Issue 1 The Pricing Of Foreign Currency Conversion

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Issue 1 – The pricing of foreign currency conversion services(a) what types of foreign currency conversion services your business offers to consumers and smallbusinesses- XE/HiFX/Currency Online provide money transfer services (bank-to-bank, EFT) to consumer andsmall business clients. We do not and have not ever been involved in foreign cash services- Spot and Forward Exchange Contracts (FECs)(b) how many transactions under each type of service your business performed in the last year, and anexplanation of how this has changed over time(c) the factors you take into account when setting the retail exchange rate for each of your foreigncurrency conversion services, including an explanation of the relationship between the retail exchangerate and the wholesale price you pay(d) whether the way that you set retail exchange rates has changed over time and, if so, how- The way we set pricing has been similar to the way other industries set pricing – reacting tothe price compression that occurs with increased competition as well as reflecting the lower cost-toserve as technology enables.(e) the structure and level of fees that you charge for each type of service and why you charge each fee- Under our HiFX and Currency Online (CYOL) brands, we charge transfer fees as applicable:https://www.hifx.com.au/ /media/files/our pxUnder XE, we do not charge transfer fees.

(f) the factors you take into account when setting fees, including underlying costs- Cost of making the transaction via our banking partners(g) whether the number of fees for each service and/or the amount of each fee has changed over timeand, if so, the reasons for this.- As our cost to serve has dropped, so have our transfer fees over time.- Competitive pressures from non-bank providers has also seen a trend towards ‘transaction feefree’ services. This is being generally enabled through non-banks getting better access to traditionalbanking payment corridors.Issue 2 – Costs to supply foreign currency conversion services(a) the nature and level of fixed costs you incur to supply foreign currency conversion services, includingfixed costs that are specific to each type of service and those that are common to all or many services- HiFX/XE/CYOL only provide FX transfer service (no cash transactions or exchanges)- Fixed costs to supply conversion services:- Regulatory and compliance costs- Banking servicing fees- Standard business operation fixed cost (wages, rent etc.)(b) how the structure and level of these fixed costs has changed over time- Regulatory costs have increased substantially over the last decade- Increase in wage costs as general cost of living has increased(c) the nature of the variable costs you incur to supply each type of currency conversion service youoffer

- Variable costs:- Payment and Onboarding client costs depend on volume processed- Compliance related costs to onboard each individual/business(d) for each type of service you offer, the typical or average margin you earn on transactions (and howyou measure the margin)(e) an explanation of how this margin has changed over time, and reasons why it has changed- Margins have compressed slightly over time as competition has increased and cost to serve hasdecreased(f) how the margins earned by suppliers in Australia compare to overseas suppliers, as well as reasonsfor any differences- In our experience FX spreads charged by non-bank providers have been tighter in Australiathan other major western markets i.e. US and UK and tighter than those of mainstream banks(g) the contribution that foreign currency conversion services make to your businesses’ overall profitsand how this has changed over time.- 100% - solely FX focussed company(a) the different types of operating models through which your services are currently being provided inAustralia- We operate a model similar to the banks – purchase FX at wholesale rates (achieved by thevolume of currency we buy annually) and provide retail rates to our clients(b) the differences between these operating models and the cost implications of each- NA(c) the least cost operating models currently used in Australia and why we do not observe more, or evenall, suppliers using them.- Difficult to comment here as the inquiry questions tend to be trying to ascertain if a ‘peer-topeer’ model may be the most cost efficient and/or transparent. We think that this definition needs

thought as the wholesale market in which the banks operate if effectively ‘peer to peer’ in that it is oneparticipant deals with another. Although some companies have suggested they operate a P2P model (assuggested in the inquiry), the ability to execute this to a large market has seen many revert to thetraditional model where a bank is the other side of the transaction not an individual.Issue 3 – The nature and extent of competition between suppliers(a) trends in the demand for each type of foreign currency conversion service in Australia and keydrivers- Demand for smaller FX transactions has increased as people look to live a more global lifestyleand access the global market for their needs. Consumers have also become more aware of the ability touse non-bank companys vs banks to achieve cheaper transfers and access better online and offlineservices.(b) market shares (including how this was calculated or sourced), with a breakdown by type of servicewhere possible- Not Available(c) the identity of suppliers that you regard as your closest competitors and the reasons why, includingwhether this differs by the type of service or by the way that the service is provided (such as onlineservices in comparison to face-to-face or in-branch services)- Major banks, Transferwise, Western Union, OFX, AFEX, AMEX, World First- In the online services for consumer space major banks, Transferwise and OFX are our maincompetition(d) the extent to which the pricing of foreign currency conversion by credit or debit card influences thepricing of i.e. foreign currency transfer services in Australia, and ii. foreign cash in Australia- NA to us currently as we do not provide clients with credit card or debit card payment optionsdue to the large cost passed on by acquirers in this market (normally a % transaction amount). In othermarkets we provide services cards make up a substantial % of the total payments received as thosemarkets acquirers provide a fixed transactional cost of AUD 40-50c vs the 0.4%-1% charged in Australia.This impacts the ability of Australian customers to access a simpler payments solution.(e) the extent to which the pricing of pre-paid travel cards influences the pricing ofi. foreign currency transfer services in Australia, and

ii. foreign cash in Australia-pre-paid travel cards typically charge much higher FX spreads however they do provide thecustomer with ease when it comes to accessing their funds.(a) your observations about the pricing practices of competing suppliers compared to your own- Pricing practices are generally the same across the money transfer sector – retail spread feeif applicable. We are seeing a move to a no fee environment however it is too early to see if that resultsin an increase in spreads to offset this model change.(b) your response to changes in competitive conditions, such as changes in prices charged bycompetitors or the entrance of new competitors. Please provide specific examples, if possible.- Pricing has become tighter across the industry as customer understanding of the FX marketand pricing improves. This is coming at the cost of investment as direct and variable costs are increasingwhich is putting pressure on profitability and investment. There are also several disruptors entering themarket where their initial focus is on client acquisition rather than profitability. We believe this willchange over time but it is too early to tell what impact that may have on the cost for customers.Most participants give customers access to wholesale rates on their websites. Also comparison websites(such as oney-transfer) are making thedifferences between suppliers even easier to assess.Barriers to entry and/or expansion(a) recent examples of entry, expansion and failed entry/expansion, including information on the timeand sunk costs incurred to enter. For failed entry, it would be useful if you could provide details on whythe entry failed-While we have not entered a new market recently, one of the barriers that is obvious as welook to do this is the significantly increase regulatory cost which at times makes theopportunity unappealing(b) the nature and value of the (sunk) costs a prospective new entrant faces to enter the market andhow these are likely to vary for different types of services and operating models- For money transfer operators, the main costs/barriers are outlined in the document (complexregulatory environment and funding and access to payment facilities and wholesale rates).

(c) whether there is a minimum scale of operation required to be competitive and whether this differsbetween operating models and/or types of service- The ability to achieve wholesale rates will depend on volume dealt with banks – thereforesmall operators will be less likely to be able to compete on price initially unless there is substantialfinancial backing.(d) the nature of regulatory obstacles to entry and/or expansion, including whether there are particularregulatory obstacles to providing services in a novel or innovative way.- ASIC requirements are relatively exhaustive and also include large funding requirements (asabove). The increasing need to invest in both people and compliance systems to meet the monitoringrequirements is significant.If so, please provide details (e) the impact of bank ‘de-risking’ on the ability of suppliers to offer foreigncurrency conversion services and/or compete on an equal footing. Bank de-risking refers to a bankrefusing to provide a bank account to a business that they deem as high risk, such as some suppliers offoreign currency transfers.-This is seeing a consolidation of non-bank suppliers. Major banks are unlikely to supportsmall new-comers as they would not have the required capital to invest in best of breed riskand compliance frameworks. There is still a residual risk to larger non-bank providers thatbanks look to secure a larger % of the overall market by making it harder for, or refusing toprovide services to, non-bank providers.Issue 4 – How prices are communicated and factors limiting the ability of consumers to effectivelycompare prices(a) what you may know about how customers behave and make decisions about foreign currencyconversion services, and how this knowledge is reflected in the way you set or communicate prices forforeign currency conversion services- In the money transfer sector we see an increasing awareness of the access to competitivepricing. We constantly are compared to other providers and banks when quoting either online or via thephone. As mentioned earlier, websites such as ney-transfer give clients access to several providers, and their pricing, at once. Recent research thatwe conducted suggested that c. 50% of our clients who received a quote from us, but didn’t trade, went

on to trade with another provider, suggesting that these clients were actively comparing across theindustry.Access to comparison sites like the one mentioned does not always drive the best outcome for thecustomer. These sites are normally affiliated to money transfer providers which can result in morepromotion of the provider offering the best remuneration to the comparison site rather than the bestmoney transfer provider. Sometimes providers feel like they have no option but to participate otherwisethey may miss the opportunity to market their brand to potential clients.(b) how responsive your customers are to changes in price- Our experience is that different client segments react to changes in pricing differently. Smallermore transactional clients will react to a price change more than a customer looking to do a largertransaction or one that they have more time complete their transfer. They may also be looking foradvice and are happy to accept a higher price for that service.(c) how you tailor your service offering to attract customers, apart from price.- In the consumer and small business market, we offer an easy to use online system that helpsclients self-serve, and hence receive a better price.

Issue 1 – The pricing of foreign currency conversion services (a) what types of foreign currency conversion services your business offers to consumers and small businesses - XE/HiFX/Currency Online provide mo