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With a new survey on US consumer attitudes towards junk fees in hand, Wise is taking its fight against hidden charges in cross-border payments to lawmakers on Capitol Hill.

In January, Wise published its 2023  looking at consumer awareness of hidden charges in financial services and payments.

Produced in partnership with Morning Consult, the report surveyed 2,000 American consumers on their ability to spot junk fees and whether such fees have changed their behaviour.

A junk fee is defined as any type of hidden or unexpected fee that adds to the cost of a transaction prior to its completion.

Junk fees are typically, but not always, pocketed by the merchant or service provider that adds them to the overall cost borne by the consumer.

In Wise’s survey, more than half (53 percent) of consumers said they were familiar with junk fees without being provided a definition.

This rose to more than three-quarters (77 percent) once a definition was provided.

Where do junk fees come from?

Wise separated “financial services” and “credit cards” into two separate categories in the survey.

However, if these two categories were combined, they would make up the largest source of junk fees identified by consumers.

As seen below, hotel bookings were the single largest source of junk fees, followed by utility bills, credit cards, event tickets and financial services.

More than three-quarters (76 percent) of respondents said junk fees have affected which companies they choose to buy from or use, and two-thirds (62 percent) said junk fees have made them less trusting of financial service providers.

Consumers want transparent cross-border payments

As a cross-border payments provider, Wise considers itself to be an example of best practice in how fees should be presented to users.

“When you use Wise, there’s a single upfront fee,” said Rina Wulfing, senior policy lead for North America at Wise, speaking to 91����ԭ��.

“And the exchange rate you get is the mid-market rate (the one you see on Google) with no hidden charges.”

In contrast, other providers may advertise “$0” or “no fees” for international transfers, but may hide their fees in poor exchange rates.

PayPal, for example, is one provider that displays no charges when making cross-border transfers, but its fees are hidden within the currency conversion rates offered.

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According to Wise’s survey, 68 percent of consumers have or would consider changing providers due to markup on exchange rates.

A further 81 percent agreed that fees hidden with exchange rates are junk fees, and 89 percent said that all fees should be transparent before a cross-border transfer is sent.

Counting the costs

In 2023, according to additional research by Wise, Americans lost $5.8bn in hidden exchange rate markups in cross-border transfers.

The World Bank, which tracks remittance prices worldwide,  Wise’s view that greater transparency could significantly reduce remittance costs for consumers.

“Remittance prices are high for many reasons,” it said, “including underdeveloped financial infrastructure in some countries, limited competition, regulatory obstacles and lack of access to the banking sector.

“However, one of the most important factors leading to high remittance prices is a lack of transparency in the market.

“It is difficult for consumers to compare prices because there are several variables that make up remittance prices.”

At present, according to a Q3 2023  by the World Bank, the average cost of sending a remittance is 6.2 percent of the amount sent.

This is more than double the  of the UN’s Sustainable Development Goal (SDG) 10, which calls for the average remittance cost to be reduced to 3 percent globally.

Similar to Wise, the World Bank calculates that reducing remittance costs by five percentage points globally could save consumers $16bn per year.

Time for lawmakers to act

Wise is calling on Congress, the White House and the Consumer Financial Protection Bureau (CFPB) to take steps to “eradicate” hidden fees in exchange rate markups.

Wulfing said Wise is applying pressure to all three authorities to help provide a “menu” for them to consider.

“While the CFPB can update the  to require all fees, including any exchange rate markups, to be displayed, the White House and Congress can also act on price transparency — from law changes to consumer education,” she said.

“Ultimately, our aim in including these options is to acknowledge that there are multiple paths to be taken on transparency in exchange rate markup.”

In 2022, the CFPB  its intention to take action on junk fees in areas such as overdraft charges and fees for non-sufficient funds, but it did not release its exact  until January 2024.

Based on these examples, Wulfing said it is difficult to speculate on how quickly lawmakers may turn their attention to cross-border payments, despite the potential benefits to consumers.

“We do hope action on junk fees in the financial sector continues and the focus turns to exchange rate markups,” she said.

“Increased transparency will drive down the cost of payments for consumers and small businesses, and competition among providers will be enabled by the apples to apples comparison of different options in services.”