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Over half of global payment fees are hidden in inflated exchange rates. That can be fixed

August 1, 2021, 2:00 PM UTC
Commentary-Global Payment-Remittance
Global payment processors need to step up and address transparency in remittance fees, writes Harsh Sinha.
Marvin Recinos—AFP/Getty Image

Today, more than 200 million migrant workers send money home to over 800 million family members, a payment often known as a remittance. Because of the prevalence of remittances, regulators should work to make them more accessible to all people. 

One key change in particular would help accomplish that goal: mandating more transparency in the remittance transfer process.

Remittances, defined in a 2015 report as “cross-border, person-to-person payments of relatively low value,” serve as a valuable lifeline to the developing world, underwriting many basic household needs. And they are taking center stage as our global economy reopens. 

But they are also expensive. Recent independent research we commissioned indicates that of the $16.3 billion in fees paid by American consumers and small businesses in 2019 on international payments and remittances, well over half—roughly $8.7 billion—were hidden in inflated exchange rates. More alarmingly, while 55% of consumers said they understood the costs of sending money abroad, only 18% correctly identified exchange rates as one of the costs of a transfer. 

This clearly opens the door to opportunity for change—and even the potential for the Consumer Financial Protection Bureau (CFPB) to update its rules to require that total costs are transparent instead of hidden through arbitrary “fees.” (My company, Wise, handles international money transfers, including remittances. We take a transparent approach toward transfers, so our reputation can benefit from the publication of this article.)

The CFPB’s Remittance Rule requires remittance providers in the U.S. to disclose the total amount of a transaction, fees and taxes, the exchange rate used, and the total amount received. If the CFPB were to update its rules so that fees must be made readily apparent, it would result in migrants, families living abroad, and international travelers being able to make more informed financial decisions.

In fact, some banks and other financial service providers charge fees for international transfers that are more than twice as high as those outlined in the United Nations sustainability goals. This endangers the financial well-being of people from the G7 countries that will pay exorbitant fees for transfers to families and friends abroad.

To put that into perspective, consumers continue to lose out as the global average cost of remittance remains at a painful 6.5%. The UN is demanding a reduction of this number to 3% by 2030—if global leaders are taking action, why can’t financial institutions? If banks were to implement this requirement today, a substantial amount of money could flow back to people’s pockets. 

International Day of Family Remittances, which took place on June 16, once again shined a spotlight on a financial inclusion problem that must be fixed—and isn’t far from reality if financial leaders push for meaningful change. Every day, a consumer is taken advantage of—often unknowingly—when they send money abroad. As a financial community we must act together and promote fair, transparent, and digital opportunities for remittances worldwide, which can foster greater social, financial, and economic inclusion.

Harsh Sinha is the chief technology officer of Wise. 

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