![You Wouldn’t Pay 50 quid for a Latte]({% asset_path ‘blog/shockedmonkey.jpg’ %})

Imagine if coffee shops discriminated in the same way banks do. You are standing in line behind Beepee. He orders a Eurolatte and is charged £1 with a smile and a, “cheerio, see you soon!” from the cashier. Your turn. You order a Eurolatte. The cashier, dour faced, says, “That will be £50 please”. You are shocked. You look around for an explanation, a price list – you don’t find one. You are desperate for caffeine; you can try and find a cheaper coffee elsewhere, but the cashier tells you that every coffee shop within 10 miles will charge around the same.  “Why?” you ask, “you only charged Beepee £1 for the same coffee, and it does not cost you any more to make mine than his!” The cashier tells you the cost has nothing to do with it; he is a frequent customer and often buys more than just coffee. He is special; you are not.

Banks make it extremely difficult for customers to find out the exact rate being used. Some will show an interbank rate that fails to include its own fees and charges. Seeing a sign reading “no commission fees” is a misnomer – the commission is implicit in the margin being charged on the exchange rate. Where you and I and small and medium sized businesses are charged a margin of 100 points or more on major currency pairs such as GBP/EUR, large corporate clients of banks are charged no more than 2 points, often considerably less. To put that into easily understood terms: converting 10,000 of GBP into EUR is likely to cost a small business or consumer over £100, while it would cost a large corporate less than £2. The extent of this price discrimination is not fair nor is it justified in today’s world of high-tech processing and operations.

Research by specialists in the foreign exchange market have found that Britons are needlessly overpaying as much as £300 million a year in bank fees when transferring money abroad. Personally, I reckon it is much more (stayed tuned to this blog for some real numbers in the near future). A bank’s fees for FX conversion and payment can easily rise above 4% and potentially be as much as 20% for smaller, consumer transactions.

Yet over 85% of international payments are still conducted directly with a bank. It is also still a very manual process with nearly 30% of transactions running into issues and where there is a complete lack of control and transparency for customers. Being a participant in this predatory market is not a good situation to say the least. Consumers and small business looking to make cross-border payments are a source of easy profits for banks.

Visit websites such as  http://www.xe.com or  http://www.oanda.com that provide up-to-the-second conversion rates to calculate what your sterling is worth in any currency without charges included. Oanda also provides a historical service where you can see what the exchange rate was at a particular day in the past to compare against your previous transfers. If you regularly use a bank when making a cross-border payment, this historical service could be illuminating — and perhaps a little distressing.  In one publicised case a business transferring £10,000 to a supplier in Thailand found that his high street bank changed the money at 63 baht to the pound, when on the money markets the baht was trading at between 68 and 69 baht to the pound. The business was being charged a “spread” of about 8 per cent on his money, costing him over £800.

It is in our hands to take away the power that banks abuse, in the international payments space as well as other financial services. Vote with your feet, embrace and support “New Finance” for lower costs, more transparency, more control and a level playing field.  Stop accepting the discrimination and take control of your services.

Mike Laven

Behind Mike's avuncular exterior lies one of the sharpest minds in the financial technology industry. Over the last fifteen years, Mike has held leadership roles at a number of a FinTech firms. He joined The Currency Cloud in 2011, growing the firm to processing over $4bn of international payments per annum.