The banks are being called out for ripping consumers off via dodgy currency exchange rate mark-ups.
New research by TransferWise released today revealed poor exchange rates and pricey overseas card charges are costing Australians a whopping $3.1 billion a year. The international money transfer provider is calling on the banks to stop misleading consumers by adding such extreme mark-ups on the real exchange rate.
The real exchange rate, often referred to as the mid-market rate or the interbank rate, is the true currency exchange rate and is the rate used when banks buy and sell currency among each other. When banks and money transfer providers sell foreign currency to consumers, they hike up the exchange rate to make a profit on each transfer.
This mark-up varies greatly between providers. TransferWise offers consumers the real exchange rate and makes money via the transfer fee, while banks are notorious for offering poor rates in addition to hefty fees. The Big Four, particularly Westpac and Commonwealth Bank, are among the worst offenders.
As it's not often clear how much banks are marking up the real exchange rate, consumers often underestimate how much an international transfer through their bank will cost them. In fact, the research by TransferWise found that consumers transferring money internationally through their bank underestimate the real cost by 11 times.
Almost two-thirds (63%) of consumers don't understand the fees banks charge for sending money internationally, and 72% think banks make it hard to see how much they charge. Over the last five years, Australians have spent over $14.7 billion in fees on foreign currency transactions alone, not even including the exchange rate mark-ups.
It's not just consumers copping these costs, Australian businesses are losing out too. Small and medium businesses lost $146 million on exchange rate mark-ups when exporting goods and services overseas in 2016.
In light of the research, TransferWise co-founder and chairman Taavet Hinrikus is calling on the banks to give consumers the real exchange rate.
“Most banks tell their customers that they only pay a small upfront fee for international payments. But in reality customers pay much more. Huge hidden charges are taken in the form of the terrible exchange rates, often without the customer realising," said Hinrikus.
“These practices aren’t transparent and hide important decision-making information from customers. It’s time to take a stand. Aussies deserve a fair go and should get the real exchange rate when we make an international money transfer. Banks should end their deceptive practices and the Australian Government should make sure they don’t continue to rip off customers.”
If you need to send money overseas, take a look at our guide and compare international money transfer providers to avoid being slugged with poor exchange rates and hefty fees.
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