On the mathematics of the most successful marketing claim in international money transfer, and why the people who read it least carefully tend to pay the most.
There is a billboard outside a high street in South London. It says, in large, confident type: Send Money Home. Zero Fees. Below it, in smaller type, an exchange rate that is 3.2% worse than the mid-market rate on the day the billboard was photographed. The billboard is not lying. The fee is, in fact, zero. What it does not say is that the exchange rate applied contains a margin that, on a £500 transfer, is equivalent to a £16 charge.
Every currency exchange involves a mid-market rate, the rate at which banks trade currencies with each other and the rate that Google shows when you search GBP to NGN. No retail money transfer service charges this rate. Every provider charges a rate worse than mid-market, and the gap between the mid-market rate and the rate charged to the customer is the provider’s FX margin. When a provider says zero fees, they mean they have moved all of their revenue into this margin and away from the disclosed fee column.
The European Union has been more aggressive on this than most. The EU’s revised Payment Services Directive requires that payment services disclose the total cost of a currency conversion, including the FX margin, before the user authorises a transaction. The corridors that matter most for the populations paying the highest costs are served primarily by remittance companies operating under lighter disclosure requirements.
The test is a thirty-second exercise: note the exchange rate being offered, search the same currency pair on Google, divide the difference by the mid-market rate. That percentage is the FX margin you are paying, regardless of what the fee column says. Zero fees. Excellent marketing. Worth checking the second half of the sentence.
