Fintech startup TransferWise has built a solid reputation when it comes to transparency. The startup just announced new fees for transfers initiated from the U.K. And it’s quite hard to understand if transfers are going to be cheaper or not after the change.
The company claims that in most cases transfers should be cheaper. But it’s a bit more complicated than that. TransferWise is switching from a simple variable fee to a flat transaction fee with a lower variable fee.
Let’s take an example. If you’re trying to transfer £1,000 from the U.K. to the Eurozone. With the old fee, you’d pay 0.5 percent (or the equivalent of £5) in fees. With the new fee, you now pay 0.35 percent + £0.80, which represents £4.30. You eventually get more euros.
But the issue is that TransferWise isn’t transparent with this change. The company claims that prices have decreased by 30 percent for GBP/EUR transfers. This isn’t true at all as TransferWise only looks at variable fees. For a £1,000, you now pay 14 percent less if you take into account all fees. But this percentage is going to change depending on your transfer.
Because of this tiny little flat transaction fee, you’ll now pay more than before if you transfer less than £530. Conversely, the bigger the transfer, the lower the effective fee you get.
This is even worse for GBP/USD transfers. If you transfer less than £800, you now pay more than before. But it’s now cheaper if you transfer more than £800.
The good news is that TransferWise also got rid of the £2 minimum fee. Before today, you’d pay at least £2 in fees. Now, all transfers have the same fee. So it means that you now pay less than £2 if you convert less than £300 into USD, for example. This sounds complicated, right?
In other words, today’s change is good news for customers who usually transfer big chunks of money. But customers who initiate a lot of tiny transactions are going to pay more. Unless your transaction is so small that you used to pay the £2 minimum fee.
A handful of corridors are now more expensive on all transactions. So if you want to send money to Bulgaria, Hong Kong and Poland, you’ll have to pay a bit more in fees.
Customers also pay 0.2 percent for debit card transactions and 0.3 percent on credit cards. You can avoid this fee by initiating a bank transfer.
So TransferWise isn’t really transparent with today’s change. It’s probably good news for many customers. But it’s hard to know for sure if the majority of customers are going to end up paying less, a lot less, more or less as much as before or a bit more.
When you initiate a transfer, TransferWise still gives you the exchange rate and the amount you’re going to pay in fees. The company doesn’t try to hide it in small letters or in the terms and conditions. I’m glad this isn’t changing.
Update: TransferWise CEO Kristo Käärmann has sent me the following statement:
“We have a mission to make sending money abroad as easy as email – fast, efficient and eventually free. But before we can get to free we need to make transfers really cheap. As volumes increase on routes from the UK we’ve been able to lower prices for most customers. We’re excited that more than 75% of our UK customers will experience a price drop from today.
However our mission is far from over. Our plan is to offer the lowest, sustainable price for every customer. You point out that our fees aren’t dropping for all transfer amounts within one route – a minority will stay the same or go up. We made that change, via removal of the minimum fee, to accurately reflect the cost of making these transactions. It is the fairest way to price.
It’s also important that higher volume routes don’t subsidise those with lower volumes. Using one product to subsidise another is how the banks got into the untransparent state they’re in – offering free current accounts and overcharging elsewhere. As a transparent business we are committed to offering the lowest sustainable fee for the service you get. We’ve achieved that today.
The cost of moving money for each transaction is complex so this process hasn’t been simple. We’re confident this price change offers exactly what we planned – the lowest, sustainable, transparent price for every customer.”