Is there scope for the government to regulate currency exchange businesses?

[Mattg]

It's not rocket science: changing foreign currency at the airport is a rip-off! It seems that in Australian airports, Travelex have a monopoly when it comes to this, and as such exploit customers by charging massive mark-ups on foreign exchange transactions. Yet many people still seem to use them - probably because they have little choice or perhaps they are not aware they are being ripped off.

Let me give you an example: A few months ago I went to New Zealand and didn't have enough time to change any money before I left. So I had a look at the Travelex at Sydney International and the difference between the buy and sell price was more than 30c!! And that's not to mention the extra surcharges and fees.
In my case, I wanted to covert AUD300 to NZD. Travelex offered to give me back around $290 (and they would also charge a credit card surcharge). When I arrived in New Zealand, I went to a regular bank and got back $342! That's a difference of more than $50 and around 15%. If, say, I had wanted to exchange $2000, that would be a difference of almost $300!

Now that's just one example from one day, but it doesn't take a genius to realise that the Travelex outlets in Australian airports are a blatant rip-off. And they get away with it because they have a monopoly - no doubt they pay a lot of money to ensure this is the case. It is a perfect case of the need for competition.

In the short-term loan market, for example, the government places a cap on the amount of interest that can be charged. I believe this is around 42%. This is done so that cash converters and other such businesses cannot unreasonably exploit people who need money and are potentially in a vulnerable situation.

I am a firm believer in a free market, BUT I do not believe in allowing businesses (or anyone) to blatantly exploit or rip-off people who may not know any better, such as tourists visiting our country. Clearly the market has failed in this case, due to a lack of competition or otherwise.

If the government were to intervene, 2 things they could do include:
a) Ensure there is adequate competition in Australian airports, or
b) Put a reasonable limit, e.g. +/- 10% on amount which Forex businesses can deviate from the actual market price.

My question is, do you think there is scope for the government to regulate in this area?

 

[Sprucegoose]

Absolutely not!

Dontcrap on the market, however rogue-ish..

 

[serfty]

...
My question is, do you think there is scope for the government to regulate in this area?

While there is always scope, I doubt they would.

It's little different to walking into a store to buy something without researching - you are almost certain to end up paying a premium on what the same product could be purchased for with a little prior study - even at the same store.

 

[russ]

the difference between the buy and sell price was more than 30c!!

Acutally, I don't know how they do it so cheaply! If you assume they are making the same amount on a buy and a sell, that's only a margin of 15%, which is probably the lowest margin of any store in the airport

 

[ric_melb]

I really do not believe this is an area that requires Government intervention. There are so many organisations offering foreign exchange options that Government would no doubt regard this as sufficient. Admittedly competition at the airport is limited but most travellers would make sure they prepare in advance. In any case there are branches of the ANZ Bank at both Sydney and Melbourne airports where foreign currency can be purchased. As an alternative why not just use an ATM when you get to the destination country.

 

[anat0l]

What serfty essentially said.

Also, if you were to prepare a submission for a regulatory body to investigate this behaviour, citing your example of comparing it to what you would get when you changed at a bank in New Zealand would be incorrect. Clearly the government lacks the power to consider the market dynamics when it crosses boundaries it has little to no control (or jurisdiction) over (notwithstanding the online market).

A better comparison would be Travelex versus other merchants who can provide the same service. For the purposes of your example, it would also have to involve a comparison of other merchants who can provide the same service at the same kind of location (an airport, landside and/or airside) and would be willing to do so. That is, if the airport opened a tender for currency providers and only one merchant stepped up (Travelex), then citing a rip off can hardly be said. The government would be forced to regulate something that may force a merchant into a situation they do not want to participate in, or provide artificial means of providing that (i.e. regulation, subsidies, etc.)

Capitalism, especially with a right government, probably overtakes what may be perceived as "ripping people off", unless it can be proven that the merchant is acting maliciously and/or dishonestly.

Finally, what is "being ripped off" when you're a tourist? If you find a cheaper way to do something, some would automatically associate that as "you got ripped off". On the other hand, if you don't know any better and failed to consider or research that on your part, who has done yourself the deeper injustice?

Being charged a premium at the airport as a tourist because you didn't plan how to get your currency more effectively is not necessarily a "rip off". Being deprived of a handful of cash on a street Three Card Monte is being ripped off, because the "merchant" is beset with malice (i.e. taking your money without provisioning any service); of course, you - as a tourist - may also be charged with naivety and thus "deserving" off your loss too...

 

[Mattg]

Some interesting opinions, and everyone is entitled to one! I generally believe in a free market and capitalism but sometimes the government needs to intervene, e.g. setting a maximum interest rate on cash converters. I know that most people here would know not to change money at the airport but there are many who blindly do so.

What I would like to see here is more competition. As far as I know, Travelex have gone out of their way to ensure there is zero competition and that's how they get away with charging way too much. A free market only works effectively when there is competition and in this case, Travelex could theoretically charge whatever they like with little impact on sales as most people who use them obviously haven't done their research or use them out of convenience, not based on price (or they wouldn't use them!)

I don't know exactly why they have a monopoly, but if the government (or airport owners) could change the situation somehow so that there was adequate competition, that would remove Travelex's monopolistic power and hopefully lower prices. But that's probably the extent of intervention I would hope for.

 

[toowongman]

No. Buyer beware. If you have the capability to travel abroad then you can work out your own forex requirements.

 

[Alanslegal]

It's not rocket science: changing foreign currency at the airport is a rip-off! It seems that in Australian airports, Travelex have a monopoly when it comes to this, and as such exploit customers by charging massive mark-ups on foreign exchange transactions. Yet many people still seem to use them - probably because they have little choice or perhaps they are not aware they are being ripped off.

And some people will know they are getting ripped off but will pay for the convenience.

 

[dk4]

Consider the situation like a bottle of cola...
Buy it at a petrol station or 24hour convenience store, and you could pay over twice the price versus buying when it's on special, off-the-shelf at a supermarket. As Alanslegal says, at the airport you are unfortunately paying for the convenience (and having to cover the outrageously high rental charges the airport probably charges the business owner).

 

[yohy?!]

have not used a forex for years - my atm card is all the forex I need (unless of course going somewhere with no atms - which isn't often!)

 

[carwashhair]

I don't know exactly why they have a monopoly, but if the government (or airport owners) could change the situation somehow so that there was adequate competition, that would remove Travelex's monopolistic power and hopefully lower prices.[/QUOTE]

When you've got a monopoly within a monopoly and all is cosy, you've got little incentive for either party to change. Government intervention is unlikely given the airport monopoly genie escaped a good decade ago now...

 

[Melburnian1]

Travellers can change their cash at CBD banks or bureaux de change and can also use credit cards overseas.

That said, in relation to airports generally, about a decade ago, Australia Post discontinued its post office at Melbourne Airport, stating that the retail rents charged by airport lessee APAC were the highest of any Australia Post leased site in Australia.

I do not agree with more government regulation and am generally in favour of privatisation, but the majority of the community would observe that airport privatisation has been an absolute 'gift' to the airport lessees with both consumers (travellers) and airlines arguably suffering.

The airport lessees will doubtless reply 'oh but look at all the capital improvements we've made' to which I would draw others' attention to the massive margins that these lessees make on car parking (and presumably on retail space as well as aircraft parking charges).

It's a rare example of where the community may have been better off had these airports been left in Government hands, although governments may have been short of capital for improvements and would have a tendency to employ excessive numbers of staff.