Currency providers' zero commission claims are 'phony': Money transfer firm warns customers feel ripped off by forex fees hidden in poor exchange rates

  • Firms offer an unfavourable exchange rate to make a profit, but entice customers with offers of '0% commission'
  • Government pledge to bring greater transparency to fees should apply to forex, says Transferwise

By Lee Boyce for Thisismoney.co.uk

Published: 06:48 EST, 30 July 2015 | Updated: 10:28 EST, 30 July 2015

FX trap: Many banks will mark up their exchange rate meaning customers are left out of pocket

FX trap: Many banks will mark up their exchange rate meaning customers are left out of pocket

Banks and brokers offering '0% commission' or 'free' transfers are pulling the wool over customers' eyes, an overseas transfer firm has claimed.

They make substantial profits in the space between the real market exchange rate and poor rates given to customers, Transferwise claims.

Even when advertised as free, there is often a fee hidden within the exchange rate that banks offer, it said. 

This leads unwitting customers to receive an unfavourable exchange rate, often around 3 to 5 per cent over the real exchange rate.

For example, Transferwise says if the mid-market rate was 0.646 US dollars to the pound at the time of transfer, a bank sticking a three per cent charge on top would likely offer a customer a poorer rate of 0.627.

While this doesn't seem like a huge difference, on a £1,000 transfer, people would lose around £30 – and many will simply use their bank because they believe it is easier, while others won't calculate the difference in fees.

Transferwise – a peer-to-peer money transfer platform which launched in 2011 - charges customers what it says is the 'real' exchange rate with a flat fee of 0.5 per cent per transaction.

In a survey of 2,000 people, which highlighted the fact many banks charge inflated exchange fees, 83 per cent said they felt tricked or taken advantage of.

The poll also found that eight in ten underestimate or do not know the true cost of sending money abroad, while a quarter said they were unsurprised when they found out banks 'hide' their fees.

Of those surveyed, 86 per cent believe the Government should take an active role in preventing misleading pricing by the financial services sector.

The firm has launched a 'stop hidden fees' campaign which calls for an end to sneaky costs banks and money transfer companies place on pricing in international transfers and travel money.

It wants the Government to commit to its pre-election pledge to bring greater transparency to charges and fees applied to foreign exchange transactions.

Taavet Hinrikus, co-founder of Transferwise said: 'It's deeply unfair for banks to advertise foreign exchange as free to consumers when in fact they just hide their fee in the mark-up they add to the exchange rate.

'Customers just want to know what they're getting - surely that's not too much to ask? 

'That's why we are asking the Government to deliver on its pledge to stop misleading pricing in foreign exchange before 2016.'

Millions of pounds are transferred abroad every year, with retired expats, homeowners with overseas property and parents sending money to children studying or travelling abroad common scenarios.

Hidden fees also hit UK-based workers on foreign contracts, who are paid in a currency other than sterling, and people living and working in Britain but with families to provide for in their home countries.

Transferwise is one of the better known 'newer' money transferring services, in part because of huge amounts which have been thrown into its eye-catching advertising.

It has been heavily backed by Virgin Group founder Sir Richard Branson.

A number of providers have emerged in recent years, including CurrencyFair and WeSwap, alongside established providers such as HiFX, FC Exchange and WorldFirst, so it pays to shop around to find the best rate.

Most are authorised by the Financial Conduct Authority, but you should always check first. A large firm trading over £2.4million a month must be authorised by the FCA. 

This means at the close of play each day, customer money is separated from the firm's own accounts. This ringfenced money should be protected if a firm goes under. 

This is different to being FCA registered, which means no ringfencing is required - and money is less less likely to be returned if a firm struggles. 

Unlike with most savings accounts, there is no compensation scheme if a money transfer firm goes bust.