Fintech companies in London, numbering up to fifteen have come together to urge for a review of legislation regarding hidden bank fees for international payments.
In an open letter to Chancellor of the Exchequer, Jeremy Hunt, these fintech startups alleged that consumers and Small and medium enterprises (SMEs) in the UK lost a total of £5.6 billion in 2022, mostly in hidden fees charges.
They further expressed concern about why the legislation still permits most financial providers to continue to earn profits majorly from hidden fees, which they describe as a misleading and unhealthy practice.
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Part of the letter reads,
“There is widespread practice of firms showing currency conversion services as having ‘zero fees’ or ‘0% commission. This is highly misleading when a much larger charge is embedded in the exchange rate, ranging from 2.5% – 3.7% over the mid-market rate for a transfer to EUR or USD with a UK high street bank, but this is never communicated to the customer.”
These startups are calling for a stop to hidden fees, noting that burying additional costs in inflated exchange rates and labeling them as zero few is hurting the finances of people and businesses across the U.K.
They alleged that the UK’s major banks are overcharging and undeserving their SME customers, failing to give them the knowledge, transparency, and visibility they need to make an intelligent and informed decision.
This lack of transparency according to the fintechs is not only unfair and uncompetitive but is also costing the UK’s SMEs precious cash in unnecessary fees.
They, therefore, urged Chancellor Hunt to address the issue in the country’s payment services regulation review.
They made five (5) demands which include;
1.) The total cost of currency conversions needs to be shown upfront to consumers and SMEs before they make a payment.
2.) The legal definition of a currency conversion charge should include any markup over the mid-market rate.
3.) Firms must use an aggregated mid-market rate issued by a neutral provider (e.g. Bloomberg, Refinitiv, New Change FX), which is approved by the Financial Conduct Authority (FCA) as an official mid-market rate provider.
4.) These rules need to apply to global currency conversions to support Global Britain, and not just to EU currencies.
While the evolution of fintech has allowed both individuals and businesses to send their money across the world quickly and safely, the traditional methods of making global payments online are still plagued with the prevalence of hidden fees.
This highlights the lack of transparency by banks around the fees they charge individuals and SME’s, and how these fees are calculated.
Research shows that most consumers are unaware of hidden bank fees on remittances, which have seen billions lost on transfers annually due to fees and exchange markups.
Consumers often think that they are paying an upfront fee only, but what they do not understand is that these banks leverage currency exchange rates to make money.
While all international payments are subject to an exchange fee, some banks implement additional hidden markups and spending charges to remittances to widen their profit margin.
In the UK, a 2016 report disclosed that banks charge SMEs £4bn in hidden international money transfer costs each year, with over 96% of the costs hidden in the exchange rate.
This hidden charge is in addition to the upfront fee that banks disclose when making a transfer. Including fixed fees, the most expensive bank makes 3.70% on any transfer and the cheapest makes 1.14% for transfers over £100k.
For individuals and businesses who frequently make international money transfers, these hidden fees have negatively impacted their finances.
Without complete service transparency and a full breakdown of pricing, transactional fees, and exchange rates involved, it has become difficult to know which financial institution to trust.