For better or worse, different economies use their own currency. Whilst it doesn’t seem like a big deal on the face of it, tremendous amounts of resources are spent on navigating and exchanging these differences each year.
For the everyday expat or traveler to Australia, this simply means trading away their own domestic currency in favor of AUD – Australian Dollars. The issue for many years now, however, is that people waste far more time and money on these exchanges than they need to.
This isn’t a call for a single currency, though there can be benefits. Rather, for now, it’s important that both individuals and businesses better understand the true cost of international transfers in this increasingly globalized world.
Exchange fees: It all adds up
When transferring large sums to Australia, you want to keep a close eye on both the exchange rate and the transfer (or wire) fees. Many providers, in particular high street banks, will take a margin of around 3%. This means that you receive 3% less AUD than you should, but that’s before the possible $30 flat fee that may be charged as a kind of administrative payment, or a rent for using their systems.
These fees can quickly add up, particularly with the margin being often obscured from the transaction as a cost. A good provider should be, mostly importantly, transparent in the pricing and margin, but also affordable. But a good provider should also deliver the funds in a timely and easy manner, with a place to track down the transfer.
For example, some platforms offer very affordable transfers, but their customer service is poor. Such platforms rely on automated updates and graphics to denote the status of a transfer, but this isn’t always accurate. Instead, opting for a currency broker – a service that offers a more bespoke, over-the-phone service – as they can be called up (literally) to update you on any issues or delays.
How NOT to transfer money to Australia
This isn’t an issue strictly relating to Australia, because banks around the world suffer from high fees for international money transfers. For example, NAB charges 30 AUD when sending money out of Australia, along with a margin often between 2-3%. Likewise, US$30-50 is the standard when sending internationally out of the US (e.g. to Australia) with PNC Bank, Discover, and Allianz Credit Union.
Non-bank providers who specialize in currency are generally cheaper than banks. So, in short, it is the banks that we should avoid when we send money to Australia.
Money transfer companies: A cheaper alternative
Money transfers are one such example of a non-bank that is a cheaper alternative. These companies are often fintech startups that operate on a nimble, fresh set of infrastructure that puts app experience and low cost at the forefront of their value proposition.
For example, $1,000 on the 20th September 2023, exchanges to AU$1541.88 according to Google. That is the live mid-market rate (the true, “perfect” exchange rate). When exchanged on Revolut, the customer ends up with AU$1,540.91. So, under $1 is lost in the transaction, which can be attributed to nothing more than a small amount of noise.
If this was sent by Wise, another money transfer company, the recipient would get AUD$1,531.91 (around AUD$10 lost).
If this was sent by Chase Bank, US$40 (AU$61) would be lost right away in fees, even before the spread. This is a factor difference of over 60 compared to Revolut, with a similar amount to also be lost in the margin, making things doubly worse.
Do I need a currency broker?
The issue with Revolut, Wise, and the other money transfer companies is that they’re apps – and little else. When moving to a new country, you may want more comprehensive solutions and become connected with local professionals – professionals that may be connected and helpful when purchasing a house, for example, or setting up a new local business.
There are a few prominent services in Australia that offer such comprehensive services, such as a free dedicated account manager to converse with. When it comes to cheaper international money transfers, you need to consider not just the bottom line exchange rate (which is also very competitive with currency brokers) but how and when your money is being exchanged.
Currency brokers like OFX, Send, and TorFX can organise hedging products that mitigate FX fluctuations, be it for individuals or businesses. They can negotiate better rates based on a bulk transfer, or set up regular automated transfers for the future. Generally, there’s a lot more freedom and possibilities with these, rather than your simplified and streamlined apps like Wise and Revolut.
What are multi-currency accounts?
Something else to consider when it comes to money transfer service and solutions is a multi-currency account. This is a service that allows customers to hold and manage various currencies at once. Whilst these currencies are held in different virtual accounts (your USD will have US bank account details, GBP will have a sort code & account number, and your Euros will have an IBAN), it’s all under one main log-in account. So, in one place, you have many different virtual accounts and currencies.
The benefit of this is somewhat obvious. Sometimes you may receive money from abroad, but you may not necessarily want your bank or provider to exchange the money. Or, if you go to New Zealand frequently, you may want a stash of NZD rather than using your Australian debit card.
Multi-currency accounts as provided by the likes of Revolut and Wise also have a contactless spending card. This way, you can spend money around the world knowing what kind of exchange rates and fees (if at all) you’re accumulating. If you need Australian banking details before you move there, you can create some in 5 seconds of opening the Wise or Revolut app.
In summary, international transfers and currency exchanges can be deceptively expensive. But with competitions increasing and fintech infrastructure becoming more competent, there’s less of a need to rely on expensive, sluggish banks.
The line between money transfer companies, currency brokers, and multi-currency account providers can sometimes be blurred. They all overlap, but they have their own uses. To simplify things, think of it as: somewhere to deal with large transfers (pension, buying assets, business purchases) and somewhere to deal with daily currency management (petty cash, daily spending, e-commerce purchases). Currency brokers are for the former, and money transfer companies that have multi-currency account capabilities are for the latter.