Using international money transfers when shopping online

Information verified correct on October 22nd, 2016

If you're planning a major online purchase, money transfers may offer the cheapest rates.

It wasn't all that long ago that online shopping seemed new, exciting and even a little bit dangerous, but in today’s increasingly connected world it’s an everyday task.

While most online shoppers in Australia either turn to PayPal or rack up a bill on their credit card when paying for online purchases, there may be a more affordable option available to help you shop online.

In particular, if you need to make a larger purchase you could be able to enjoy significant savings by paying for your shopping with an international money transfer. Let’s take a look at how international transfers work and how they can be used to do your bank balance a favour.

The drawbacks of shopping with your credit card or PayPal

Perhaps the most common method used to pay for online shopping purchases is with a credit or debit card. Problems can arise, however, when you’re buying goods from overseas.

If you’re making a purchase in a foreign currency, you’ll need to accept the exchange rate your bank offers when transferring your funds into that other currency (most likely US Dollars). Unfortunately, the exchange rates offered by banks are typically much lower than wholesale exchange rates, which basically means that you need to pay more Australian Dollars to convert to the US Dollar purchase price than you actually should.

The other issue is the international transaction fee charged by your card provider. Among the big banks, these are commonly set at 3% of the total cost of the transaction, so when you’re making a large purchase they can add up to a substantial amount. There are a few credit cards available that don’t charge any foreign transaction fees, so check out the features of these cards if you want to use your card for online shopping.

Similar issues arise when you pay for online purchases using PayPal. When converting your Australian Dollars to another currency, PayPal uses the prevailing wholesale exchange rate and then charges a fee as a percentage above that. If you’re converting to US or Canadian Dollars, you’ll pay 3.5% above the exchange rate. Converting to all other currencies costs 4% above the exchange rate, so PayPal is not as cheap an option as many people think.

How international money transfers can save you money

If you’re looking for a cheaper way to pay for your online purchases, international money transfers may offer the solution. Recent years have seen the emergence of a host of specialist online transfer companies focused on offering cheap, quick and secure overseas payments. Companies such as World First and OFX regularly offer exchange rates that are often superior to those offered by your bank, which means they take a much smaller chunk out of your money than the banks.

Specialist transfer companies also tend to charge lower fees than your other online purchasing options. Fee structures vary between companies, with some offering flat fees of just a few dollars per transaction, others offering tiered fees and a few calculating their fees as a percentage of your transaction amount. Some companies even waive their fees altogether on larger transfers, resulting in even more savings for you.

The downside with using international money transfers for online purchases is that they’re often not ideal for small transactions. Specialist transfer companies tend to have high minimum transfer amounts ($500 is typical), and paying a fixed transaction fee may not always be the cheapest option if you’re only making a small purchase.

Case Study: Sam’s Shopping Spree

Sam is an Australian collector of rare and exotic musical instruments from all around the world. After months of searching for a rare Fender guitar, Sam finally found what he was looking for in an online store based in the UK. Having negotiated a price of £10,000 with the seller, Sam decides to look for the cheapest way he can pay for his purchase. He decides to compare the cost of using his credit card with the cost of sending an international money transfer to see which represents the most cost-effective option.

Credit cardOnline money transfer
Exchange rate1 AUD = 0.51 GBP1 AUD = 0.5385 GBP
Amount Sam must pay in order to transfer £10,000$19,607.84$18,569.43 AUD
Transfer fee3% international transaction fee = $588.24$0
Total cost of transfer$20,196.08$18,569.43

As you can see in the table above, Sam can save $1,626.65 if he uses an online money transfer company to pay for his purchase rather than pay the 3% international transaction fee charged by his credit card provider.

Another important consideration: buying with a money transfer won't offer buyer protection, unlike Paypal or credit cards. You need to be certain that you can trust the seller before using this method.

Which online retailers accept international money transfers?

As well as the size issue, there's also the question of acceptance. Major online retailers like ASOS and the Iconic generally don’t accept international money transfers. However, marketplaces like Alibaba and eBay tend to accept money transfers will accept them.

How do I compare international money transfers?

Looking for an affordable and secure way to send international money transfers? Consider these features when comparing the pros and cons of different transfer providers:

  • Competitive exchange rates: A poor exchange rate can take a big bite out of the amount you send overseas, so compare exchange rates between providers to see who offers the highest rate.
  • Cheap transfer fees: You’ll need to pay a transfer fee in most cases, so remember to take these charges into account when comparing exchange rates. However, keep in mind that some online transfer providers waive their fees on large transactions.
  • Range of transfer options: In addition to one-off spot transfers, some companies offer flexible transfer options to help you get a better exchange rate, including forward contracts and limit orders. If paying off a purchase in instalments, does the provider allow you to set up a regular payment plan? Remember to check whether any of these special transfer types come with any hidden fees attached.
  • Range of currencies available: Check to see which currencies the company allows you to transfer funds in and whether it offers an easy way to send money to your favourite transfer destinations.
  • Short processing time: Compare processing times between providers to ensure that your funds will arrive to your recipient’s bank account within a suitable time frame.
  • Funds transfer options: Will the funds go straight into the recipient’s bank account, into their mobile wallet or into their PayPal account?
  • 24/7 customer service: Make sure the company you choose has a good reputation for providing customer support over the phone, via email and through live online chat.

Shirley Liu

Shirley is's publisher for banking and investments. She is currently studying a Masters in Commerce (Finance) and is the author of hundreds of articles. She is passionate about helping Aussies make an informed decision, save money and find the best deal for their needs.

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