Money and the Multi-Continent Family

In the old days, migrating to Australia was a one-way trip. You packed up your belongings, travelled half way around the world with your family and never went back. From “ten pound Poms” to Southern Europeans arriving in the 1950s, the expectation was that you’d stay for good.

These days, in our more globalised world, migration isn’t always forever. Migrants maintain much stronger ties with their home countries and families. They retain property in their birth countries along with bank accounts. They may even send their children to study overseas, something that wasn’t easily or even possible a few decades ago.

Australia’s global links

Over a quarter of Australians were born overseas: 6.6 million people, representing 28 per cent of the population, making money transfers and remittances a very large market. The World Bank estimates that Australians send around $30 billion a year to over 157 countries.

And it’s not just migrants: those born in Australia also need to send and receive money from overseas. Many parents send money to support children who are backpacking or studying abroad. Around 13,000 Australian students study overseas, the vast majority (96 per cent) in OECD countries where the cost of study and living is often expensive. The top destination is the US, accounting for nearly a third of Australian students abroad, followed closely by New Zealand and then by the UK.

The problem of poor rates

Because of this, there’s a need to transfer money overseas into a different currency. While many people just do this through their banks, there are good reasons to consider other options.

Rates and fees are an obvious reason. Many people wrongly assume that banks offer the “interbank” exchange rate that they display on their websites. The reality is nowhere near as good because that rate is for bank-to-bank transfers, not bank-to-customer. All banks and exchange providers add what they call “margin”, a few percentage points worse than the interbank rate.

The key thing here is that margins vary, often widely. Continued research has shown that banks can be several percentage points worse than specialist providers, and over time, this adds up. On a transfer of $1,000 you may end up with $50 less by using an uncompetitive provider. For a migrant sending money home every quarter, that totals $200 a year.

The smaller the amounts that private individuals transfer, the worse rates they’re offered. According to statistics from ARCPA, the Australian Remittance and Currency Providers Association, the average amount sent is $300. At that amount, most banks offer their least competitive rates and fees may also be hefty.

Migrants remitting overseas

Jatinder is one of nearly 400,000 Indian migrants in Australia. India is the fourth largest country of origin after the UK, New Zealand and China, with strong growth in migration. The number of Indian-born Australian residents nearly tripled over the last decade, from just 132,800 people in 2004 to 397,200 people in 2014.

Like many of his compatriots, Jatinder regularly transfers money back to India to help support his family. Because this tends to be modest amounts compared to what major corporations transfer, he previously struggled to get good rates from the banks.

“It was hard enough finding a provider that would transfer bank-to-bank from Australia to India, but finding one with good rates was nearly impossible,” Jatinder says.

He eventually chose OFX because it seemed secure and reliable, and saves him around twenty dollars per transfer.

Mary, another migrant, is one of the 617,000 New Zealanders living in Australia. She needs to send money back home to help support adult children. She’s not alone in this, according to a recent Australian survey, 86 per cent of parents provide financial help to their adult children.

Mary sends money ad hoc as required, and did her research to get the most competitive rates available.

“By shopping around for a service that offered better Aussie-Kiwi rates, I save about $100 a year,” Mary says. “I get to spend this on myself, rather than my ‘hard work’ family.”

Both lower rates and fees are a priority for Mary. But as someone who continues to remit money, having a service with high customer care is just as important.

“The service I have had with OFX has been excellent, I know exactly when my kids will receive the money and exactly how much it will be before it gets there. I didn’t experience this same service with the banks.”

With more than 80 million transfers being made into and out of Australia each year, there’s a huge amount of money wasted on non-competitive rates. Even if a conservative figure of 3 per cent is taken, when comparing bank currency transfer rates with those offered by specialist providers, it amounts to hundreds of millions of dollars every year potentially ending up in the banks’ coffers rather than with relatives overseas.