- Research shows most consumers are unaware of hidden bank fees on remittances
- Billions lost on transfers annually due to fees and exchange markups
- Online-based services offer cheaper alternative to big banks
Foreign workers in the US are sending money abroad in record numbers, yet hidden fees can weigh heavily on both senders and recipients. By failing to seek out cheaper and more efficient alternatives to traditional bank transfers, consumers are setting themselves up for heavy financial losses that could be avoided.
The biggest hit on international money transfers comes from foreign currency exchange fees. While all international payments are subject to an exchange fee, some big banks also tack on additional hidden markups and spending charges to remittances in order to widen their profit margins – users may be charged as much as $25 or $30 on a mere $150 transaction. For consumers who make frequent foreign money transfers to support family or friends back home, these fees can add up quickly, costing them hundreds of dollars per year.
Despite these fees, using a traditional bank to send money abroad remains popular with a majority of consumers. Furthermore, recent reports indicate that many of these people also hold the mistaken belief that sending funds through a bank to accounts overseas is free – or at least not as financially complex as international transfers actually are.
Many consumers simply aren't aware of the various fees and markups associated with bank transfers. They may think they are paying an upfront fee only or don't understand how banks leverage currency exchange rates to make money. They carry on doing business – and losing money – with big banks because they aren't aware of any viable alternatives.
When money is sent abroad through a bank, the financial institution charges an upfront fee as well as a markup on the current exchange rate in order to turn a profit. These charges apply to every transaction, so it's easy to see how hidden fees can add up for people who send regular cross-border payments. In fact, consumers could often be using the most expensive remittance provider without even knowing it.
And it's not just international transfers that are costing consumers money. International travelers lose hundreds of millions of dollars a year on bank card fees, ATM withdrawals and online purchases with overseas merchants.
As banks face increasing pressure to slash excessive fees and improve overall transparency, a greater number of online-based transfer platforms and service providers have stepped in to fill a need for consumers seeking alternatives. Companies including TransferWise and OrbitRemit are proving very popular.
Consumer advocates recommend shopping around in order to get a better deal on remittances. Research has shown that using a broker to send payments can be far cheaper than going to a traditional provider, with many niche services charging a small flat fee per transaction and a nominal exchange rate markup.
For people who make frequent overseas transfers or send money abroad in small amounts, these alternatives can offer dramatic savings and efficiency.
