Inside TransferWise’s regulatory advocacy efforts
U.K.-based money transfer startup TransferWise is going beyond cheeky ads to spread its message of foreign exchange fee transparency. It’s taking its position to regulators around the world in an effort to change how the industry operates.
The eight-year-old company, which is reportedly valued at $3.8 billion, has taken on incumbent money transfer providers through an easy-to-use digital interface that discloses fees upfront. TransferWise counts 6 million customers and moves $5 billion per month, according to the company. It’s recently moved beyond a direct-to-consumer model by embedding directly with banks, most recently with business banking startup Novo and Stanford Federal Credit Union.
For TransferWise, challenging the legacy industry means aligning with like-minded fintech companies, along with business groups, to push for enabling regulations and consumer protections. The company appointed its first-ever head of policy and campaigns for the Americas, Nick Catino, in February. Catino spoke to Bank Innovation about TransferWise’s policy agenda across the regulatory landscape. Answers have been lightly edited for clarity.
What are TransferWise’s policy priorities?
I think about our work around four pillars, including, instant [payments], faster payments infrastructure, convenience (open banking is a good example) and transparency. We use an exchange rate provided by Reuters, a real-time exchange rate, and then we calculate our fee off of that. We feel the rest of the market should be that way and we’re making the case directly to regulators, policy makers and government officials.
How are you making your case?
We created a consumer petition and had tens of thousands of consumers join us in calling for more fee transparency on international payments. We formed a business coalition with fintechs and consumer groups also joined us.
How are governments reacting?
This is really exciting because it’s a public policy movement happening around the world. In the U.K., despite Brexit, [the government] made a commitment to bring more transparency to international payments. In the EU, they’re working on the rulemaking right now that will essentially ban all hidden fees. Australia has put out a government report recently that highlighted the lack of transparency and fees from the big banks, and Canada is going through the process of deciding what [fees] payment companies have to show consumers.
How about the U.S.?
Right now, the CFPB has a remittance rule that they crafted back in 2012, and it requires [fees] to be disclosed to consumers. But the problem with the current rule is that when the fee has to be disclosed, it’s really up to the provider what they can say. There’s an incentive to advertise a low upfront fee, and then hide everything in the inflated exchange rate. So we are calling on governments around the world to provide more transparency and to let the consumer choose the best option. We think that will put downward pressure on prices because it will induce competition in the market.
Who are your allies and who are your detractors?
Our natural allies are typically challenger banks. You’ll often see them focus on hidden fees, including overdraft and insufficient funds fines and other hidden costs. Larger banks and providers that charge high fees and don’t disclose them, I think, are a bit scared of our transparency push, and it’s possible some of them will oppose our efforts.
On the payments infrastructure side, are you lobbying for direct access to faster payment networks?
It’s about non-bank direct access to the payment system. So in the U.K., we became the first non-bank payments company to gain direct access to the Faster Payments Scheme. We also have a Bank of England settlement account. So that means we’re no longer dependent on our bank partner to move money for us — we’re able to do it directly. That leads to decreased friction, meaning lower costs.
Canada is on the path towards non-bank direct access to the payment system, and in the U.S., the Faster Payments Task Force a few years ago recommended that the Federal Reserve should study this issue because currently only depository institutions have the ability to gain a settlement account with the Federal Reserve.
How are your efforts evaluated internally?
I’m measured by how transparent we’re helping to make the entire industry. If everyone is transparent with their pricing, then we’ve succeeded in a way that can’t be measured in revenue.
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