Beware of The Hidden Costs of Sending Money Overseas

Written exclusively for Sydney Chic , by Alon Rajic Founder and Managing Director of Money Transfer Comparison

Online money transfers form a significant component of Australia’s financial interactions, with billions of dollars changing hands annually, but not enough is known or understood about the variations in fees charged for this important service by the range of financial institutions involved in this market.

Recent data from World Bank1 showed that over the course of a year, in 2020, Australia received approximately $1.5 billion via money transfer services and sent $5.9 billion abroad.

Specialist money transfer companies will typically offer a more competitive rate than the banks. They usually charge anything between 0.25% to 3% above the published exchange rate you will find online, whereas banks usually offer an exchange rate somewhere between 3% and 6% in excess of that published rate.

As well as taking their slice with those poorer exchange rates, there’s also transaction fees. Again, banks usually charge more - around $30 per transaction, versus around $10 charged by most money transfer specialists.

Then there are other hidden fees, with banks slugging you another $30 for the receiving bank’s fee.

Money transfer services are used for a multitude of reasons, including business purposes, such as paying foreign contractors, and personal reasons, such as providing funds to friends or relatives overseas. But with all these fees and poorer exchange rates to consider, not taking the time to really consider your best option for this process can be a costly mistake.

This year has seen fintech startups and money transfer sites develop processes to make sending money cheaper and faster than ever. But sending money overseas is not a one-size-fits-all process – every customer has different priorities. For some, the speed of transaction may be paramount, so getting the funds to the recipient urgently trumps everything else, whereas for others, securing a more competitive rate is of more value than the processing time.

It does not have to be an either/or proposition. The key is to find online money transfer services that are cheap, fast and secure.

What makes a money transfer ‘cheap’?

While banks have long dominated the space, accounting for around 80% of international wire transfers, innovation has given rise to digital deposits, third-party mobile app payments, and even cryptocurrency transfers. Our research has found that these services are cheap and easy to use, and are undercutting alternative methods of sending money, such as traditional banks2.

All money transfer services purchase foreign currency from the private interbank market and add their profit margin on top.

The discrepancy in margin fees charged by online money transfer services compared to banks is because they don’t have the same operational costs as banks do, and so can charge less while still making a similar margin – akin to online retailers being able to charge less for goods than bricks and mortar stores.

Online money transfer services utilise technology to enable users to transfer money instantaneously from one bank to another. There’s no need for users to open an account or visit a local branch - all that’s required is the internet and the recipient's details.

While bank-to-bank transactions are still often thought to be the first choice for transferring money, those aforementioned fees add up to make it the most expensive option for doing so.

Are low-cost money transfer options safe?

As with all online activity, there is some level of risk involved. For example, entering the wrong recipient details could lead to a loss of funds that can’t be reversed. Once the money has left your account, it can be near impossible to recover those misdirected funds.

Banking details stored online are also susceptible to cyber threats, such as security breaches and scams. That’s why it is important to compare money transfer services, and choose the safest option.

While no online transfer is 100% secure, many reputable services employ safeguards that protect your money against financial crime or human error. Those leading international money transfer services require users to undergo identity verification to prevent suspicious transactions. Other services, such as PayPal and Bpay, also have strong dispute resolution processes in place.

A good online money transfer service will communicate the exact transfer fees upfront and be transparent about global exchange rate fluctuations.

All online money transfer services in Australia must also be registered with AUSTRAC, which can be accessed using the Remittance Sector Registry3.

The so-called ‘cheaper option’ does not always turn out to be a better deal. Take low-budget airlines, for example, where savings in the cost of the fight can be swallowed up by paying for items such as luggage, seat allocation, and meals, that are included on costlier airlines, and often having to put up with more frequent postponements and cancellations.

Consumers looking to transfer money overseas should be alert to any hidden costs, and do their research.

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About Money Transfer Comparison

Money Transfer Comparison (moneytransfercomparison.com/Australia) is a global comparison website helping Australian businesses and individuals find the best rate in international money transfers to and from Australia. Money Transfer Comparison provides access to wholesale exchange rates across 60 money transfer companies, in a safe and secure way. Since 2014, more than tens of thousands of consumers and businesses worldwide have used Money Transfer Comparison to source international money transfers across 163 currencies. For more information, visit moneytransfercomparison.com/Australia