In his speech calling on banks to deal fairly with customers, Monetary Authority of Singapore chief Ravi Menon made transparency a key standard for measuring that fairness (Call for banks to be fair in dealing with customers, June 4).
This is laudable and progressive. It sets high standards for the industry and safeguards the interests of individuals against potentially unethical behaviour by large corporations. The pressure is now on the banks to show they are heeding this call.
A classic illustration of how the lack of transparency can be unfair to customers is in remittances. Banks and remittance providers here engage in the age-old practice of hiding fees in the exchange rate mark-up, leaving customers clueless as to how much they are paying to send money.
When fees are hidden, the share of customers who cannot make out which product is cheapest nearly doubles to around 58 per cent, because the lack of transparency impairs judgment, a British government study in March last year found. Worse, the customer is often told he is charged a very low, flat fee - sometimes as low as $0.
When a supermarket says a carton of milk costs $5, we expect to pay no more than $5. But when a bank or remittance provider says a transfer costs $5, it often charges an additional $10 in the hidden exchange rate mark-up. This practice erodes trust in financial institutions and must stop.
Hidden fees translate into higher fees, especially for individual, less-savvy consumers. That is why individuals in Singapore pay on average 15 times what businesses pay per dollar remitted, a recent study by TransferWise found.
Regulators in many places have started cracking down on hidden exchange rate mark-ups. In February, the European Parliament voted for mandatory transparency in cross-border fees. Foreign exchange providers in Europe will have to tell consumers exactly how much they are charged in the local currency. Britain is considering similar legislation. In Australia, the Competition Commission began investigating hidden foreign exchange fees last year.
A small number of banks and remittance companies in Singapore and elsewhere already present all fees to customers, but they remain the exception in the industry.
If the other service providers continue to hide fees, the regulator can and should step in to protect individual consumers.