RBA Governor Philip Lowe has called out the high cost of cross-border payments, pinning some of the blame on the big four.
Many people in the South Pacific rely on remittances from family and friends in Australia and New Zealand, but the cost of sending those remittances is higher than usual in Australia.
Governor Lowe said the big four might be playing a part in that, with the high cost and slow speed of international transfers partly due to the inefficiencies in traditional banking processes.
“In nearly every case, the major banks are more expensive than the digital MTOs (money transfer operators),” Governor Lowe said in a speech at the Australian Payments Network Summit on Tuesday.
“For the major banks, the average mark-up over the wholesale exchange rate is around 5½ per cent, versus about 1 per cent for the digital MTOs.”
Governor Lowe said that the inefficiencies had created lucrative opportunities for newer and more agile tech firms.
“Where people are being served poorly by existing arrangements, new solutions are likely to emerge with new technologies,” Governor Lowe said.
“This represents a challenge to the traditional financial institutions to offer better service at a lower cost to their customers, while still meeting their AML/CTF requirements.”
But Governor Lowe didn’t discount the role of central banks, saying that the RBA was working with the Reserve Bank of New Zealand, AUSTRAC, and other South Pacific central banks to develop a regional framework that would improve Know-Your-Customer protocols that have limited competition and kept prices high.