Call for more transparency in foreign currency exchange market.

International money transfers are more expensive than we might think - even when banks and brokers claim there are "no fees".

That’s according to new research from TransferWise, a peer-to-peer currency exchange service.

It found banks and brokers are masking the true cost of sending money abroad by inflating exchange rates by as much as 5%.

It’s launching a new campaign calling for greater transparency so individuals and businesses can compare the true cost of foreign exchange services more effectively.

Compare international money transfers

The problem

International money transfers are big business in the UK.

With seven million foreign born residents and 4.7 million overseas citizens, there are a significant number of international transactions going on each year.

The World Bank estimates the value in 2012 surpassed £20 billion.

But new research for TransferWise shows the banks and brokers we tend to use to send money abroad are ripping us off by using hidden fees buried in exchange rates.

This is known as an exchange rate mark-up, which is the difference between the mid-market exchange rate at the time of transaction and the quoted rate offered to a customer.

The mid-market rate (also known as the interbank or spot rate) is the midpoint between “buy” and “sell” rates from global currency markets, which indicates the value of a currency at any give time.

The exchange rate mark-up is often charged on top of a transaction fee, but rarely ever communicated to customers, making it difficult to compare the true cost of a transfer.

TransferWise says this is an ‘abuse’ of exchange rates, made worse when companies use misleading claims of “small fee”, “free” or “0% commission” to describe their service, when in fact the majority use these hidden fees to bump up their cut.

TransferWise estimates people transferring money in the UK lost £79 million in inflated exchange rate fees during 2012 sending money to Europe alone.

Compare international money transfers

The real cost of sending £1,000 overseas

Charterhouse Research Ltd (on behalf of TransferWise) conducted a mystery shopping exercise, to find the real cost of transferring £1,000 to a German account on 5th November this year.

It looked at a mix of 24 banks and brokers that tend to be the first port of call for those wanting to send money overseas in comparison to the cost of TransferWise's service.

The table below shows the exchange rate mark-up each of the services used at the time, the equivalent cost of this hidden charge, the stated fee we see advertised, the real total cost of the transaction and finally the amount of euros that ends up in the German bank account. The information is ordered by cheapest total cost.

Bank/broker Exchange rate mark up (%) Exchange rate mark up (£) Stated fee (£) Total cost (£) Euros received (€) TransferWise 0% £0 £5.00 £5.00 €1,262.23 Lloyds (International) 2.56% £25.64 £0 £25.64 €1,240.20 Co-op (online) 1.95% £19.50 £8.00 £27.50 €1,247.50 Co-op (phone) 1.95% £19.50 £8.00 £27.50 €1,247.50 Moneycorp (online) 2.54% £25.38 £5.00 £30.38 €1,242.70 First Direct (phone) 2.71% £27.07 £4.00 £31.07 €1,239.00 NatWest (online) 2.12% £21.20 £10.00 £31.20 € 1,245.10 NatWest (branch) 2.12% £21.20 £10.00 £31.20 € 1,245.10 Lloyds (online) 2.20% £22.03 £10.00 £32.03 € 1,243.70 Lloyds (phone) 2.20% £22.03 £10.00 £32.03 € 1,243.70 Lloyds (branch) 2.20% £22.03 £10.00 £32.03 € 1,243.70 Western Union (online) 2.76% £27.60 £4.90 £32.50 € 1,237 Halifax (online) 2.26% £22.60 £10.00 £32.60 € 1,243.70 HSBC (online) 3.04% £30.45 £4.00 £34.45 € 1,240.36 HSBC (phone) 2.56% £25.59 £9.00 £34.59 € 1,240.36 Post Office (online) 3.82% £38.18 £0.00 £38.18 € 1,224 Moneycorp (phone) 2.54% £25.38 £15.00 £40.38 € 1,242.70 Halifax (phone) 2.26% £22.60 £19.00 £41.60 € 1,243.70 Halifax (branch) 2.45% £24.53 £19.50 £44.03 € 1,243.70 RBS (online) 4.13% £41.33 £10.00 £51.33 € 1,220 RBS (branch) 4.13% £41.33 £10.00 £51.33 € 1,220 Co-op (branch) 2.96% £29.56 £25.00 £54.56 € 1,237.50 Santander (online) 3.33% £33.32 £25.00 £58.32 € 1,230 Santander (phone) 3.33% £33.32 £25.00 £58.32 € 1,230 Santander (branch) 3.33% £33.32 £25.00 £58.32 € 1,230 HSBC (branch) 5.86% £58.56 £9.00 £67.56 € 1,198.40 Average* 3.01% £30.07 £14.83 £44.90 € 1,234.93

Source: Charterhouse Research Ltd. Data correct as of 5th November 2014.

*Average excludes TransferWise

The research shows that conventional banks and brokers state charges of around £15 to transfer £1,000 to a bank account in Germany. But the true costs is around £30 more because of the exchange rate mark-up, which significantly dents the amount of euros that ends up in the account.

Interestingly the Post Office, which had no stated fee, used a 3.82% mark-up, which meant the true cost of its service was £38.18. The Lloyds international banking service also had no stated fee but a 2.56% mark-up meant its service really cost £25.64.

However, the worst offender was HSBC. The bank used a 5.86% mark-up in-branch at the time of the survey equating to £58.56. Along with the £9 stated fee this meant the real cost of the transfer was £67.56 and left those sending £1,000 to a German bank account with just €1,198.40 – significantly less euros than other providers offered.

Compare international money transfers

Stamping out hidden fees

TransferWise has launched a campaign called Stop Hidden Fees to put an end to rip off international money transfers and currency exchange. It’s calling on regulators to ensure all UK financial institutions:

Provide a clear breakdown of the cost of their service for each transaction;

Provide transparent exchange rates- publishing the difference between the offered rate and the mid-market rate;

Crackdown on the use of misleading terms such as “free” and “0% commission” when hidden fees are involved.

TransferWise wants the new Payment Systems Regulator as well as the Advertising Standards Authority and Financial Conduct Authority to take action to make this happen.

You can join in with the campaign by signing the petition here.

Compare international money transfers

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