Tech advances but foreign exchange still tricky
Despite improvements in disclosures to consumers by those providing foreign exchange services, you still need to shop around to avoid paying over-the-top rates for international money transfers.
There is much more transparency of the costs following the Australian Competition and Consumer Commission’s (ACCC) review of the sector that started almost three years ago.
The main reason for the ACCC intervention was that it found that customers who used the big-four banks to send money overseas in US dollars and British pounds during 2017-2018 would have saved more than $150 million in fees if they had instead used low-cost currency transfer providers.
To put that into perspective, the consumer watchdog said in its final report that a customer wanting to send $US7000 overseas could save more than $A500 by selecting the cheapest foreign exchange provider, rather than the most expensive big bank.
Australians send about $20 billion a year to family and friends overseas. The remittances are often made by lower-income migrants or temporary workers, including those sending money to help their family and friends deal with hardship arising from the COVID-19 pandemic.
The ACCC’s best-practice recommendations are that all foreign exchange services, or “remitters,” have calculators on their websites showing the total cost of the transfer up front. That includes all fees that affect the total price.
If the fees are unknown, the service should provide an estimate. This may be, for example, where the receiving bank overseas charges a fee.
The ACCC said in a report released last week that the majority of foreign exchange services it reviewed are now giving consumers the tools they need to more easily compare prices of international money transfers.
The best services, which tend to be the online-only specialists, now show the amount that ends up with the receiver.
Banks tend to handle the costs differently. They usually state their own fees upfront and provide a list showing estimates of what the receiving banks could charge.
Some banks allow customers to elect to pay a known fixed fee, so that the consumer does not pay a foreign bank fee. The COVID-19 pandemic has seen some changes in the cost of making foreign exchange transactions.
Some providers have suspended their fees for transfers to particular countries, such as those in the Pacific region.
The ACCC’s chair Rod Sims told SBS recently that the costs of transfers have come down since the regulator started its review. He said some emerging players were offering “just stunningly better rates” than the big-four banks.
“Now there is more of them [emerging players] we have noticed that the big-four banks are giving better deals because of the [extra] competition,” he said.
Anhar Khanbhai, senior PR manager Pacific and Japan at fintech Wise, an online foreign exchange service, says Australia remains one of the most expensive countries in the world from which to send money overseas.
Gaps still remain in the competition regulator’s best-practice guidelines, she says.
“With providers not forced to disclose how much they’re charging in exchange-rate mark-ups, coupled with the inconsistent take-up of the ACCC’s best-practice guidance, consumers still cannot not make informed decisions on the cheapest ways to send money overseas,” Khanbhai says
The ACCC says that despite the broad improvement in the sector that it has identified, three providers are falling short of best practice. It did not name them.
“Three remitters continued to provide inadequate transparency to their customers by only partially disclosing their fees, having unduly complex prices or lacking a customisable online price calculator,” the ACCC’s Sims said.
The ACCC has written to all three remitters to point out where they are falling short and says it expects to have continued engagement on this issue with each of them.
“If we find that money remitters backtrack or do not implement best practice, we will work with the government on further measures to ensure there is appropriate transparency for consumers,” Sims says.