Kiwis lack awareness of high fees in international transfers

Recent research by global technology company Wise has highlighted significant knowledge gaps among New Zealanders who engage in international money transfers. According to the findings, nearly one-third (29%) of Kiwis who have transferred money abroad possess little to no understanding of the fee structures associated with these transactions. The fees include foreign exchange (FX) fees, transfer fees, and exchange rate markups, often bundled into one comprehensive fee.

The data sheds light on New Zealand's remittance industry, wherein banks and financial service providers impose onerous fees on international money transfers. The Commerce Commission's recent report on personal banking acknowledged that further investigation is needed to delve into the banks' pricing structures for international transfer fees. Yet, it did not offer any technological solutions available to New Zealanders.

There is no governmental oversight or regulation concerning international transfer fees in New Zealand. Jack Pinczewski, Asia-Pacific government relations manager for Wise, emphasised the need for government intervention. "The issue really boils down to a lack of transparency. Most people don't even realise they’re being misled by the banks," he said. He also pointed out that 57% of New Zealanders agree that their banks make it easy to understand the costs of transferring money overseas. Still, this information often comes from the institutions accused of misleading them.

Pinczewski stressed that the Commerce Commission's report was a step in the right direction toward a fairer banking market but that the job remains unfinished. "We need the Government to further investigate international transaction fees," he said.

The study also indicated that in addition to upfront transfer fees, banks often add markups and margins to the exchange rate by setting their own price rather than utilising the mid-market rate. "Bank fees can account for 2 - 5% of the full transaction amount, which is significant considering that nearly three in five (57%) New Zealanders have transferred money overseas," Pinczewski noted.

While most people who send money overseas using their bank are aware that this incurs a fee (89%), fewer than a quarter (24%) understand that this fee may include markups and margins on the exchange rate. Even less (18%) know that an exchange rate fee may apply.

Interestingly, 61% of those who make overseas money transfers prefer to use online money transfer providers, which are associated with better exchange rates, faster transfer times, ease of use, and lower fees. However, Pinczewski pointed out that alternative providers are not necessarily free from criticism. "Paypal or Western Union, for example, regularly charge even bigger fees than the banks, consisting of markups on the exchange rate and/or an additional fee," he explained.

New Zealanders with family members living abroad face significant costs due to these high fees. Previous research from Wise indicated that 51% of migrants living in New Zealand send money back home, with 11% doing so every month. "This isn’t just a remittance issue," commented Pinczewski. "The same exploitative methods are used for other international payments too. Many of us purchase goods from internationally-owned websites or run businesses importing goods from overseas markets or paying international workers. This is a significant problem. Kiwis shouldn't have to pay unnecessary fees, and they should at least know what they're paying for."

The Commerce Commission's report concluded that international transfer fees "would benefit from further investigation to understand the nature and size of the problem in New Zealand." Wise argues that the insights from its research prove the necessity for more government scrutiny and increased transparency in the sector. Wise maintains this should be the 'first step' towards better regulation.