Blatant currency exchange rip-offs under official scrutiny
Australians have long been dudded by poor rates and charged high fees on money they change into foreign currencies but there are signs the party might be over for the exchange companies.
Capital Economics estimates that in 2016 Australians likely paid at least a $1 billion more in high fees and poor rates on their currency exchanges than they would likely pay in a competitive marketplace. That research confirmed that the most costly way to buy foreign currency is through the big banks.
And it is not just overseas travellers who are being stung. New figures from comparison site Mozo show that the big four banks are charging 4.7 per cent more to customers, on average, on overseas money transfers than the best-value online services.
The cost to consumers of poor exchange rates and high fees is set to increase with the rapid growth in "remittances" that are sent to friends and relatives overseas and the growth in international online shopping.
Last week, the government announced that the Australian Competition and Consumer Commission (ACCC) will launch an investigation into foreign currency services.
Australians are paying $2 billion a year in transaction fees and treasurer Josh Frydenberg singled out the big banks when announcing the ACCC's inquiry.
“We want to stop the rip-off,” he said.
Kirsty Lamont, spokesperson for Mozo, says many of us opt for the big banks for money transfers and we “pay the price of exorbitant mark-ups as a trade-off for convenience".
The ACCC will examine, among other things, why major companies in Australia, including the big four banks, seem to be able to consistently charge high prices and examine price competition amongst suppliers of foreign currency conversion services.
World Bank figures show international money outflows from Australians to their relatives and friends overseas was three times more in 2016 compared to 10 years earlier – one of the biggest increases of any country in the world.
Almost 90 per cent of those answering the survey said support for family and friends is the main reason they remit money abroad.
The World Bank says Australians sent around $8.8 billion overseas in 2016 and that Australia is the third most expensive G20 country for consumers and small businesses to send money from.
Online money transfer platform WorldRemit surveyed 1600 of its customers and found that of those who gave their income that two-thirds have have household incomes of less than less than $90,000 annually and more than half live in households that earn less than $70,000.
By comparison, Australian Bureau of Statistics data shows the average gross income for households is $109,668.
Despite earning less, WorldRemit’s customers send at least 7 per cent of their annual household income back home.
Almost 90 per cent of those answering the survey said support for family and friends is the main reason they send money abroad; key destinations for money transfers include several countries in Africa and India and Columbia.
One of those WorldRmit customers is Okeny Secondo, a 32-year-old migrant living in Redbank Plains, south-west of Brisbane, who sends more than 30 per cent of his income overseas to support family.
Secondo's story, as told to WorldRemit, is that he and his family fled Sudan for Uganda when he was about 6-years-old. Since migrating to Australia about seven years ago, Secondo has been working as a disability support worker and his wife as a meat industry processor.
“When we first came to Australia we kept our expenses low and focused on work, “ he says.
“We refused to spend our money on things we didn’t need, like expensive clothing."
He makes sure he has enough money for food, bills and mortgage repayments then sends what he can to family and friends.
“I know what it’s like to live with uncertainty in a war-torn country and I’m very happy to be able to support my family and friends to make them more secure. Sometimes we get urgent requests for emergencies and it’s great to be able to get money to them immediately."
Despite sending a good portion of their income overseas, Secondo and his wife managed to save $150,000 for a deposit on a house.
Transparency under scrutiny
The ACCC’s inquiry will include the way prices are presented to customers.
“The exchange rate you google is not the exchange rate you get from the big four banks. The difference is known as the ‘mark-up’, and it’s often a big part of the price consumers pay when converting currency,” the ACCC's chair, Rod Sims said when announcing the inquiry.
The ACCC is expected to provide its final report to the Treasurer in May 2019.
A spokesperson for the Australian Banking Association says the association welcomes any moves to improve a customer's ability to easily compare fees for foreign transactions by banks and other non-bank payment providers.
"The banking industry looks forward to a thorough, evidence based report from the ACCC which encompasses not just banks but all providers offering international money transfer services," the spokesperson said.
Shop around to save now
Everyone should shop around and seek-out better value online money transfer providers to find the most competitive rate for their money transfer, says Mozo's Kirsty Lamont.
That is even more for those sending large amounts overseas or making regular transfers, for whom the savings will be much greater than those taking the occasional overseas holiday.
“The best online money transfer providers offer lower fees and better exchange rates than the big banks,” Lamont says.
In April this year consumer group Choice updated its review of money transfers. It said that though non-bank services are "better by a long shot" than big banks, some of the online services are more transparent than others.
For example, it is not always clear if the consumer is seeing the inter-bank rate or the actual customer exchange rate that applies to the transfer.
“Some money transfer services have a calculator on the home page that uses the inter-bank rate but show 'customer rates' on another page. Other services have a customer rate calculator on the home page,” Choice says.
“The point is to make sure you're looking at customer rates, but in any case you'll be able to see the exchange rate that will be applied before finalising the deal."
Choice names a handful of online providers that have “consistently beaten the banks in our testing.” These include OFX (formerly OzForex), WorldFirst, CurrencyFair, TransferWise and XE.
Choice says one way to choose among these services is to use their online tools to execute a hypothetical transfer without actually committing to the deal, which the online providers named by Choice had at the time the providers were tested.
If the service doesn't allow you to do this then consider another service, Choice says.