'Hidden' currency conversion fees costing Kiwis billions

Thursday, 13 June 2019

New Zealand consumers and businesses have paid $5 billion in fees and 'hidden charges' to banks and others just to transfer money between different currencies over the past five years, according to a study paid for by British-based company TransferWise.

The Australian Competition and Consumer Commission (ACCC) and regulators in Europe have been eyeing foreign exchange margins and charges, amid concerns that they are simply too high or not sufficiently explained by banks.

However, a spokesman for New Zealand's Commerce Commission said it hadn't followed suit.

'The ACCC case is effectively a 'market study' kind of inquiry using compulsory information gathering powers. We're busy with the fuel study so foreign exchange isn't a current consideration,' he said.

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TransferWise is one of a number of internet-based financial technology businesses that have muscled in on the market by drawing attention to the profit margins currently enjoyed by banks and traditional money-changers.

Others include WorldRemit, which is also based in Britain, and Wellington's OrbitRemit.

All have an incentive to highlight bank fees, to promote their own lower-cost alternative services.

TransferWise said the research it commissioned from Wellington consultancy Capital Economics suggested Kiwis paid $869m in transfer fees and exchange rate margins on currency conversions in 2013, but that had risen to $1.06b in 2017.

Of the total $5b 'lost' in fees and markups over the five-year period, consumers paid about $2b as a result of taking holidays and living abroad, online shopping, buying property overseas, and overseas remittances, while Kiwi businesses lost $3b, it said.

It said it was 'shocking' that almost two-thirds of that was in the form of hidden charges.

Banks don't usually have to pay any wholesale margin to convert major currencies because most of their customers' transfers to and from different currencies will cancel each other out over the course of a day, so can be managed using a foreign currency float.

OrbitRemit chief executive Robbie Sampson said there was little excuse for banks to charge big margins when money was transferred between currencies such as the Australian and New Zealand dollars 'because they really aren't moving the currency'.

'Basically it is on 'on paper' adjustment within the same organisation most of the time.'

TransferWise's country manager for Australia and New Zealand, Nicholas Lembo, said that by hiding their charges in 'inflated exchange rates', banks and others were avoiding transparency and hiding important decision-making information from customers.

'Banks and remittance providers should stop the practice of hidden fees. If service providers don't do this, the regulator can and should step in. In some countries, the authorities have already done so in order to protect consumers,' he said.

Its research indicated the true cost of sending $1000 to Australia via any of the four major banks or PayPal ranged from A$18.12 (NZ$19.26) to A$37.90.

Bankers' Association chief executive Roger Beaumont responded that banks were competitive and 'regularly reviewed their customer fees for services such as international money transfers and overseas card transactions'.

'What banks charge for these services will depend on their global networks and relationships,' he said.

'International money transfers made from a banking app or by internet banking usually include a fee to cover other overseas bank costs. And there will also be an exchange rate conversion fee if sending money in a currency other than New Zealand dollars.'

For debit and credit card transactions, banks charged a fee to cover the costs of using external parties such as Visa and MasterCard to access their networks to route international transactions, he said.

'The small fee also covers internal costs, including those associated with validating and authorising transactions and monitoring for fraudulent activity.'

The ACCC launched its inquiry into foreign currency conversion fees in October.

The inquiry has focused on the purchase of foreign cash and the transfer and remittance of money overseas, but is also looking at credit, debit and pre-paid travel cards.

The ACCC said it had seen a significant number of foreign currency conversion services operating in Australia, including a number of new entrants, but said that by international standards, prices for those services remained 'consistently high'.

'The cost of sending money from Australia is approximately 11 per cent higher than the G20 average, 13 per cent higher than the UK and almost 40 per cent higher than the US,' it said.

Westpac wrote in a submission that the market was competitive and it believed its customers valued aspects of its service, such as the 'safety and security associated with a brand, ie. trust that the customer will receive their money'.

Sampson said that banks were offering more competitive rates in New Zealand than in Australia.

He did not think regulatory intervention was needed here. 

'I think it is going to naturally settle given the amount of competition that is coming into the marketplace. I think everyone is going to be forced onto a level playing-field.'

The ACCC is due to provide the results of its inquiry to Australian Treasurer Josh Frydenberg by the end of next month.

In February, the European Parliament voted in favour of new rules to 'protect' consumers against 'excessive charges for currency conversions'.

In the case of bank transfers, that would include a requirement for banks to disclose the estimated 'full cost' of currency conversions before payments were made.