The competition watchdog this month published a detailed report on its inquiry into the forex market, where it said the big banks often offered poor value, but were allowed by their customers to get away with it.
For many of us, changing money into different currencies is complex. It involves weighing up different exchange rates and fees, which can make it hard to compare offers. Instead of crunching the numbers, many of us tend to “default” to our bank, the ACCC said.
Unfortunately, that bank loyalty – which more often than not is one of the big four – can be costly.
However, the good news is that there is something you can do to save money when you need to spend or send it overseas.
The ACCC’s inquiry found the big four “consistently” charged more for international money transfers (IMT) and foreign cash than lower-cost providers, and that IMT costs in Australia were high by global standards.
It said Australians send about $21 billion a year overseas, often lower-income migrant or temporary workers, so this market for international transfers was a particular focus of the review.
The inquiry said a trial reason for the high cost of international money transfers was that the big four banks had not focused on offering low-cost services in this market.
It said because of their large scale, the big banks “could offer cheaper prices” but they chose not to, in part because doing so would cost revenue.
Instead of cutting prices, major banks tried to compete on other factors, such as being fast or safe.
Yet the ACCC said the banks were not always the fastest option, and customers should not assume they are “a more secure” option to non-bank alternatives.
It wasn’t all bad news, however, as some of the lower-cost rivals were stealing market share from the major banks, provoking a competitive response.
The report highlighted the expansion of providers such as OFX (previously OzForex), CurrencyFair, InstaReM and Transferwise – all of which promote lower exchange rates and fees than the big four.
It pointed out each of the big four banks had cut fees and the margin they make from international transfers, with one bank saying it was a response to “reputational risk,” while another pointed to “the threat of regulatory scrutiny.”
In other types of currency conversion, such a buying cash or payment cards, the ACCC also highlighted some new entrants shaking up the market.
In the market for physical foreign cash – still essential in many countries – the ACCC said Travel Money Oz had forced at least one established competitor to drop its prices. It warned that buying cash at the airport would generally cost you more.
There were also signs of banks cutting costs on payment cards in the past few years, it said, with some forced to remove currency conversion fees in response to rival competition.
Travel cards remained an expensive option, it said, due to the many fees involved. The watchdog said a customer could save up to $13 on a $200 international purchase by using a debit card or credit card without international conversion fees, instead of a travel money card.
Its bottom line was a familiar one for bank-watchers: the ACCC warned that “loyalty could cost you,” and urged customers to “shop around.” And when you are comparing prices, look at the total price, which includes the exchange rate and any extra fees.
Clancy Yeates is a business reporter.