fees can be a fixed flat rate per transfer or a percentage of the total amount being sent.
• Variability: The fee often depends on factors like the transfer amount, the destination country, the payment method (e.g., credit card vs. bank transfer), and the delivery method (e.g., cash pickup vs. bank deposit).

2. Exchange Rate Markups (The "Hidden" Cost)

This is often where providers generate the majority of their profit, even when they advertise "zero fees".

• How it works: The "mid-market" (or interbank) rate is the real exchange rate at which banks and major financial institutions trade currency with each other—it is the rate you see on Google or XE.com. Money transfer providers rarely give you this rate. Instead, they apply a markup (or spread) to that rate, selling you the foreign currency at a slightly less favorable price than the mid-market rate.
• The Profit: The difference between the mid-market rate and the rate the provider offers you is their profit margin. Because this cost is baked into the exchange rate itself rather than listed as a separate fee, it is frequently overlooked by customers.

Why Both Exist

Providers use these different pricing models to cater to different customer needs:

• Transparent Models: Some modern fintech companies charge a small, transparent upfront fee while offering a rate very close to the mid-market rate. This appeals to users who want to know exactly what they are paying.
• "Fee-Free" Models: Companies that advertise "no fees" often compensate by applying a larger markup to the exchange rate. While it feels cheaper upfront, it can sometimes be more expensive overall depending on the amount sent.

Important Tip for Consumers

Because providers use different combinations of fees and markups, the only way to accurately compare costs is to look at the total amount the recipient will receive.

Before confirming a transfer, you should:

1. Check the current mid-market rate (e.g., on Google) to use as a baseline.
2. Look at the final amount the recipient gets after both the fee and the exchange rate have been applied.
3. Be wary of "zero fee" marketing; always calculate the total cost by comparing the final payout across different providers.

Providers can charge in two places:

1. An explicit transfer fee — for example, a flat charge or a percentage of the amount sent.
2. An exchange-rate margin (spread) — they quote you a rate less favourable than a reference rate, such as the mid-market rate. The difference means the recipient gets less currency than they would at that reference rate; the provider retains the difference as revenue, or uses it to cover conversion costs and risk. ¹⁰¹²

Example: Suppose the reference rate is €1 = £0.86. On €1,000, that would convert to £860. If the provider quotes £0.84 per euro, the recipient gets £840: the £20 difference is the exchange-rate margin, before any stated fee. If the provider also charges €5, the total cost to you is roughly the €5 fee plus the value lost through the poorer rate.

That is why a “zero-fee” transfer can still cost money: the charge may be built into the rate rather than listed separately. Some providers instead use a reference rate and make their revenue mainly through a clearly stated fee; Wise, for example, says it uses the mid-market rate and charges an upfront fee. ¹

In the EU, disclosure rules depend on the transaction. For card transactions involving currency conversion, providers must disclose the conversion charge as a percentage markup over the latest ECB reference rate before the payment, and publish the markup accessibly. ⁵ For online credit transfers, rules require clear information about estimated fees, conversion charges, and the amounts involved, though the specific percentage-markup requirement is not universal to credit transfers. ⁵¹¹

To compare offers, look at how much the recipient receives after all charges, not just the advertised fee. Compare the quoted rate with a same-time reference rate, and check whether intermediary-bank charges might also be deducted.