Australians overpay for FX services, new inquiry finds

Maria Nikolova

During 2017-18, individuals who used the big four banks for international money transfers in USD and GBP could have collectively saved about AUD150 million if they had used a lower priced IMT supplier.

The Australian Competition & Consumer Commission (ACCC) has earlier today published a new report into foreign currency conversion (FX) services. The document reveals that Australians are overpaying for FX services.

The report shows Australian consumers purchase the equivalent of over AUD40 billion in foreign currency each year and further competition in the supply of FX services has the potential to deliver significant savings for consumers in relation to those purchases, both in aggregate and for individual consumers. For instance:

  • ƒƒACCC estimates that individual consumers who used the big four banks to send IMTs in USD and GBP during 2017–2018 could have collectively saved about AUD150 million if they had instead used the lowest priced IMT (international money transfer) supplier;
  • ƒƒCustomers of the big four banks sending an IMT for GBP150 to the United Kingdom (UK) in February 2019 could have paid a price that was over 20% higher than the cheapest IMT supplier’s price.

The report focuses its competition analysis on IMTs. IMTs are significant for a number of reasons. For example, an estimated AUD21 billion in personal IMTs are sent from Australia each year. Also, the average transaction size for IMTs is much larger than the other inquiry services (foreign cash, travel cards and payment cards). Third, IMTs are generally not substitutable for other services; for example, there is no substitute inquiry service for a consumer wishing to send money to another person overseas.

It can be challenging for consumers to make informed decisions about FX services, as ƒƒprices are complex.

Services that appear to be cheap when considering only fees or the retail exchange rate can turn out to be the most expensive option based on the total price. Some suppliers, possibly in recognition of consumers’ aversion to fees, do not charge an up-front transaction fee and instead earn revenue through the mark-up on the retail exchange rate. Services advertised as ‘no fee’ can give the illusion that the price is lower than it really is ƒƒprices are presented in different ways. For example, some suppliers display the exchange rate and note that fees may apply. Others quantify the fees but leave the calculation of the currency conversion and total price to consumers. ACCC’s inability to easily collate complete price information from publicly available sources demonstrates how difficult it is for consumers to compare total prices.

The ACCC has recommended a set of measures to improve how prices are presented to consumers.

IMT suppliers should take the necessary steps to inform their customers up-front of the total price of an IMT, including correspondent banking fees. Suppliers of IMTs and foreign cash are also advised to offer digital tools on their websites to calculate the total price for those services for consumers.

Further, foreign cash suppliers should ensure that they provide price information that will enable an in-store consumer to understand the total price of foreign cash transactions.

Merchants offering goods and services online to Australian consumers are encouraged to inform consumers if they are likely to be charged an international transaction fee. Merchants should provide this information prominently and clearly, before a customer enters into a transaction. If consumers are charged an unexpected international transaction fee, they should contact their bank or card scheme to request a refund of the fee.

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