Yahoo Finance STOP THE FLEECING: Aussies stung with $2 billion in currency conversion fees
Aussie holiday-makers, business travellers and temporary visitors are lining banks’ pockets every time they convert currency, to the tune of $2 billion a year.
It’s a disproportionately high fee, and it means Aussie travellers are paying more than their foreign counterparts to enjoy a holiday or visit family.
Announcing a investigation into these excessive fees, Treasurer Josh Frydenberg said reform could “make a real difference” and give money back to ordinary Australians.
The chair of the Australian Competition and Consumer Commission (ACCC), which is spearheading the investigation, Rod Sims said foreign exchange services are used by Australians every day.
In fact, according to the World Bank, Aussies sent $8.8 billion overseas in 2016.
“Yet they [the World Bank] also found that Australia is the third most expensive G20 country for consumers and small businesses to send money from,” Sims said.
“This means that if you send AU$1000 overseas from Australia, on average you’ll pay AU$9 more than if you sent an equivalent amount from the United Kingdom, and AU$23 more than if you sent it from the United States.
“Given the amount of funds Australians remit, these higher charges can amount to hundreds of millions of dollars each year across the economy.”
He said the ACCC will shine a spotlight on the big four banks’ approaches to foreign currency conversion, given they seem to “consistently charge high prices.”
The investigation will also consider how easy it is for challenger products to enter the market and the transparency around currency conversion fees.
Consumers can struggle to compare different prices charged for international money transfers, leading to significant – and sometimes avoidable – fees.
“The exchange rate you google is not the exchange rate you get from the big four banks. The difference is known as the ‘mark-up’, and it’s often a big part of the price consumers pay when converting currency,” Sims said.
“Many consumers have complained to the ACCC about these high mark-ups, as well as the transaction fees that often apply on top of that.”
The investigation follows a recommendation from the Productivity Commission that more transparency is needed to “shed light” on foreign transaction fees.
The Productivity Commission in June said Australians are paying “distortionary and opaque fees”.
It also noted how ‘dynamic currency conversion’ (DCC) offerings often result in significantly higher fees. DCC allows travellers to make overseas card payments in AUD at a fixed exchange rate.
The idea is that consumers have clarity over what they will be charged before they make the purchase.
“However, the DCC exchange rate is usually set by the overseas merchant or financial institution and can include a significant exchange rate markup compared to the international card schemes,” the Productivity Commission said.
“On top of that, DCC fees can be as high as 10 per cent of the transaction value.
“Finally, DCC may not actually avoid the foreign transaction fee charged by the customer’s financial institution.”
The Productivity Commission proposed benchmark exchange rates to improve transparency around international money transfers, and for the ACCC and the corporate regulator, ASIC to look into the matter.
The ACCC is accepting submissions and feedback on the issue from consumers, small businesses, advocacy groups and foreign currency suppliers with an aim to release its final report in May 2019.
The announcement couldn’t come at a worse time for the big banks, currently in damage control after the Royal Commission’s interim report.
Also read: Greed, short-term profits at core of banks’ bad behaviour: Royal Commission
