The pesky EU is at it again, this time trying to level the playing field for EU consumers and businesses by putting an end to the high cost of cross-border payments in currencies of Member States outside the Eurozone. Only Sweden took up the option to align the fees charged for those cross-border payments in Swedish krona with fees for krona payments within Sweden. Other non-Euro area countries, like the UK, did not oblige their banks to invest in the systems to do this. So, the European Commission is proposing a regulation to force banks in those Member States to cut their fees.
I've experienced the problems personally, as would anyone doing business across borders, travelling for business or pleasure, or shopping internationally online.
Business payments
Expecting the worst from Brexit (but hoping the whole fiasco will end with the UK remaining in the EU), I've added an Irish side to my business. That means getting paid in Euros and changing into GBP (if the funds are needed in the UK at all). To receive international payments to my GBP business bank account, my bank says I need an extra current account on its commercial banking platform (which I won't be able to see through the online access to my normal business current account). For that extra account, I'll have to pay £20 a month, plus their charge for converting each payment, plus their margin on the foreign exchange rate.
Compare that to £0 for receiving a UK payment in GBP to my existing, fee-free UK current account!
A study by Deloitte revealed other examples that punish small and medium sized businesses, as well as consumers. It costs €24 to send €500 from Bulgaria to Finland, for instance, but sending €500 from Finland to France is like any normal payment within Finland or France - which is what the Commission wants to see in the non-Euro area.
Travelling or shopping
On a more personal level, you'll also be familiar with the tedious additional "choice" that everyone is forced to make when the currency of their payment card is different to the local currency. It's not so intrusive online, but a real pain for both you and the person serving you in a crowded shop, bar or restaurant. You have to be asked, or indicate on the card terminal whether you want (a) the "dynamic currency conversion" option, to pay in the currency of your card (at an unspecified rate that may include both margin for the local bank service provider and 'spread' for the retailer); or (b) to pay in the local currency, taking the risk that the conversion rate via the card scheme and your own bank's foreign transaction charge (if any) that you eventually see on your card statement will mean you're at least no worse off than whatever the local conversion rate was.
In this case, the Commission is proposing a short term cap on conversion costs, then a new model that shows you the actual cost of those options before you choose one.
After all, it's just data, folks!
Cost Savings
The Commission found that extending the new rule from Euro transactions in the Eurozone to non-Eurozone Member States will save the affected customers €900m a year. That's because (a) the banks already have access to the modern system required, (b) at least 60% of cross-border transactions in the non-Eurozone Member States occur in Euros and (c) the cost of domestic transactions in those states is already low and couldn't be raised to subsidise the savings on the cross-border Euro transactions under competition rules.
It's worth noting that Eurozone banks did not raise fees when the first controls were imposed on cross-border payments in Euros - and in fact charges steadily decreased. Nor did Swedish service providers suffer when Sweden opted to extend the scheme to the krona.
Personally, I'm going to ignore the bank for my Euro payments until it gets its house in order - which might be never anyway. Even if the Euro/GBP conversion charge drops to zero, I'm sure it will still oblige me to take the commercial account on the more expensive platform and pay £20 a month for the privilege. It will argue that the move to a new current account does not relate to any single payment transaction or conversion, even though that's the only purpose I'd be taking the extra account.
No, what I'm going to do instead is open an account with one of the new foreign currency providers, so that a law firm can pay the provider in Euros, and the provider will pay me in GBP for a small, flat fee.
FinTech wins again!
Ah, but Brexit...
Of course, all bets are off if the UK leaves the EU and decides to diverge from the EU trade rules relating to financial services.
In that case, banks - like telecoms companies who hate the EU's limit on roaming charges - will heave a sigh of relief.
Big business doesn't refer to the UK as "Treasure Island" for nothing!
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