Australians are being urged to shop around for foreign currency services to avoid being charged exorbitant fees from the big four banks.
The Australian Consumer Competition Commission (ACCC) latest inquiry into foreign currency conversion services reveals that the big four banks are consistently more expensive than other suppliers for foreign cash and international money transfers (IMTs).
Australians are paying these fees due to confusing pricing structures and a lack of engagement with financial products which results in little research into other options.
ACCC chair Rod Sims says: “Shopping around could save Australian consumers hundreds of millions of dollars each year.”
Travel money cards are not always the cheapest option as the associated fees can be more expensive than other services especially if the currency is not loaded onto the card.
The inquiry says: “If a travel cardholder with one of the big four banks withdrew the equivalent of AUD100 in GBP from an overseas ATM in May 2019, and GBP was not pre-loaded onto the travel card, they would have been charged an ATM fee of around GBP2 (about AUD3.70) plus a 5.25 per cent currency conversion fee.”
Instead, the ACCC recommends using debit or credit cards when travelling and international online shopping as they are usually the cheapest option particularly if they do not have foreign transaction fees.
For example, if a customer of the big four banks uses a debit or credit card without international transaction fees instead of a travel money card, they could save up to AUD13 on a USD200 purchase.
When using a regular debit card, big four bank customers could save up to AUD5 on a USD200 purchase instead of using a travel money card.
In addition, the ACCC discourages Australians from getting foreign cash at airport locations as it is far more expensive than anywhere else.
The report says: “When buying USD200 in February 2019, consumers could have saved AUD40 by purchasing from the cheapest supplier at a non-airport location, compared with the most expensive supplier at the airport.”
Australian consumers purchase the equivalent of over $40 billion in foreign currency each year and the ACCC says consumers have expressed concern that they do not always know that the total price for an FX service would be up-front
The competition regulator estimates that consumers who used the big four banks to send IMTs in US dollars and pounds in 2017/18 could have saved $150 million if they had instead used the lowest priced IMT provider.
Sims says: “Consumers and small businesses tend to default to their usual bank to send money overseas, but this may not be the cheapest option. This is another example where consumers may end up paying more for their loyalty.”
Prices are complex, with the price of the service made up of a retail exchange rate, which typically includes a retail margin, and fees.
Measures to improve the presentation of pricing could include up-front information about correspondent banking fees, the provision of online calculators by IMT providers and disclosure of international transaction fees.
Another issue of concern is that some non-bank suppliers have been denied access to banking services. The need to comply with anti-money laundering and counter-terrorism financing laws has been a factor in the banks’ decisions to withdraw service.
Sims says: “The withdrawal of banking services from non-bank IMT suppliers represents a significant threat to competition that could ultimately result in less choice and higher prices for consumers.”