The company alleges that much of the estimated £419m UK banks earn from monthly pension transfers to the 1.1 million British pensioners living abroad comes in the form of fees that are “little short of criminal”, running as high as 15% to 20% of the value of the money being transferred when small amounts are involved.
The full extent of the charges is typically hidden by the transferring banks in the exchange rate they use in the process of making the transfer, TransferWise alleges.
According to TransferWise, total bank charges – including money lost through the use of a poor exchange rate – would total approximately 3.5% on a £10,000 transfer.
On a £1,000 transfer the charge rises to approximately 5%, while on a £100 transfer the bank would pocket between 15% and 20% of the transaction, the TransferWise data shows.
“Up until now, the banks have been able to exploit the fact that expat retirees need their British pensions,” says TransferWise co-founder Taavet Hinrikus.
“They’ve abused their position – while pocketing the advantages technology offers them – and turned foreign transfers into a half-a-billion-pounds-a-year river of gold.”
Hinrikus – an Estonian who was involved early-on in the launch of online telephone company Skype – believes the “digital revolution” will force banks to change, much the way low cost airlines transformed aviation 20 years ago, and Skype changed telecoms.
Transfers sparked idea
Hinrikus founded TransferWise with fellow Estonian Kristo Käärmann in January 2011. The idea came when the two, who were living in Estonia and the UK respectively, arranged a money-saving scheme to transfer money into each others’ accounts onshore in the country in which each was at that time living, rather than moving the funds internationally – saving themselves significant sums in both transfer and currency exchange fees.
The company claims that in its first year, TransferWise was involved in moving €10m, and saved its users a total of around £500,000, in spite of having spent nothing on marketing or promotion. It has been given a boost by write-ups in major publications, including the Financial Times earlier this month.
At the Fry Group, meanwhile, international currency transfers were the subject of its most recent newsletter to its clients.
Noting that “in the search for a preferential transfer rate, the high street banks are usually not the most competitive point of call”, the UK-based financial advisory firm said it had an arrangement with another competitively-priced international payment specialist, Smart Currency Exchange.
