If you are wondering why the cost of sending money to India from Australia is high, you have come to the right place. Considering India is one of the highest recipients of remittances from Australia, one would expect cheaper rates in sending money from Australia to India. Unfortunately, it is not. Have a look at the average cost of remitting from G20 countries.
First, let us understand how expensive is expensive? According to the World Bank Report,
the global average cost of sending money is 6.84%. Now, sending money from Australia costs an average of 7.68%. Although, less than 1% may seem insignificant in absolute terms. In relative terms, Australia is the 4th most expensive country to send money from in the world, just behind South Africa, Japan, and Germany amongst the G20 countries. Now that we have established it is expensive. Let’s understand why is it expensive?
- Regulations: Australia took a global leadership position by creating the Anti-Money Laundering and Counter-Terrorism Financing Act of 2006. This act is administered by the Australian Transaction Reports and Analysis Centre (AUSTRAC) to ensure compliance and reduce perceived risks associated with the remittance sector. The unanticipated consequences of extensive regulation is a rise in remittance cost. Have a look at the infographic below to understand the complexity of the remittance industry.
- Lack of competition: Strict regulation hampers a competitive environment. New entrants are deterred by having to deal with multi-level rules and compliances and incumbents are struggling to remain compliant resulting in closure. This has led the Australian Remittance and Currency Providers Association(ARCPA) to make a submission to the Productivity Commission Inquiry into Competition in the Financial System.
- Duopoly in the Remittance Industry: Western Union and MoneyGram have held a duopoly in the remittance market for a long time. Besides being the oldest MTOs, the ability to hold monopolistic operations are attributed to their extensive networks and brand awareness. It is still one of the best ways to make money transfer to India in case of an emergency because of its speed of delivery. However, monopolistic presence brings with it non-competitive rates and high service fees driving up the cost of remittance.
- Quadropoly in the Banking Industry: Four banks own the majority of the market share in the banking industry in Australia. Namely, Commonwealth Bank of Australia (CBA), Westpac Banking Corporation (Westpac), Australia and New Zealand Banking Group (ANZ), and National Australia Bank (NAB). The popularity also allows for consolidated services. Put differently, anything service involving money is transacted through the banks including remittances. Banks are the most expensive mode of sending money with a global average of 10.49%. There are three main reasons why remitting through banks are expensive when you are converting Australian dollar to Indian rupee:
- Fixed fee - Banks charge a fixed AUD fee for converting AUD to INR and transferring money to India.
- Percentage fee - It is the fee that is charged on the total amount you transfer. It can range from 0.5 % to 2 % or more. So the less you send, the less you pay.
- Exchange rate markups - Banks offer a marked up exchange rate which is higher than the interbank exchange rate. So, the recipient receives less money than you have sent.
Is it expensive to be poor?
The short answer is yes! Let’s dive deeper into how expensive it is being poor. We have compared the cost of sending $200 and $500 using the World Bank data on Remittance Prices Worldwide.
New entrants to the rescue? We see positive shifts in the industry favoring the customers with new entrants entering the remittance market. These fintech disruptors equipped with massive leaps in technological developments are poised to challenge the titans of international payments. Traditional money transfer operators are facing a challenge with newcomers such as TransferWise, Remit2India, and WorldRemit in the remittance industry. Users are now taking advantage of the revolution in remittance by fintech startups, which are offering a cheaper, faster and safer way of sending money to India from Australia. We recommend that you compare all the money transfer service providers before sending money to get the best exchange rates and the best deals that suit you. We have compared the top money transfer companies here.
The volume of remittance reveals that the vast majority of transfers going to developing countries like India, banks, and cash are inevitably the preferred mode of receiving remittances. Due to the lack of proper digital infrastructure and the convenience of having a vast network of access points. However, both cash pickups and bank transfers are expensive payment methods. Here are more ways of receiving money in India.
What is the future of sending money online to India from Australia? Despite the remittance cost, as per the World Bank report, US1.944$ billion was sent to India from Australia in 2018. MTOs typically cost nearly 3% per transaction, such services are by far more cheaper compared to banks, which charge between 12 to 15%. The volume of transactions reveals that few people use MTOs to send remittances from Australia to India. They are safe and secure and most importantly offer the lowest transfer fees, and the best foreign exchange for international money transfer. If you are looking for the cheapest way to send money online from Australia to India, go online! That is the future.