Australians are losing $2.14 billion a year in currency exchange
For Australians consumers, it is undeniable that we love to travel. We love to sleep, shop and eat when we are overseas. For Australian businesses, we are constantly exporting and importing goods and services from everywhere around the world.
Given all this, you would think that we would know how to transfer money by now.
Unfortunately, our long-running oligopoly of four big banks (who happen to be our main foreign exchange providers) have prevented any real competition in the space.
Until now, perhaps.
Transferwise launched its new debit MasterCard in Australia and New Zealand and it promises to be 11 times cheaper on average than its competitors.
So how does is it any different to using your normal bank card overseas?
Well, the problem is banks typically charge a whole range of hidden fees that Australians aren’t always aware of. According to TransferWise’s analysis, that figure added up to $2.14 billion each year.
“That figure is so high in Australia obviously because the market here is very concentrated, and it’s only now, of course, that we’re seeing competition coming into the market, whether it’s TransfersWise, or other FinTech operating in this space,” — TransferWise Australia country manager, Nicholas Lembo.
So what makesTransferWise’s model better compared to traditional banks?
Traditional FX services swap your dollars directly and charge you a fee for the service. TransferWise devised an online system where people sending money abroad could swap it directly with one another, meaning you’re swapping money with the people going to use it. This peer-to-peer money transfer system enables it to cut out high transaction fees.
The only cost variances faced by consumers will now be the exchange rate at the time of the transaction.
Recently, TransferWise integrated with its first Australian bank, Up. The move will mean that Up customers will be able to move their money around the world via their own banking app, with TransferWise’s system built into it.
The integration marks a coming together for two self-proclaimed challengers fintech. For TransferWise, it builds its customer base. For Up, it offers their customers a whole new service.
What does this mean for businesses and consumers?
For businesses, using this service could mean paying “5–8x” less than what they would have with traditional bank services. This will not only help them drive down costs but also to free up cashflow.
For Consumers, this means they can now spend more on their travel experiences, and reduce more of the hidden expenses associated with travel and holidays.
The following figures indicate how the card weighs up next to other Australian FX providers converting money from Australian dollars to Euros.
In this example, someone spends $5,000 in Europe directly and withdraws $2,500 more in five transactions. You would expect to save at least $154 and as much as $294 compared to other Australian providers.
What does this mean for Australian Banks?
There are no doubts more start-up and fin-tech companies will jump into this space, trying to get a share of the pie. Eventually, consumers and businesses will require better deals. This pressure means traditional banks need to step up their game and improve their services or work with companies like Transferwise to stay in the game.