Why you’re being charged too much to send money overseas

Australians send about $20 billion worth of assistance to family and friends overseas each year, but many are still being short-changed by providers through high fees and poor currency exchange rates – some of which are not always disclosed.

Consumers can often get better rates by shopping around and using alternative services outside the big four banks, but many costs and fees are obscured by providers, making it difficult to compare services.

Dai Le, the federal member for the electorate of Fowler, says legislation could be needed to compel improved transparency on international payments.Credit: AFR

The Australian Competition and Consumer Commission’s (ACCC) latest update to its guidance on international payments shows the big four banks continue to charge more for transfers than many of their rivals, particularly compared with the specialist foreign exchange providers.

There are two main ways that providers make their money. The first is a fee on the transfer, and the second is by having a mark-up on the “mid-market” currency exchange rate – meaning the recipient of the money receives less than if the provider was using the actual rate.

The mid-market rate is what banks and money transfer services use when they trade currency between themselves. Providers charge either a mark-up on the mid-market rate or a fee, or both.

Some banks and other providers have a currency exchange rate mark-up but no fees, but do not necessarily disclose the mark-up to consumers before they transact.

It’s a fundamental matter of fairness; you would not go to a supermarket and buy milk if you did not know the cost.

Jack Pinczewski from money transfer company Wise

The ACCC issued its best practice guidance for money transfer providers in 2019, which included greater transparency over pricing. Though the guidance is voluntary, major providers comply, and that has helped drive costs down, including among the big banks.

However, the ACCC says prices at the big four remain higher than at many of their rivals. It gives an example of a person using the most expensive bank in February this year to transfer $10,000 to US currency. More than $400 could have been saved if the person had chosen from among the cheapest providers.

In its update, the ACCC says providers should take a uniform approach to fees by subtracting the fees from the money that consumers want to send, upfront. While that will help consumers, the regulator stopped short of recommending that providers disclose mark-ups.

It said that such a recommendation would probably require government regulation or an industry code, and could be of limited utility to consumers and costly for providers to implement.

Dai Le, the federal member for the electorate of Fowler in Sydney’s south-west, says her electorate, as one of the most diverse in the country, has many people who send money to their extended families in their birth countries.

“You would probably not find anywhere as concentrated in terms of sending money overseas as here in Fowler,” she says. “I think that we need to have some sort of legislation to compel banks to be transparent [on costs].”

More transparency on how much people are paying would help drive competition and put more downward pressure on costs, Le says.

Jack Pinczewski, the Asia-Pacific government relations lead at Wise, a forex fintech that charges a fee but no mark-ups, says if the ACCC will not act to capture the impact of mark-ups for consumers, it is up to the federal government to act.

“It’s a fundamental matter of fairness,” Pinczewski says. “You would not go to a supermarket and buy milk if you did not know the cost; the same principle applies.”

The ACCC’s update includes a requirement for providers to show the estimated time a transfer would take to reach the recipient. Providers should also give customers the ability to track the status of their transfers.

The ACCC is seeking feedback from providers about its updated guidance.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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