Sending money overseas this Christmas? Here’s how to save big

International money transfers (IMTs) – also known as remittances – are pretty common around Christmas and New Year. But these transactions can attract costly fees and exchange rates, making it expensive to send cash to family and friends over the holiday season.

Luckily, there are ways to cut down on these costs. 

The Australian Competition and Consumer Commission (ACCC) released a report in late July this year entitled Transparency and competition in international money transfer services.

The report found that the rise of fintech companies has shaken things up over the last five years, with specialist providers offering cheaper options and sometimes better service than big banks. While major financial institutions have dropped their prices to keep up with the competition, their charges typically remain higher than many digital alternatives.

Based on the average transaction of $3,138 for a Big Four bank IMT, Australians could be saving approximately $108 per transaction if they shopped around for a cheaper supplier.

The World Bank’s Migration and Development Brief 40, released in June 2024, identified Australia as one of the G20 countries with relatively high remittance costs. The average cost of sending money overseas from Australia in Q4 2023 was 5.5% of the amount sent, which remains significantly above the Sustainable Development Goal (SDG) target of 3%. 

In fact, the cost of sending money from Australia to Lebanon is among the five most expensive corridors worldwide (see figure below). Although the cost – expressed as a percentage of the amount sent – reduced slightly between 2022 and 2023 to around 10%, it’s almost double the average cost of sending money overseas from Australia.

While remittance costs have gradually declined in recent years, Australia still has room for improvement in achieving more affordable transfer rates.

Australia’s remittance market has seen significant fluctuations in recent years. According to World Bank data, remittance outflows from Australia dropped sharply in 2020 and 2021, as the covid pandemic disrupted both international travel and economic conditions.

However, as the global economy has rebounded and international travel has resumed, outflows have started to recover (see table below). By 2022, remittance outflows reached US$6.55 billion, nearly returning to pre-pandemic levels seen in 2018 and 2019.

The data shows that while inflows have remained relatively low compared to outflows, Australia continues to be a net sender of remittances, with the majority of funds being sent to destinations such as the United States, Europe, and the UK. The US dollar remains the most common currency sent, followed by the Euro and British Pound.

To save money on IMTs, it’s important to understand the dynamics influencing costs. The ACCC’s report highlights a few key factors that can affect the cost of sending money overseas:

• Choice of supplier and timing. The provider you choose and when you make the transfer can significantly impact the total cost. Comparing transfer service options and choosing the right time to send money can save you money.
• Total price and the amount received. This should offer the best representation of value for money when comparing suppliers.
• Smaller transactions. For lower value transfers, fees make up a larger proportion of the total cost. This means sending smaller amounts could end up being more expensive in relative terms.
• Foreign exchange (FX) margins. For larger transactions, the FX margin (the difference above the mid-market rate) becomes a bigger factor. A higher margin means you'll get a worse exchange rate, cutting into the value of your transfer.
• Weekends. Sending money on weekends can be pricier due to extra fees or less favourable exchange rates.

While many people use banks for IMTs, they may be paying more than necessary. Banks often charge high fees and offer poor exchange rates, which can significantly increase the cost of sending money. In contrast, specialist providers tend to offer lower fees, better exchange rates, and faster transfers, potentially making them a more cost-effective and efficient option for sending money overseas.

As can be seen in the figures below, the cost to send both small amounts (A$250) and large amounts (A$10,000) to the United States is generally much cheaper when using a fintech (specialist provider) than banks and some traditional suppliers.

For the purposes of the report, the ACCC considers a fintech as a predominantly online or digital IMT supplier who began offering services in Australia in the last 15 years, while a traditional IMT supplier is an operator who has offered services for 15 years or more.

As part of the ACCC’s report, around 32% of survey respondents who compared IMT providers used a comparison website (about 14% of all respondents). These sites, like Mozo, simplify the process by presenting both price and non-price information in one place, making it easier for people to compare costs and reduce the effort of searching. 

They also allow consumers to explore multiple products and providers at once, potentially revealing options they hadn’t considered or were unaware of. This suggests that comparison websites can help increase the number of comparisons and overcome some of the challenges and costs consumers face when deciding which IMT provider to use.

“The ACCC encourages all consumers to compare prices and other non-price features. Comparisons are the easiest way for consumers to understand whether they are receiving a good deal and FX calculators can greatly assist in helping comparisons due to the price transparency they provide,” according to the ACCC’s report.

If you’re making an international money transfer this holiday season, you can compare a range of options using Mozo’s IMT comparison tables. Simply enter the amount you wish to send and receive information on fees, exchange rates, limits, transfer speeds and services.