The time is ripe to launch international transfer services, particularly given the Forex furore of late. Some would go further and suggest bank foreign exchange rate fees should be at the very least transparent and at best, standardised. Anna Milne writes
UK headquartered international transfer company Transferwise has gone so far as to launch a campaign, dubbed a manifesto, calling for the transparency of these fees. The successful start-up has carved out a niche for itself in the industry, based on a simple little trick. For every transfer that is requested, Transferwise seeks to match it with a transfer of the same value going in the opposite direction, between two other parties. By doing this, they avoid exchange fees and this is how they can reduce costs for the customer.
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Speaking at the launch of the manifesto, UK shadow cabinet minister for digital government, Chi Unwurah, said of a recent trip abroad, co-travellers changing money at London’s Luton airport paid almost 10% more in so-called hidden fees than she had, having shopped around for the best rate. But even when shopping around, it is difficult to ascertain exactly how far off the interbank rate the transaction will be charged at, resulting in a large unknown. It does seem rather unacceptable.
Newer players such as Ripple Labs and Revolut both offer global payment services that have built-in algorithms which find the best rate at the time of transfer. The former is based on the Bitcoin blockchain concept of sending money but is faster, currency agnostic and something that banks can adopt to cut out correspondent banking charges, hence lowering fees for their customers.
The latter is a P2P service allowing customers to "exchange, send and spend money without hidden banking costs". Revolut’s payment model is similar to Spotify’s in that it is free for the first £1,000 ($1579) of currency top-ups in a year, after which point users can either pay a monthly subscription fee of £10 or pay per transaction at a rate of 1% for the currency exchange and £1 for the money transfer.
Perhaps the most exciting feature is Revolut’s multi-currency card, which can be used in different countries where it is treated as a local card and therefore does not attract exorbitant fees.
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By GlobalDataAccording to polling conducted by yougov.co.uk, 74% believe that when an exchange service is stated to be free, it is free. "I’ve done it several times and I still don’t really understand it all," says Revolut’s director, Nikolay Storonsky. Seemingly, he’s not alone.
If Transferwise’s campaign succeeds in standardising exchange fees, the UK would be the first country in the world to offer this kind of protection, says Transferwise founder, Taavet Hinrikus.
"We’ve seen a change in exchange but not foreign exchange. The forex scandal has worsened trust levels of financial sector amongst consumers. We see the urgent need to make it transparent and encourage competition."
Transferwise has set up an online petition, calling for transparent foreign exchange fees, something it plans to bring forward to the treasury, with the backing of two MPs from two parties (notably not the Conservatives). Henrikus says they are aiming to get a signature count in the tens of thousands but that they have no specific deadline.
"Of course it raises our profile at the same time, of course it does." Perhaps the over-riding thrust behind the campaign, is raising the profile of the product to put it at the forefront of people’s minds as other players begin to enter the market with competitive products.
However, given Transferwise’s growth from 55 employees at the beginning of 2014 to 200 as of November 2014, it has a little leeway in terms of manpower to drive such a project.
"The time is right- we proved what we can do and it is really helpful to the community. We felt very strongly about it and we also had a little bit of time to start working on it more," says Henrikus.
UK consumer watchdog Which raised the matter of "sneaky fees" within its "Stop sneaky fees" campaign. Although it didn’t specifically highlight foreign exchange fees, citing the five categories as Insurance Administration, Credit Card Balance Transfer Deals, Default Fees and Mortgage Set-up Fees, consumers would likely agree foreign exchange rates and transfer fees could sidle up sneakily alongside these categories. But the regulators might not necessarily agree.
"All UK financial institutions offering foreign exchange services should publicise the percentage difference between the mid-market rate and the rate actually being offered for each transaction. This should be available before a transaction is made and communicated in a way that can be understood by the average consumer. Best practice should include the full fee expressed as a sum total in the sender’s own currency, for example £10 to send £100." So goes Transferwise’s suggested regulation rhetoric.
Banks and financial institutions do have a right to charge fees. In the UK, certainly, fees represent 50% of the means by which they stay in business. Let’s not forget the free current account model we enjoy here in the UK. And to what extent should banks have to advertise that they are not a not-for-profit institution? How well did the Coop fare on its ethical banking model again?
The hidden fees are more a sign of the times, as banks try and compete with more agile online players. And no doubt, campaigns such as this one will prompt the beginning of the end- albeit in a roundabout way as it may not become a top priority for regulators but it will raise public awareness, drive competition and encourage new services.
