Rina Wulfing is the North America policy and campaigns manager at the London-based, cross-border payments company Wise Payments.
International payment fees are receiving a lot of attention these days. The Consumer Financial Protection Bureau (CFPB) recently put out a request for information on hidden and excessive fees, including on remittances. The Federal Reserve’s long awaited paper on central bank digital currencies (CBDCs) labels cross-border payment fees as a “remaining challenge for the payment system.” Members of Congress are raising concerns about the price of remittance fees in congressional hearings. Consumer and immigration advocates have repeatedly called on the CFPB to eliminate hidden fees on remittances. Even the industry itself, specifically the Financial Technology Association (FTA), sent a letter to the CFPB calling for the elimination of hidden fees in international payments.
It seems that regulators, policymakers, consumer groups, and industry leaders are in agreement — the cost of sending money internationally is too high. People who live in America are getting ripped off and the data proves it: the average cost of sending remittances abroad is 6.3%, a long way from the United Nations Sustainable Development Goal of 3% remittance costs by 2030.
Further, a lack of price transparency in international payments results in charges to U.S. consumers of $8.7 billion in hidden fees every year via exchange rate markups. Alarmingly, independent research found that while 55% percent of consumers said they understood the costs of sending money abroad, only 18% percent correctly identified inflated exchange rates as a source of the costs. These fees impact many, including migrant workers, small businesses, travelers, and international students, and are the result of banks and remittance providers advertising low-cost, or even “free” services, while marking up the exchange rate.
Given what we know about the impact of hidden fees on consumers, how can the U.S. solve this issue and help lower costs?
As a start, policymakers can take action, and ensure the fees shown to consumers when they send money across borders are fully transparent. Hiding billions of dollars in fees is currently allowed by CFPB rules that don’t go far enough, but the CFPB has the authority to change that. Specifically, the CFPB could update its Remittance Rule to require international transaction disclosures to show the “total cost” that includes both exchange rate margin and upfront fees, basing the margin on the real, mid-market rate. In effect, this would simply eliminate confusing exchange rate markups, which currently make comparison shopping nearly impossible. Congress can also do its part by pushing the CFPB to use its authority.
Requiring payments providers to show the total cost of sending money abroad will better equip consumers to choose cheaper options, leading to healthy competition in the market and bringing down remittance costs worldwide.
The payments industry also has an opportunity to clean up its act. Payments providers should make their platforms more transparent by disclosing the exchange rate margin to customers. They should also consider proactively joining calls for transparency. In doing so, payments providers will better support their customers and help them easily understand pricing, just like they can in other areas of personal finance.
Ultimately, price transparency has the potential to increase competition, decrease prices across the payments industry, and support financial education and inclusion efforts. By taking action now, policymakers and industry leaders have the opportunity to help consumers better understand fees and bring down hidden costs of international payments.