International money transfers are an increasingly important aspect of the global economy. With the pandemic forcing people to work from home, along with the rise in remote working and freelancing, even small businesses are reliant on international money transfers.
Once borders open up again, it’s easy to see how the growth of digital nomading, remote work, and globalisation in general is meaning that the overseas remittance market is ever-expanding.
However, finding cheap fx rates in Australia hasn’t always been easy. Traditional infrastructure facilitating overseas payments, whilst outdated, is commonly used and vastly overpriced – costing millions in wasted fees every year.
The Extortionate Fees of Australian Banks
High street banks are going out of favour and it’s no different for Australian banks. The rise of mobile banking and e-wallets is displacing the older legacy systems used by high street banks, which are falling behind when it comes to app development, accessibility and functionality.
There are three key fees to consider when transferring money with an Australian bank: Exchange rates, transfer fees, and hidden fees.
Exchange rates are often the most costly, particularly for larger transfers. Banks will take a spread, which is the difference between the buy and sell price of a currency, in order to make a profit. This is often as high as 5%, which can add up to thousands per year. For example, this would cost $5,000 when receiving $100,000 USD revenue, and another $5,000 when paying $100,000 worth of overseas wages. Very quickly, businesses operating with tight profit margin products (i.e. everyday technology gadgets) can render themselves unprofitable.
For example Commbank’s foreign exchange rates at the time of writing this represent a little more than 4% in markup (rate of 0.6819 per dollar, when the current exchange rate is actually 0.7105). Australian bank spreads are actually worse than comparable banks in the UK and even in the U.S which is traditionally considered the worst in this regard, a 4% between two major currencies would be considered cheeky.
Transfer fees are a different type of fee, being a flat fee instead of a percentage-based. It’s common for Australian banks to charge around $30 for an international transfer. This has nothing to do with the exchange of currency, but rather the administration compliance and timing involved in sending money over a border. This makes sending small amounts of money overseas incredibly expensive and inefficient, as the flat fee remains the same.
Finally, there are sometimes hidden fees when using high street banks. These are the small print fees, such as ‘intermediary bank fee’, that can cost up to $30. Sometimes, this is reflected onto the recipient too.
So, whilst banks offer secure transfers, they’re incredibly expensive and often quite slow too. You can work out the numbers and verify that whether you are sending large international money transfers abroad or sending a small international bank payment, you are going to pay through your nose for that. In my opinion, you don’t really get what you pay for, and there have since been many more innovative and efficient ways of sending and exchanging money.
Cheap International Money Transfers for Businesses (and individuals)
Foreign currency services which specialise in international transfers and business FX used to be reserved more for larger businesses. In the 90s, it would be a matter of phoning them up and developing a relationship with a dedicated dealer who gets to know your business and often required larger minimum transfers.
Today, things are much more accessible because there is a lot more demand there. SMEs as small as a sole trader selling hand-made phone cases online, who may only turnover $50,000 per year with zero staff, may still rely entirely on international payments. Not only might the core markets be abroad when selling, through marketplaces such as Amazon and Etsy, but also buying materials nearby from Asia may be required.
As mentioned above, the ~5% exchange spread in conjunction with the fees can rack up to thousands per year and really squeeze profit margins. Amazon marketplace, even though it isn’t a bank, still managed to take a massive 1.5% in exchange spread (for recurring sellers who may end up paying tens of thousands just in exchange spreads), as does PayPal which charges up to 5% per currency exchange, and many other companies.
But it’s not only the cost involved, it’s the time and accessibility. Users need to be able to use an app and transfer money within minutes.
This is why money transfer companies have become incredibly popular – and very recently. For example, most of the best known international money transfer services in Australia were not around 15 years ago but have gained popularity as quickly as they were introduced from the market.
The Options for Australians
The top 10 money transfer services mentioned above tend to fall into two key categories: Accessible, small frequent payments, and secondly, bespoke service and larger transfers.
Of the former, it is mostly Wise and Revolut that dominate. Revolut has had so much success that they’re applying for an Australian banking license. These services are popular among expats, freelancers, and small businesses. They’re night and day differences from a bank, with signing up taking minutes, international transfers being a matter of two clicks away, and exchange spreads often being below 0.5% – with no transfer flat fees or hidden fees.
The other option for Australians, which is preferable for companies looking for bespoke solutions, is companies like World First, OFX, and Halo Financial. These companies will provide free dedicated dealers, hedging products, advice, business and FX knowledge, as well as facilitate large transfers securely and cheaply – with no flat fees and exchange spreads often under 1%.
OFX is perhaps in the middle ground too, with minimum transfers of $100, has an easy-to-use mobile app, yet has a dedicated dealer should you need to use one. The options today are far superior to 10 years ago, with multiple accounts at different platforms being ideal, given that they’re free and excel in different ways.
Why Did MoneyCorp Pull Out of Australia?
Moneycorp is a prominent money transfer company that has pulled out of Australia i.e. stopped registering Australian individuals. While this is sad for Aussies who want to deal with the absolute best money transfer companies in the world, and Moneycorp is the industry’s pioneer and one of the most apt options for businesses, Australians still have enough choice between other foreign exchange business providers, and in essence they are very much the same.
The majority of Australian foreign exchange companies including OFX which also consists of brands like TorFX, XE, SendFX, CurrencyFair, Wise, Afex, TransferMate offer a functionality of online money transfers while applying better rates than banks. Which company is going to give you the best foreign exchange rate for your international money transfer is difficult to know without understanding you, or your business. As a general rule of thumb Wise, Azimo, CurrencyFair and OFX are better for smaller transfers because they use a fixed transparent rate while TorFX and XE are more of a brokerage and their margin will dynamically decrease the more interesting your trade is. In my opinion, brokerages are slightly more apt for the majority of businesses because that’s where you have the human touch as well as things which are corporate FX specific such as FX Forward Contracts, and other hedges, as well as tools such as mass-payment.