International Money Transfers: The Big Four are Still Behind the Curve

It comes with no surprise, for those who are familiar with Australia’s banking system, that banks are often the most costly method of transferring money internationally. There is no justification for banks to be that expensive, though, considering their overwhelming capital and infrastructural advantages. In this article, we will try to delve into the reasons for which an international money transfer using a specialised service could be as much as 8 times cheaper than using a Big Four bank. 

Based on Westpac’s own online calculator a transfer of 100,000 Australian dollars to US dollars would net the customer A$75,140, true for May 11 2021, whereas the official exchange rate at the same time is 0.783. That means a customer will be paying approximately A$3,150 in exchange rate markups for such a transfer (in addition to a A$10 fixed fee). At the same time, using a money transfer service like Wise.com, one of the most trusted and prominent money transfer companies in Australia, a similar transfer would only cost approximately A$400 in fees (with no additional hidden fees of any sort).

In other words, financially savvy customers aren’t likely to use their banks for outbound international money transfer from Australia, let alone not for larger transactions, and it’s also true for small remittances. 

Using Westpac’s online calculator for an international money transfer from Australia to Thailand (at the same date of May 21, 2021), a prospective customer will pay as much as 5% on a transfer of A$500, when that customer can use an online remittances service like Azimo and pay approximately 1% in fees (instantly reducing the associated expense with that transaction by 80%).

With a projected market size for remittances and payments of USD 9,102 million by the end of 2025, it seems likely that the COVID pandemic has actually bolstered the figures. While some businesses activities are still not fully back on, the gig and micro business economy boom, as well as the ecommerce boom, make sure that Australian money transfer companies have their hands full. 

In fact, one of the most growing sectors within these international money transfer services is a multi-currency account: a product that provides customers with access to virtual bank accounts across the globe, denominated in various currencies, to receive, store, and pay in foreign exchange. That service is designated mainly for online sellers and businesses and can save hassle and fees (and makes bank transfer instantaneous if the receiver has an account with the same company).

Why have Australian banks given up on competing with their rivals, and, almost willingly, turn away from easy revenues that could be incurred through foreign exchange transactions? 

It was already established in this 2020 report from the Reserve Bank of Australia that the landscape of payments in Australia is changing (and moving further from traditional bank payments), and hence, one would assume banks would currently be on the defensive, trying to portray themselves as a worthwhile alternative to those wanting to transfer money internationally. 

The truth is that once customers are joining a “bank-alternative” money transfer company, there’s still a bank at the end of the food chain making fees off of that transaction. Bank-alternative companies are in fact just wholesalers – they get better rates from the bank because they transfer billions a year, and they roll over the discount to their customers, but they are not banks, and as such – they are not connected directly to payment systems like SEPA or SWIFT… they conduct these transactions through their own bank accounts and pay the associated fees. 

It could be speculated that the above arrangement is actually much more comfortable for banks than having to deal with tens or hundreds of thousands of clients directly. Instead of having their banker’s phones ringing day and night trying to find lost SWIFT transfers, they would rather have a middle-man take a part of the cut and handle customer relationships. 

It’s also a plausible explanation that they have much bigger concerns which net banks much more money at the end of the day, and as much meat as there is on the international money transfer bone, it’s sufficient for these financial goliaths. Traditionally for banks, the vast majority of revenues come through lending; banking fees are much smaller, and international money transfer fees are just a tiny subset of all fees incurred by banks. In other words, this may not be an area of interest at all for Australia’s big banks.

Whichever may be the reason for the bank’s lack of competitiveness in the international money transfer space, we could predict with high level of certainty that if it persists, more clients would sidestep their bank by using a specialist provider.