Big four banks reap billions in fees

The big four Australian banks are skimming billions of dollars off customers via hidden foreign ­exchange charges.

While the exchange rate with the US dollar was US78.3c yesterday, the big four banks offered rates as low as US74c.

The big four Australian banks are skimming billions of dollars off customers via hidden foreign ­exchange charges at up to 30 times the rate of US, British and German banks, as part of a growing fee bonanza that dwarfs their losses from abolishing ATM fees.

The major banks charge about $75 to transfer $1000 to a US bank, for instance, most of which comprises the inferior exchange rate — known as a “mark up” — customers receive compared with what the bank gets when it makes the transaction, according to analysis by British market ­research firm Consumer Intelligence, commissioned by Transferwise.

“Around the world, most banks tell their customers that they only pay a small upfront fee for international payments, but in reality customers pay much more through terrible exchange rates,” said Kristo Kaarmann, chief executive of Transferwise, speaking to The Australian in London.

“We’ve seen this in the UK, Europe, the US and more, but Australian banks seem to have some of the highest exchange rate mark-ups of any banks we’ve seen.”

Transferwise, an international non-bank payment provider which competes with banks, charges customers less than $7 for the same $1000 transaction.

WEB cost of sending $ overseas

The mark-up the Australian banks charge for converting dollars to British pounds, for ­instance, dwarfs the equivalent mark-ups levied by British, Spanish, and US banks.

Westpac and the Commonwealth Bank would charge more than $610 to send $10,000 to a British bank account (6.1 per cent), while Deutsche Bank and Commerzbank, two large German banks, would charge less than €50 to convert €10,000 ­(including a mark-up of 0.3 per cent). Three large US banks would charge an average mark-up of about 3 per cent.

The foreign exchange mark-ups charged by the big four, which affect travel card purchases or ­remittances to overseas bank ­accounts, for example, have also been rising: about fivefold since 2008 to between 4 and 5 per cent, according to analysis by The Australian.

Mr Kaarmann said it was “quite fascinating” how Australian banks had managed to ­increase their mark-ups, given competition from firms such as his, and others including OFX, Currency Fair and Bux, a local money transfer operator.

While the exchange rate with the US dollar was US78.3c yesterday, the big four banks offered rates from US74.9c (National Australia Bank) down to US74c (Commonwealth). The Commonwealth Bank advertises its foreign travel card as “fee-free”.

WEB News $ convert to pounds

Opposition assistant Treasury spokesman Andrew Leigh said Labor would consider forcing banks to state the total cost of any foreign exchange transactions in dollars to customers.

“Simpler fee structures will ­result in a fairer system and put downward pressure on the cost of transferring money overseas,” he said. “It would be similar to the comparison rates we already enjoy when shopping for car loans, mortgages and credit cards.”

Revelations of high and rising foreign exchange mark-ups, which could affect up to a million Australians who live overseas and the two million-plus foreigners who live here, come a week after the major banks, led by Commonwealth — reeling after accusations of failing to ­address money- laundering ­activity — abolished ATM fees, which analysts say will cost each of the big four about $40m a year each.

Scott Morrison welcomed that move, warning banks not to ­recoup their fees elsewhere.

The Treasurer, who has championed Australian start-ups in the financial services sector, unveiled policies in May designed to make banking more competitive, ­including streamlining the licensing process for new banks.

“We will look closely at any ­allegations of collusion or anti-competitive conduct by banks,” a spokesman for the ACCC said yesterday. The Treasurer’s office declined to comment.

Commonwealth Bank said its exchange rates were “very transparent”. “For larger foreign ­exchange transactions we encourage our ­retail customers to engage our branch staff in order to find the best solution,” a spokesman added.

ANZ said the cost of sending money overseas had increased since 2008 because of anti-money-laundering rules. “ANZ publishes FX rates as well as providing calculators so customers can make informed decisions,” a spokesman said.

Separately, the foreign ­exchange fee banks charge for spending on credit and debit cards overseas, including Visa and Mastercard, has almost tripled from 1 per cent in 2002 to 2.8 per cent last year, a period during which the value of spending would have increased dramatically, ­according to the latest Reserve Bank data.

Almost 80 per cent of the $3.9 billion in foreign currency fees paid by Australian consumers and businesses last year was in the form of foreign exchange mark-ups and card scheme fees, according to a separate study by Capital Economics, released in August.

That is equivalent to more than 10 per cent of the $28.1bn profit all of Australia’s banks made last year, or about $350 a year per household.

The nation’s financial services sector as a share of gross domestic product surpassed 9 per cent for the first time in June, according to the latest set of national ­accounts, the largest such share in the G20.

Australians spend twice as much on financial services as they do on electricity and gas, according to the consumer price index.

“A lot of people know the bank is charging them, and probably ­really badly, but they can’t be bothered to find out,” Mr Kaarmann said.

“Unless they are required to be transparent, I don’t think they have an incentive to lower their margins.”

Andrew Webber, chief executive of Bux, said: “When people want to send money overseas there is a perception that banks are a safer option. This just isn’t the case.”

Transferwise, which hopes to have 5 per cent of Australia’s $120bn-a-year remittance flows by next year, said the firm had saved customers globally the equivalent of $76m in August.