Andrew Leigh

WHY ARE SO MANY AIRLINE PASSENGERS STASHING CASH?

The Herald Sun, 22 November 2017

When we were growing up, it seemed like every gangster movie featured suitcases stuffed with cash. These days, action flicks are more likely to feature geeks with laptops authorising money transfers. From mobile money to paywave to cryptocurrencies, our economy is going cashless.

Yet there’s one area where cash is making a comeback: international remittances. When migrant workers want to send money abroad to support their families, they often find that the cheapest way to do it is to pack the cash into a suitcase and take it with them on the plane.

This is, to put it mildly, nuts. Travel is stressful enough without having to worry about a suitcase containing thousands of dollars of hard-earned money. Yet in our community forums on this issue, we’ve heard from Pacific Islanders, Filipinos and Africans about their experiences carrying cash overseas. Even aid agencies are affected.

One reason people are carrying cash is that international money transfers cost too much. According to one analysis, the past decade has seen big banks quadruple the amount they charge for transferring money overseas. Despite a 2014 commitment by the world’s 20 largest economies to reduce the cost of foreign exchange, the problem seems to be getting worse.

Complaining that big banks overcharge can sometimes sound like saying that a day at the beach leaves sand in your car. But being squeezed for financial services shouldn’t be an inevitability.

Remittances present special problems because it’s often hard to figure out the true fee. All too often, banks will tell their customers the flat dollar amount, but won’t fess up to how much they’re making from the exchange rate. One possible solution would be for all institutions to offer ‘full fee transparency’. That’s where they tell customers the total cost of transferring money: both the flat fee and the exchange rate margin. 

Full fee transparency uses the benchmark of the ‘mid-market rate’: the exchange rate you find on Google Finance or Yahoo Finance. Right now, there’s a massive difference across providers. Want to transfer $1000 into Philippine pesos? A high-cost provider will charge $50 more than a low-cost provider. That’s $50 which is coming out of the pockets of first-generation and second-generation migrants, who simply want to provide their overseas relatives with better lives.

Yet when our colleague Matt Thistlethwaite quizzed major bank CEOs about the issue recently, they were shockingly ill-informed. Asked about international transfer fees, one bank boss said ‘Well, I believe that we fully disclose what we do.’ But as Thistlethwaite pointed out, the bank’s website neglected to mention the exchange rate mark-up. Misleadingly, it told customers ‘when transferring money overseas by the internet, we charge a fee of $20’.

It’s hard to have a competitive market when customers don’t know what prices they’re paying. That’s why Labor is considering a policy of full fee transparency, in which customers are told the all-inclusive cost of sending money overseas. Like mortgage comparison rates, full fee transparency would make it easier for customers to do an apples-to- apples comparison, and quickly find out who’s offering the best deal. That might be a major bank, or a non-bank provider such as Transferwise, WorldFirst or TorFX.

At the same time, we’re seriously looking at whether financial firms should be able to get away with duping customers into thinking the flat fee is the whole fee. Among the worst offenders are firms that offer to transfer money with ‘zero fees’, but then turn around and offer a lousy exchange rate.

Misleading customers is bad enough at the best of times – but those sending remittances may not have as much formal education, and might speak English as their second language. Confusing disadvantaged customers into overpaying for remittances strikes us as exceptionally poor corporate behaviour.

International money transfer isn’t a simple area of policy. Financial institutions are rightly worried about ensuring that money doesn’t finance global crime. But there’s no reason why financial firms can’t maintain high standards of accountability, while also being honest with customers about the true price of sending money abroad.

When people send money to their family in developing countries, they help to reduce inequality in the world. Over recent years, Australia’s aid budget has been cut by about one-third, to $4 billion. By contrast, our remittances now amount to $16 billion. Not all of this money goes to developing nations, but Australian remittance flows include $2 billion to India and $1 billion to the Philippines.

Remittance flows have been shown to be particularly important at times of crisis. When countries are hit with droughts, wars or famines, remittances can be crucial in reducing the number of people who lose their lives.

Remittance transparency should help bring some much-needed competitive pressure into one of the most opaque and confusing parts of customer banking.

It might end up costing the big banks a few bucks on their bottom line. But if that money helps feed a child in a developing country, we reckon it’s a price worth paying.

Tony Burke is the Shadow Minister for Citizenship and Multicultural Australia. Andrew Leigh is the Shadow Assistant Treasurer and Shadow Minister for Competition. They are holding a forum in Melbourne today on the issue of remittances.