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Foreign Currency Conversion Services Inquiry

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Foreign Currency Conversion Services Inquiry Foreign currency conversion services inquiry Final report July 2019 accc.gov.au Australian Competition and Consumer Commission 23 Marcus Clarke Street, Canberra, Australian Capital Territory, 2601 © Commonwealth of Australia 2019 This work is copyright. In addition to any use permitted under the Copyright Act 1968, all material contained within this work is provided under a Creative Commons Attribution 3.0 Australia licence, with the exception of: the Commonwealth Coat of Arms the ACCC and AER logos any illustration, diagram, photograph or graphic over which the Australian Competition and Consumer Commission does not hold copyright, but which may be part of or contained within this publication. The details of the relevant licence conditions are available on the Creative Commons website, as is the full legal code for the CC BY 3.0 AU licence. Requests and inquiries concerning reproduction and rights should be addressed to the Director, Content and Digital Services, ACCC, GPO Box 3131, Canberra ACT 2601. Important notice The information in this publication is for general guidance only. It does not constitute legal or other professional advice, and should not be relied on as a statement of the law in any jurisdiction. Because it is intended only as a general guide, it may contain generalisations. You should obtain professional advice if you have any specific concern. The ACCC has made every reasonable efort to provide current and accurate information, but it does not make any guarantees regarding the accuracy, currency or completeness of that information. Parties who wish to re-publish or otherwise use the information in this publication must check this information for currency and accuracy prior to publication. This should be done prior to each publication edition, as ACCC guidance and relevant transitional legislation frequently change. Any queries parties have should be addressed to the Director, Content and Digital Services, ACCC, GPO Box 3131, Canberra ACT 2601. ACCC 07/19_1550 www.accc.gov.au Contents Abbreviations and glossary 1 Foreword 6 Executive Summary 8 Guide for consumers 13 1. Overview of foreign currency conversion services 18 1.1 About the inquiry services 18 1.2 About the inquiry suppliers 25 1.3 The pricing of the inquiry services 27 1.4 Substituting between inquiry services 40 2. Competition in foreign currency conversion services 42 2.1 Price competition in the supply of IMTs 43 2.2 Competition on non-price factors for IMTs 48 2.3 New entry is changing the competitive dynamic for IMTs 51 2.4 New IMT suppliers face barriers to entry and expansion 57 2.5 Price competition in foreign cash, travel cards and payment cards 66 3. Challenges facing consumers 70 3.1 Despite the savings available, some consumers do not switch 70 3.2 Prices are difcult to compare 73 3.3 Uncertain correspondent banking fees for IMTs 83 3.4 Unexpected fees when shopping online 89 3.5 Uncertainty about IMT payment security 92 Appendix A: Notice to the ACCC 94 Appendix B: Data collection 95 Appendix C: Regulation applying to inquiry suppliers 97 Appendix D: The New Payments Platform and the Bulk Electronic Clearing System 99 Appendix E: Visa and Mastercard 101 iii Foreign currency conversion services inquiry—Final report Abbreviations and glossary ABS Australian Bureau of Statistics ACCC Australian Competition and Consumer Commission ADI Authorised deposit-taking institution AFSL Australian Financial Services Licence American Express American Express Company AML/CTF Anti-money laundering and counter-terrorism financing AML/CTF Act Anti-Money Laundering and Counter-Terrorism Financing Act 2006 ANZ Australia and New Zealand Banking Group Limited APRA Australian Prudential Regulation Authority ARCPA Australian Remittance and Currency Providers Association ASIC Australian Securities and Investments Commission ATM Automated Teller Machine AUSTRAC Australian Transaction Reports and Analysis Centre Australian banks Australian ADIs that use the term ‘bank’ in relation to their banking business BECS Bulk Electronic Clearing System. BECS manages the exchange and settlement of bulk low-value transactions between participants Benchmark rate An exchange rate, such as the WM/Reuters benchmark rate, which is indicative of the wholesale exchange rate at which financial institutions and central banks trade very large values and volumes of foreign currency Big four banks ANZ, CBA, NAB and Westpac Card issuer An ADI or other financial institution that is responsible for issuing a travel, credit or debit card to the cardholder. The card issuer makes the payment for the cardholder’s purchases and cash withdrawals, provided there are sufcient funds available in the card account to complete the transaction (including funds available under the line of credit in the case of credit cards) CCA Competition and Consumer Act 2010 CFR The Council of Financial Regulators (CFR) is the coordinating body for Australia’s main financial regulatory agencies, which aims to contribute to the efciency and efectiveness of financial regulation and promote financial stability. The CFR’s members include the RBA, APRA, ASIC and the Department of the Treasury 1 Foreign currency conversion services inquiry—Final report Charge card Charge cards are similar to credit cards; however, unlike credit cards which are associated with a revolving line of credit, charge cards require the cardholder to pay their outstanding balance in full at set periods (typically monthly) Commonwealth Bank or Commonwealth Bank of Australia CBA Consumer questionnaire The ‘Foreign exchange—consumer & small business questionnaire’ conducted via the ACCC website from 2 October 2018 to 22 October 2018 Correspondent bank A bank that is part of a correspondent banking network Correspondent banking A fee charged by a correspondent bank for an IMT. The fee may be fee deducted from the amount transferred Correspondent banking An arrangement under which banks operate as agents for each network other to facilitate the transfer of funds from one country to another Credit card A type of payment card that allows the consumer to draw on a line of credit, up to a certain amount, from the card issuer to make purchases or withdraw cash. For the purposes of this inquiry references to credit cards include charge cards Currency conversion fee A fee that is charged when a travel card is used for a transaction in a currency for which there is no value stored on the travel card DCC Dynamic Currency Conversion (DCC) is a service that provides an option for consumers to use their own currency (for example Australian dollars) when making a card payment for an overseas transaction De-banking The practice of an ADI withdrawing banking services from, or refusing to supply banking services to, a customer Debit card A type of payment card that is linked to a consumer’s deposit account and allows the consumer to use their own money when making purchases or withdrawing cash ESA Exchange Settlement Account. An account held at the RBA by financial institutions to settle financial obligations arising from the clearing of payments EU European Union Fees Includes fees, commissions or charges payable by a consumer for an inquiry service. Fees are separate from, and may be payable in addition to, the retail exchange rate applied to the amount of foreign currency being purchased Foreign cash service The supply of foreign cash to a consumer FSG Financial Services Guide. A guide that contains information about the entity providing a consumer with financial advice. It should explain the financial service ofered, the fees charged and how the entity providing the service will deal with complaints FX services Foreign currency conversion services. These are services that involve the exchange of one currency for another at an agreed exchange rate or price 2 Foreign currency conversion services inquiry—Final report IMT International money transfer IMT service The transfer of money from a sender in Australia to an overseas recipient. As part of the service, the money transferred is converted from Australian dollars to the currency of the destination country, or another foreign currency Inquiry services IMT services, foreign cash services, payment card FX services and travel card services Inquiry suppliers ANZ, CBA, NAB, OFX, TransferWise, Travelex, Western Union and Westpac InstaReM InstaReM Pty Ltd International ATM fee A fee applied for withdrawing cash (debit card) or obtaining a cash advance (credit card) at an overseas ATM International card scheme A card payment network that enables cardholders to make transactions in more than one jurisdiction. Examples include American Express, Mastercard and Visa International transaction A fee applied whenever the card issuer and the merchant (or fee the financial institution processing the card transaction for the merchant) are in diferent countries Issues Paper The Inquiry into foreign currency conversion services Issues Paper, published by the ACCC on 2 October 2018 Kiosk operator Supplier of FX services from a physical outlet such as a kiosk or store located in airports or other locations. Some kiosk operators augment their physical outlets with an online service, such as those allowing consumers to order foreign cash online and collect it from a kiosk or store Know Your Customer An AML/CTF obligation that requires businesses to perform (KYC) certain customer identification checks and due diligence for all customers prior to providing any designated service to them Mastercard Mastercard Incorporated Merchant’s acquirer
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