⚙️ The Hidden Fee That Survived Fintech's Revolution

"That's two weeks' worth of groceries."

My Filipino contractor's words hung in the air. We were reviewing his latest payment, and something wasn't adding up.

The amount that left my account didn't match what landed in his. The culprit? Hidden foreign exchange (FX) markups that neither of us had noticed for months.

This wasn't just about missing groceries. As I dug deeper, I discovered a startling anomaly in modern finance: While other industries had ruthlessly eliminated hidden fees, global payroll was stuck in the past.

The contrast was stark:

• Want to buy Tesla stock? Commission-free on any major platform.

• Need to send money to family in Europe? Wise will do it at market rates.

• Buying Bitcoin? Even Coinbase's spreads are down to 0.5%.

For operators managing international teams, this creates a maddening situation: The salary you think you're paying isn't what your team actually receives. 

When companies pay their international workers, up to 3% of every paycheck silently vanishes into the ether. That's not a rounding error – it's a silent tax on global talent that costs workers and businesses billions annually.

Traditional payroll providers are quietly taking a cut through marked-up exchange rates, and they're counting on the complexity of global payments to hide it.

This isn't just another story about sneaky fees. It's a puzzle: How did global payroll providers maintain these markups while similar fees were being eliminated across finance?

The answer reveals something fascinating about market dynamics, regulatory complexity, and the surprising staying power of legacy systems.

Akhil Reddy and his team at Thera, a global payroll platform, have been obsessed with solving this puzzle. What they discovered was both shocking and fixable: international payroll was operating like it was 2010, and nobody was calling it out.

Let's explore how this hidden tax on global talent has persisted for so long – and more importantly, how it's finally being dismantled.

P.S. I’m considering creating a Guide on Delegating & Hiring Top Talent to help you unlock hours each week.

Would this be valuable for you? Just reply “Count me in!” if you’re interested, and I’ll start drafting!

How Global Payroll Providers Hide Their Markups

Imagine you're paying a developer in Manila $30,000 annually.

When you initiate the payment, your payroll provider shows you an exchange rate - let's say 1 USD = 53.35 Philippine Pesos.

What they don't tell you is that the actual market rate is 1 USD = 55 Pesos. The difference? That's their markup, quietly skimmed from every payment.

Here's what this means in practice:

• You send: $30,000

• Your contractor receives: $29,100

• Provider's hidden markup: $900

This isn't a transparent fee you can see and evaluate. It's buried in exchange rates, hidden behind phrases like "competitive rates" or "standard conversion fees." And because every major provider does it, it seems normal.

For operators managing international teams, these hidden markups create several challenges:

• Your budgeted compensation isn't what your team actually receives

• True costs are obscured by complex exchange rate calculations

• Scaling your international team becomes unnecessarily expensive

• Financial planning is complicated by unpredictable real costs

The actual cost of converting currency is minimal - major financial institutions do it for as little as 0.5%. Yet somehow, global payroll providers charge 3-4% - a markup of up to 600%.

For early-stage companies scaling their international teams, these hidden costs add up quickly. A startup with five international contractors each making $60,000 annually could be losing up to $9,000 per year to hidden FX markups. 

Why We've Been Fooled

With costs this significant, you might wonder: How have payroll providers gotten away with this for so long?

It's not that we're stupid - it's that we've been expertly deceived.

Think about a shell game on a street corner. While you're focused on following the ball, the real trick is happening somewhere else entirely.

Global payroll providers use the same technique: They keep us focused on market volatility, compliance requirements, and payment logistics while the real action - their markup - happens in the background.

Here's their playbook:

Step 1: Blame the Market 

When contractors complain about low payouts, providers point to currency market charts showing volatile exchange rates. "See? The Philippine Peso dropped against the dollar." True, but they conveniently leave out their 3% cut.

The genius of this move is that exchange rates do fluctuate - sometimes dramatically. By blending their markup into real market movements, providers create plausible deniability.

It's like a pickpocket working in a crowded subway - when you notice your wallet is lighter, you'll blame the jostling crowd, not the thief.

Step 2: Bury It in Complexity 

Global payroll is already complicated. Different time zones, tax laws, compliance requirements - it's enough to make anyone's head spin.

Providers use this complexity as cover, knowing most businesses won't have the time or expertise to scrutinize exchange rates.

Let's say you're paying contractors in five different countries. Each country has its own:

• Banking system

• Tax requirements

• Labor laws

• Payment schedules

• Currency considerations

Now multiply that by dozens of payments each month. Who has time to check if the PHP/USD exchange rate is fair when you're juggling all that? Providers count on this complexity overload.

Step 3: Make It "Standard" 

By all charging similar markups, providers have normalized these fees. It's like how airlines all started charging for checked bags - when everyone does it, it seems like a natural cost of doing business.

This standardization creates a powerful psychological effect. When every provider charges roughly the same markup, it feels like:

• It must be the actual cost of doing business

• There's no point in shopping around

• This is just "how things work"

Step 4: Create Information Asymmetry 

Providers have another advantage: they know exactly what they're charging, but customers don't know what they should be paying.

Most businesses don't know:

• The real mid-market exchange rate

• The actual cost of currency conversion

• How much providers are marking up rates

• What alternatives might exist

This information gap makes it nearly impossible for customers to push back effectively.

These tactics combine to create a perfect storm of hidden fees:

• Real market volatility provides cover

• Complexity makes investigation difficult

• Industry-wide practices seem normal

• Lack of transparency prevents comparison

The result? A $9.9 billion industry built partially on hidden markups that most customers don't even know exist.

The Operator's Dilemma

For COOs and operators scaling international teams, these hidden markups create a growing blindspot. What starts as a $900 annual problem with one contractor can quickly balloon into a $50,000 problem across a global team.

The real challenge isn't just the cost - it's the complexity of auditing and managing these fees across multiple countries and currencies.

Most operators don't have time to compare historical exchange rates or decode dense provider contracts. They need accurate forecasting and predictable costs, not hidden variables that compound with each new hire.

When you're focused on scaling your team, the last thing you need is to wonder whether your $60,000 salary offer will actually mean $58,200 in your contractor's pocket.

This is why the payroll industry was overdue for a solution that prioritized transparency over complexity. For years, it seemed like we had no choice but to accept it - until now.

Thera is going after FX markups

Founded in 2022 and based in New York City, Thera is on a mission to simplify financial operations for businesses with international teams. Thera's offering is comprehensive:

1. Global Payroll Automation: They streamlines payroll processes for international teams, supporting W2 employees, contractors, and EOR services at competitive rates.

2. Seamless Contractor Management: With locally compliant contracts and diverse payment options across 150+ countries, Thera simplifies global contractor management.

3. Affordable EOR & US Compliance: Thera handles US payroll compliance in-house and offers EOR services starting at just $199, making it a cost-effective solution for managing global teams.

Thera's approach is deceptively simple to offer cheaper than usual pricing. They partner directly with multiple FX providers and pass the wholesale rates to customers.

No hidden markups. No mysterious fees. Just the actual cost of converting currency, plus a small, transparent service fee.

To demonstrate this, Thera conducted an experiment. They sent $1000 through Thera, and $1000 through two of their top competitors, Gusto & Deel. 

The results are obvious.

Remember my Filipino contractor who lost two weeks of groceries to hidden markups? Under Thera's system, he'd keep that money.

Multiply that across millions of international workers, and you start to see the real impact of eliminating these hidden fees.

A New Standard

Just as Robinhood forced traditional brokers to eliminate trading fees, and Wise exposed bank transfer markups, Thera is showing that excessive FX markups in payroll aren't necessary.

Other industries have already learned this lesson:

• Stock trading went commission-free

• International money transfers got cheaper

• Credit card foreign transaction fees plummeted

Now it's payroll's turn. And the timing couldn't be better.

Ready to eliminate hidden FX markups from your global payroll? 

Check out Thera here.

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