Thursday, 14 November 2019
Why Can It Be So Expensive to Send Money Overseas?
In September 2019, the Australian Competition and Consumer Commission - the ACCC - released their final report on the Foreign Currency Conversion Services Inquiry.
The focus was on international money transfers (IMTs), because as the report made clear, prices in Australia are high by global standards and there are significant, and often hidden costs, when sending money overseas. According to the ACCC report, an estimated AUD21 billion in personal IMTs are sent from Australia each year. There are little or no easy options, other than taking money over yourself, for someone wishing to send money to another person overseas.
IMTs have also been a policy focus of the Australian Government with steps being taken to reduce the price of IMTs, particularly the price of sending remittances to developing economies in our region.
Australia, as a member of the G20 Global Partnership for Financial Inclusion, is committed to reducing the price of remittances, in particular to developing economies. The Australian and New Zealand governments also fund two comparison websites, SendMoneyPacific and SaverAsia, which compare the costs of sending money to the Pacific and to many Asian countries.
The report highlighted that people wanting to send money face challenges in getting the best price.
The total price of the FX services is driven by two components: the inter-bank exchange rate, which typically includes a retail margin or mark-up, and fees. Services that appear to be cheap when considering only fees – and are sometimes marketed as “no fees” – can be the most expensive option based on the total price, because the company earns revenue through the mark-up on the inter-bank exchange rate.
This video explains how the mark up – or currency conversion fee, influences the cost of the money transfer.
The inquiry noted that there is frequently a lack of transparency when it comes to money transfer companies showing the true price of sending money overseas – it is often not easy to know beforehand what foreign exchange rate is being charged, and how much the recipient will receive, and there aren’t many ways to compare costs between different companies.
To make matters worse, there are often corresponding bank fees on the receive side and the sender is not informed exactly what these costs will be – this can be a nasty shock for the receiver who has no choice but to accept the amount handed over by the receive side agent.
To add to this, some customers like to stay with the company they use as it can be difficult to change location on both the send and especially the receive side – changing company may mean the receiver has a long journey to the new receive location – which is also a cost – so many people prefer to stay put and do not shop around, as it is the easiest option. But it pays to shop around, because it can mean a big saving in fees and foreign exchange margins.
The ACCC inquiry also notes that de-risking, or de-banking as it is often referred to, is a significant threat to competition in the supply of money transfers.
The inability to secure banking services can act as a barrier to entry for new companies, and therefore threaten competition. It is also hard for companies to lower the price they charge when they have such high compliance costs for offering a money transfer service.
The message is: compare the total price of sending money
Consider all components when comparing prices of services and suppliers, including the exchange rate and any send fees, as well as costs added on the receive side. A service advertised as ‘fee free’ will not necessarily be the cheapest option.
If you use a commercial comparison website, be aware that some sites may not be independent and suppliers may pay for their services to be promoted by these sites. You should also be aware that comparison websites may not include all available services.
There are two government-funded comparison websites - www.sendmoneypacific.org and www.saverasia.com – you can use these to compare prices of IMT services available to a number of South-East Asian and Pacific Island countries.
Staying with the same company can cost you, especially if you are using the big banks and receive costs are being charged. Check on the comparison websites to see if there are other options you can use.
You can read the full ACCC report here.
 The average price of sending money from Australia is higher than both the average G20 price and global average price. See: The World Bank, Remittance Prices Worldwide, Issue 29, March 2019, https://remittanceprices.worldbank.org//sites/ default/files/rpw_report_march_2019.pdf, viewed 30 April 2019
 World Bank, Bilateral Remittance Matrix 2017, April 2018, http://pubdocs.worldbank.org/en/705611533661084197/ bilateralremittancematrix2017-Apr2018.xlsx
 Global Partnership for Financial Inclusion 2017, 2017 Financial Inclusion Action Plan, http://www.gpfi.org/sites/gpfi/files/ documents/2017%20G20%20Financial%20Inclusion%20Action%20Plan%20final.pdf, p. 13.