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Fintech firms including Wise, TrueLayer and Monzo have signed a joint letter calling on the UK government to bring an end to hidden fees in international payments.
It is time for the UK government to “solve the problem” of hidden fees, a new letter says, calling on Chancellor Jeremy Hunt to take decisive action on the matter.
Private research shows consumers and small and medium-sized enterprises (SMEs) in the UK lost a total of £5.6bn in mostly hidden FX fees in 2022 alone, the letter revealed.
“Yet there is widespread practice of firms showing currency conversion services as have ‘zero fees’ or ‘0% commission’”.
According to the co-signers, this is highly misleading when a much larger charge is embedded in the exchange rate, ranging from 2.5 to 3.7 percentage points over the mid-market rate for a transfer to EUR or USD with a UK high street bank.
“This is never communicated to the customer.”
The co-signers, which also include Klarna and GoCardless, have said that it is time for the UK to utilise post-Brexit freedoms and “take a leading role on the global stage” to tackle the matter.
“Over the years, we've worked with political parties on both sides of the aisle to make this a priority as so many Brits keep getting stung by hidden fees,” Magali van Bulck, head of EMEA policy at Wise, told VIXIO.
Van Bulck explained that the government now has an opportunity to close the loophole with its Payment Services Regulation review.
“If it doesn't take that opportunity, it's putting customer outcomes last, despite the FCA's best efforts to encourage firms to treat those customers fairly,” she said.
The firms want the government to ensure that the total cost of currency conversions is shown upfront to consumers and SMEs before the initiation of a payment, including any mark-up or margin over the mid-market exchange rate.
Further, they have called for the legal definition of a "currency conversion charge" to include any mark-up over the aggregated mid-market rate.
The fintechs also want the UK to mandate firms to use an aggregated mid-market rate issued by a neutral provider such as Bloomberg or Refinitiv, which is approved by the Financial Conduct Authority (FCA) as an official mid-market rate provider.
"This should apply to all global currency conversions to support Global Britain, and not just to EU currencies which was the basis of the Cross Border Payments Regulation (CBPR2)," the fintech companies say.
The companies in question also want HM Treasury to instruct the FCA to issue guidance on what constitutes a "currency conversion charge" and include a mark-up over the mid-market exchange rate, to support the strengthened legal definition as above.
And pertinently considering its imminent deadline (July 31), the letter calls for the FCA to issue updated guidance on the Consumer Duty, with a clear example box of how it expects firms to behave when it comes to currency conversion services, requiring firms to show total cost upfront in a single amount to the consumer.
“That way, transparency in currency conversion costs will be explicit and clearly enforceable by the regulator.”
So far, the government has shown signs that it could address this area.
For example, in its January payment services white paper, the Treasury asked respondents whether there were particular changes that they would want to see in the Cross-Border Payments Regulation in relation to the transparency of currency conversion.
In Brussels, meanwhile, the latest payments package proposed that payment service providers that carry out transactions involving a currency conversion will be required to disclose to their customers the estimated charges for currency conversion expressed.
This will be done via a percentage mark-up over the latest available applicable foreign exchange reference rate issued by the relevant central bank.
“We're hopeful that the government seizes this opportunity to put money back into customers' pockets,” said Van Bulck. “However, they should ask for a total cost to be disclosed, calculated over the mid-market rate, rather than just showing an exchange rate markup over the ECB rate in percentage terms.”
Van Bulck said that although the EU has taken the lead in introducing transparency, the UK could find a better solution enabling people to know exactly how much they pay.
