ACCC latest inquiry wanted to make FX more transparent, but did it?

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If you’ve sent money overseas, you’ve probably been very confused about how it all works. To start with, the exchange rate you google is different from the one you end up getting (usually lower). And you can find yourself spending more money than you originally planned because of fees that suddenly appear. Overall, it is never quite clear what you will get until you click send.

After a 2019 inquiry, the Australian Competition & Consumer Commission (ACCC) created transparency guidelines for foreign currency exchange service providers to give their customers a better understanding of all the fees that come with exchange.

Even with these best practice guidance recommendations, many money remitters were still lagging when it came to best transparency practices.

Wise, formerly known as Transfer Wise, says that these guidelines aren’t enough and want to raise awareness of how non-transparent international money transfers (IMT) still are.

“A lot of the things the ACCC implements is guidance - it's not exactly decisive actions. It’s a fairly blunt instrument,” says Wise Australia country manage, Tristan Dakin. 

“They are waiting for market participants and banks to regulate themselves by putting best practice guidelines. But they are not following through on that and not making sure any changes are actually implemented.”

After Wise commissioned a survey with YouGov, it was discovered that 82% of Australians were unaware of any new transparencies being implemented or having an improved understanding of the fees that come with sending money abroad.

Almost half of Australians (47%) use traditional banks like ANZ, CommBank, NAB and WestPac to send money overseas, the survey showed. Typically when you use a traditional bank to send money overseas, you’ll find that the exchange rate they offer you is much lower than the actual market rate. 

In the ACCC 2019 report, it was found that consumers who used the big banks to send money overseas could have collectively saved about $150 million in 2017-2018 if they had used an IMT service instead. While sending money overseas through a bank might feel safer from scams or even the familiar option, they tend to be less cost effective. Especially when you usually don’t discover the extra fees until you are at the end of the transaction.

In Wise’s survey, it says that 64% of IMT users didn’t know exactly what they are being charged when it comes to sending money overseas. So are the guidelines actually working?

“Australians who use banks are bamboozled by foreign currency because it is still intentionally designed by the sector to be confusing and non-transparent,” says Dakin.

There are two parts to the fees IMT customers get charged and majority of the time clients are only aware of one: the upfront monetary payment. The other is the exchange mark ups.

The ACCC guidelines do not require money remitters providers to disclose any possible exchange mark up.

“[Customers] are not aware of the margins on the exchange rate and often it is bigger than what they are actually being charged,” says Dakin.

In August 2021, ACCC’s chair Rod Simms claimed that money remitters improved their transparency after the inquiry. Also that these improvements would allow Australians to “seek out more easily the best deal and potentially save significant amounts of money.”

However, Dakin disagrees. “The ACCC’s inquiry hasn’t addressed the core issue facing Aussie consumers and businesses - the hidden exchange rate markups, which are amongst the highest in the world.”

Banking expert at Mozo Peter Marshall says that the margin added to exchange rates on top of the extra fees makes comparisons between different remitters quite difficult if you’re not comfortable with numbers.

“It would be much easier if each provider simply charged a margin on top of the market rates, but this would make it easy for consumers to see which were offering good deals and which weren't,” he says.

Over a two year period, Wise data found that the cost to send money overseas through a bank was high (compared to Wise’s rates) as seen in the graph below. Again this is due to the ACCC’s guidelines not requiring providers to disclose these mark-ups.

Average percentage cost of international money transfers for amounts between AUD equivalents of £500GBP and £1,000GBP with CBA, Westpac and ANZ compared to Wise. Changes in CBA’s website in January 2021 prevented accurate data collection. (Graph and data provided by Wise)

The reason many Australians still use banks rather than IMT providers may be due to lack of knowledge or slight fear of trying something new. One thing we should mention is that all providers listed on Mozo are licensed trustworthy providers.

Wise in particular, wants the ACCC to implement stricter incentives for transparency that actually lead to regulatory action from the government. That way consumers actually understand what they are being charged to use IMT services.

“We haven’t seen the industry change,” says Dakin, who wants the transparency guidelines to benefit the consumer to save more money rather than money remitters gaining more profit due to lax regulation.

If you are one of the many Australians confused by IMTs and FX, check out Mozo’s money transfer guides to better understand the world of currency exchange.

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