Why does it cost so much money to transfer money from Australia to Bangladesh?
I live in Bangladesh and one of the most popular topics of conversation amongst foreigners is the cost of transferring money into Bangladesh. I hear frequently “what a great deal I got..” No fee or commission on the transaction, or they only charged me $10 fee for the transaction. Unfortunately, this isn’t the whole story…
Typically Australian banks and large transfer agents, like Western Union, charge far higher amounts for a money transfer to Bangladesh than other countries. This is due to a large number of factors, but primarily due to lack of competition and smaller demand compared to AUD/USD or EUR/USD.
Typically the Australian banks and transfers agents will charge 8% to 40% of the money transferred, in fees and charges and Foreign Exchange Rate (“FX”) spreads. For a small $100 transfer, $40 in revenue can be made by the transfer agent through fees and charges and bad FX rates. Even for larger amounts like AUD $10,000, it is not unusual to have almost $800 in revenue for the transfer agent or bank for making the transfer.
The World Bank has a 5x5 goal[1] of all international money transfer costs being only 5% of amount transferred over the next five years. Unfortunately, for money transfers to Bangladesh we are in many cases, a long way away from that today.
How do we calculate these charges?
To a bank or money transfer agent, there are two sources of making money from a transfer. Firstly, fees and charges and secondly from the FX rate .
Why do banks and other transfer agents charge fees?
For many reasons, but primarily as a method to recoup costs or make more profit. For recouping costs these include:
· swift charges (more on swift next week.. but it’s the main transfer network for banks to move money around the world.)
· charges for processing a transaction, such as IT costs, people costs, administration costs, etc..
However, we find none of the reasons compelling for higher charges. The main reason is market driven. If there is no real competition, the existing banks and transfer agents can charge high fees or commissions. It is easy profit for the banks and transfer agents against a captive audience with little choice.
That is only part of the story: the real cost of your transaction is the FX rate.
Lets start with the basics to explain why the banks and transfer agents make so much revenue from the FX rate. An FX rate is the rate a bank or money changer will charge you to exchange one currency for another. If you were sending $1,000 AUD from Australia to Bangladesh, the exchange rate can greatly affect how much BDT you end up receiving. Sure this is common sense, but let me explain.
In September 2018, if you exchange $1,000 AUD with a:
· Money Changer in Australia you would currently get a rate of 59.8 BDT or 59,800 BDT in total.
· Bangladeshi Bank - AUD FX rate of 57.0 or 57,000 BDT.
· Australian bank a rate of 52 or 52,000 BDT.
· Large online Money Transfer Agent a rate of 53 or ending up with 53,000 BDT.
So worrying about a small fee or charge is missing the point. The first thing you need to be worried about is the FX exchange rate. Are you getting the best rate so you get the most BDT in Bangladesh?
Of course there are large differences between what a bank can offer, versus a money changer and please refer to our earlier blog for more details on these differences: Money Transfer from Australia to Bangladesh.
So the moral of the story , is low fees and commissions are important, but it’s more important to compare FX rates. This is where you can ensure you receive the most money in Bangladesh.
Money Transfer from Australia to Bangladesh
There are thousands of Thai’s and Australians who transfer money from Australia to Bangladesh on a daily basis. There are many methods to transfer money and we have tried to summarise these below and their advantages and disadvantages. The typical channels used today:
1. Money Changers - there are many money changers, especially in Chinatown Sydney. They generally will accept AUD cash at their shop or AUD deposits directly into their Australian bank accounts. They will then arrange for your beneficiary to be paid in Bangladesh, mainly into a Thai bank account. You may have wondered how does your money actually get to Bangladesh. Generally these money changers will transfer your money to Bangladesh in a bulk transfer (with all their other customers transfers.) via the Australian banking and SWIFT networks. They charge little or no commission and the exchange rate is usually pretty attractive. The downsides are they don’t transfer larger amounts, typically AUD9,000 is the maximum and to get same day transfer you need to have the money in their accounts by around lunchtime. Any later and the money will reach your Thai beneficiary the next day. The majority of the money changers are regulated by Australian authorities, but typically have no licence to operate in Bangladesh.
2. The Informal network - typically this is via a middleman in Australia who you transfer Australian Dollars to in Australia and then they arrange through their associates or friends in Bangladesh to transfer BDT to your beneficiary. These sort of network have been around for many hundreds of years Bangladesh. You need to be especially careful as many of these informal methods are now illegal under Australian domestic and international legislation. It si important you check whether they have the right license to operate, especially in Australia.
3. Online Money Transfer - there are many companies and people on the Internet and Facebook who offer money transfer capability from Australia to Bangladesh. Be very careful. You need to ask some simple questions to make sure your money is safe. Are they are legitimate company?, are they registered or licensed by the Australian Government or Bank of Bangladesh?
If they do have the proper licenses, many of these online companies will require you to deposit AUD directly into their bank account. Like the money changers, once they receive the funds then they will do a bulk transfer to to their bank in Bangladesh and then make your payment in Bangladesh. They generally offer attractive rates and either no fees or commissions, but usually only allow transfers of up to AUD9,000.
4. Large Remittance Agents: There are two giants in this space, Western Union and Moneygram. Both offer immediate and convenient money transfer from Australia to Bangladesh, but this convenience will generally come at a cost. Higher fees or commission that other methods and the exchange rate will be less attractive. Also they really focus on smaller amounts and they don’t allow large amount of transfers over AUD10,000 to 12,000 per transfer. The advantage is the person you are sending money to in Bangladesh can collect that money immediately.
3. Australian Retail Banks: The large banks offer transfers via traditional banking network SWIFT to Bangladesh. The banks are the most regulated and arguably the most secure method of transferring money to Bangladesh. The transfer can be done online or at the bank branch also making it very convenient, but this generally comes at a cost. Higher commission than other transfer methods and watch the exchange rates. They are generally for retail customers not as good as other channels.
Overall, what to be careful of when making a money transfer from Australia to Bangladesh:
1. Is the company you are using for transfer registered by the Australian Government and the Bank of Bangladesh? They should be regulated by Austrac in Australia - you can search using this link in the Austrac website:
https://online.austrac.gov.au/ao/public/rsregister.seam.
2. Cost of Money Transfer: Remember the cost to you is not only the commission, but also the the exchange rate rate. Often many of us only look at the commission, while a bad exchange rate can eat even more into your transfer amount, resulting in even less BDT arriving in Bangladesh.
3. Why are there limits of AUD9,000 on many money transfers? The main reason is that these companies want to avoid having to report your transaction to the Australian authorities. The Australian authorities have comprehensive regulations in place to check for Money Laundering and Counter Terrorism Financing under the Anti Money laundering and Counter Terrorism Financing Act 2006 (Cth). which among other things, requires all transfers over AUD10,000 to be reported to Austrac.
Overall, there are a range of choices to send money from Australia to Bangladesh. It is most important to check the cost of the transfer. Not only the commission and but also the AUD/BDT rates. Apart from the cost of the transfer the most important thing to check is my money going to be safe? Is the company I am using regulated by the Australian Government or Thai Governments?
I hope this article helps shed some light on popular money transfer methods from Australia. Watch this space for more blogs. Next week on : Why does the exchange matter? What is the commission for a money transfer?
