The British public lost £5.6 billion in a single year when sending or spending money abroad.
Even worse, they were totally unaware of it.
The problem is simple: banks and foreign exchange providers can currently bury hidden costs in the exchange rate offered to individuals and small businesses. They do this by offering their customers a significantly inferior exchange rate than the ‘real’ exchange rate at the time - the so-called ‘mid market rate’ - and pocketing the difference, all the while advertising their service as ‘no fee’ or ‘0% commission’.
This creates high and confusing costs for UK communities who regularly send money abroad. The average cost of sending money from the UK still remains well above the UN Sustainable Development Goal of 3%, at 7.01%. For some common routes, like sending money to Ghana from the UK, these exchange rate margins alone can cost consumers in excess of 6%.
Remittances play a crucial role in international development, and supporting local economies across the world. These flows dwarf overseas development aid, and it’s estimated 25% of remittances are spent on starting family businesses and other enterprises—“micro, small and medium enterprise”—and real estate.
The UK Government has taken some promising steps to support these payments and the communities who send them through the crisis period, but they’re not enough. International Development Secretary Anne Marie Trevelyan has launched a joint UK-Swiss initiative to keep down the costs of remittances, arguing keeping remittance flows going will help to ‘to prevent fragile economies from facing potential collapse during the pandemic’ and calling on providers to ‘reduce transaction costs’. (link) (link) But more can be done.
That’s why we’re calling on the Government to lower the cost of remittances by introducing full transparency in the market. New European regulations designed to increase transparency for people sending money abroad will soon be onshored into UK law, and it’s up to the Government to make them work to solve the problems in the UK market. It’s crucial that these new requirements explicitly require firms to disclose those costly exchange rate margins, and include people sending payments overseas via cash or in their bank branches, to help UK communities understand what they’re paying.
Learn more, and join us here.